The Calcutta High Court has dismissed an appeal filed by the Income Tax Department against Bhawani Construction Pvt. Ltd., holding that no substantial question of law arose from the Income Tax Appellate Tribunal’s (ITAT) decision deleting an addition of ₹6.75 crore made under Section 68 of the Income Tax Act, 1961.
The bench of Justice Rajarshi Bharadwaj and Justice Uday Kumar upheld the concurrent findings of the Commissioner of Income Tax (Appeals) [CIT(A)] and the ITAT that the assessee had successfully established the identity and creditworthiness of the investor as well as the genuineness of the share capital transaction.
The dispute arose from an assessment order in which the Assessing Officer (AO) had made an addition of ₹6.75 crore under Section 68, alleging that the assessee had failed to prove the identity and creditworthiness of the creditor and the genuineness of the share application money received. The Department argued that the ITAT had erred in deleting the addition despite the alleged deficiencies in the assessee’s evidence.
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The assessee, however, contended that all statutory requirements under Section 68 had been fully complied with and that the investor company had sufficient financial credentials to justify the investment.
The High Court extensively referred to the ITAT’s order dated January 17, 2025, which had affirmed the relief granted by the CIT(A).
The Tribunal observed that the share applicant company was a regularly assessed income-tax assessee. A Non-Banking Financial Company (NBFC) holding a valid licence from the Reserve Bank of India. Maintaining audited financial statements. Regularly filing income tax returns. Neither a fictitious entity nor a benami concern. Not identified as a paper company by any wing of the Income Tax Department.
The Tribunal further noted that the share applicant’s earlier assessments had been accepted by the Department and that audited financial statements and tax records had been produced before the authorities.
During remand proceedings, the Director of both the assessee company and the investor company appeared before the Assessing Officer and gave statements on oath under Section 131 of the Income Tax Act.
The AO also examined the source of funds received by Samsung Estates Pvt. Ltd., the investing company, from fourteen separate entities. The record showed that extensive supporting documentation—including income tax returns, computation statements, balance sheets, profit and loss accounts, Registrar of Companies (ROC) records, and statements recorded on oath—had been produced for several contributors.
The Tribunal found that these materials substantially established the identity and financial capacity of the investor and supported the genuineness of the transaction.
The Tribunal also agreed with the CIT(A)’s three principal findings no fresh funds had been infused into the investing company after FY 2008-09, weakening the Department’s allegation that unaccounted money had been routed through share capital. Earlier assessments had already accepted the infusion of funds into the investing company during FY 2008-09. Investments and subsequent reinvestments had already been accepted by the Department in earlier assessment years, while the Assessing Officer had failed to produce any fresh documentary evidence contradicting those findings.
The Tribunal further observed that merely because funds moved through various entities and were invested within a short time could not, by itself, establish that the share capital transactions were bogus.
The CIT(A), whose reasoning was endorsed by the Tribunal, held that the assessee had produced all three essential ingredients required under Section 68: Identity of the investor, Creditworthiness of the investor, and Genuineness of the transaction.
Once these were established, the burden shifted to the Assessing Officer to rebut the evidence with cogent material. The appellate authorities found that the AO had failed to bring any convincing evidence on record to discredit the documents and explanations furnished by the assessee. Consequently, the addition of ₹6.75 crore was deleted.
After examining the Tribunal’s order and the assessment records, the Division Bench concluded that the findings recorded by the appellate authorities were based on appreciation of evidence and did not give rise to any substantial question of law warranting interference under Section 260A of the Income Tax Act.
Accordingly, the Court dismissed the department’s appeal as well as the connected application, thereby affirming the deletion of the Section 68 addition.
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