‘Cast Iron’ Documentary Evidence of Identity and Banking Flow Discharges Onus: Calcutta HC Upholds ITAT Deletion u/s 68 [Read Order]
The Court agreed that the findings of ITAT were based on a sound appreciation of facts and settled legal principles, finding no perversity in the ruling
The Calcutta High Court has dismissed the Revenue’s appeal challenging the deletion of an addition of Rs. 7,26,50,000/- made under Section 68 of the Income Tax Act, 1961 on account of unexplained share capital and share premium. The Bench held that once the assessee produces “Cast Iron” documentary evidence, the initial statutory onus stands discharged.
The Principal Commissioner of Income Tax-2, Kolkata had filed the appeal against M/s Express Tradelink Pvt. Ltd., against the order dated February 8, 2024 passed by the Income Tax Appellate TribunalBench of Kolkata in the Assessment Year 2009-10. The Tribunal had deleted the addition of Rs. 7,26,50,000/- made by the Assessing Officer under Section 68 of the Act.
The Division Bench comprising Justice Rajarshi Bharadwaj and Justice Uday Kumar observed that the focal point of the Revenue’s grievance was the alleged failure of the Tribunal to appreciate the “Test of Human Probability.” The Revenue contended that the nine subscriber companies declared meagre income against the high share premium paid.
The Court reiterated once the assessee offers a reasonable explanation supported by “Cast Iron” documentary evidence of identity and banking flow, the initial statutory onus stands discharged and the burden shifts to the Revenue. The Assessing Officer cannot brush aside audited balance sheets and PAN details as “paper compliance” without bringing on record contrary evidence.
On the issue of non-appearance of directors, the Bench held that personal appearance is not a statutory substitute for documented financial traceability. Suspicion, however strong, cannot replace evidence.
Distinguishing the decision in PCIT vs. NRA Iron & Steel (P) Ltd., the Court observed that the said case dealt with “phantom” entities where notices were returned unserved. In the present case, the investors were traceable taxpayers. Equating “traceable investors” with “phantom entities” was found to be unjust.
The Court further held that for Assessment Year 2009-10, the “Source of Source” doctrine was inapplicable as the proviso to Section 68 introduced by the Finance Act, 2012 is prospective. The Tribunal had recorded that the subscribers possessed substantial Net Worth (Reserves and Surplus) far exceeding the investment amounts, satisfying the creditworthiness test.
The Bench also opined that expressions such as “money laundering” or “round-tripping” cannot be used casually without corroborative evidence establishing a clear nexus.
As a result, the High Court dismissed the appeal as well as the connected stay application.
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