How far do I have to go to prove share capital or a loan is genuine?
Further than many assumed. Reported as tightening what a company must establish about share capital and premium — identity alone is not enough; creditworthiness and genuineness have to be shown too.
Decided by the Supreme Court (Uday Umesh Lalit J and Indu Malhotra J) on 2019-03-05, reported as [2019] 412 ITR 161 (SC); [2019] 262 Taxman 74 (SC); [2019] 103 taxmann.com 48 (SC); Civil Appeal No. 2463 of 2019. It bears on section 68, section 148 of the Income Tax Act 1961, in Cash Credits & Unexplained Money matters.
This is the department's leading authority on s.68 additions. It is on this site as a warning, not as ammunition — build the evidence file assuming this standard applies.
Binding on every court and authority in India.
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For assessment year 2009-10 the assessee company filed a return on 29 September 2009 declaring income of Rs 7,01,870. The assessment was reopened by a notice under s.148 on 13 April 2012; objections were rejected on 13 August 2012 and a show cause notice issued on 13 January 2014. The return showed Rs 17,60,00,000 received as share capital and premium from nineteen companies - six based at Mumbai, eleven at Kolkata and two at Guwahati - shares of Rs 10 face value being subscribed at a premium of Rs 190 per share (paras 3.1 to 3.3, 12). Field enquiry by the Assessing Officer found that Hema Trading Co. Pvt. Ltd. and Eternity Multi Trade Pvt. Ltd. at Mumbai and Ispat Sheets Ltd. and Novelty Traders Ltd. at Guwahati did not exist at the addresses given; the Kolkata companies did not appear before the Assessing Officer or produce bank statements; and several investors had returned negligible income - Neha Cassettes Pvt. Ltd. Rs 9,744, Ganga Builders Ltd. Rs 5,850 and Warner Multimedia Ltd. a nil return - while subscribing Rs 90 lakh to Rs 95 lakh each (para 12). The Assessing Officer added the whole amount under s.68. The Commissioner (Appeals), the Tribunal and the Delhi High Court all set the addition aside.
The Revenue's appeal was allowed. The judgments of the Delhi High Court, the Tribunal and the Commissioner (Appeals) were set aside and the Assessing Officer's order was restored (para 16). Where share capital or premium is credited in the assessee's books, the assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors and the creditworthiness of the investors - who must have the financial capacity to make the investment in question - to the satisfaction of the Assessing Officer, so as to discharge the primary onus; the Assessing Officer is in turn duty bound to investigate creditworthiness, verify identity and ascertain whether the entries are those of name-lenders; and if enquiry shows the creditors to be dubious or lacking creditworthiness, the genuineness of the transaction is not established and the primary onus is not discharged (para 11). On these facts the assessee had failed to discharge that onus and the addition was justified (paras 13 to 15).
The Court set out the emerging principles at para 11 and then applied them to the field enquiry the Assessing Officer had actually conducted (para 12). It held that the lower appellate authorities had ignored those findings and had wrongly treated the filing of primary evidence as itself discharging the onus, without asking how investors returning meagre or nil income could have invested such sums, and without adverting at all to the enquiry that found several investor companies non-existent (para 13). The mere mention of an investor's income tax file number was held insufficient to discharge the onus under s.68 (para 12(v)). The Court then stated that the practice of converting unaccounted money through the cloak of share capital and premium must be subjected to careful scrutiny, particularly on a private placement of shares, where a higher onus lies on the assessee because the information is within its personal knowledge (para 14). The survey of authority at para 10 is a review of earlier decisions rather than fresh holdings: Sumati Dayal and P. Mohankala on the operation of s.68, Roshan Di Hatti on the initial onus, the Gauhati High Court in Nemi Chand Kothari for the proposition that a transaction by cheque is not invariably sacrosanct, and N.R. Portfolio for the factors bearing on creditworthiness.
The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny.
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Handle my notice → Ask a CA on WhatsAppFurther than many assumed. Reported as tightening what a company must establish about share capital and premium — identity alone is not enough; creditworthiness and genuineness have to be shown too. This was decided by the Supreme Court (Uday Umesh Lalit J and Indu Malhotra J) and bears on section 68, section 148 of the Income Tax Act 1961. It is reported as [2019] 412 ITR 161 (SC); [2019] 262 Taxman 74 (SC); [2019] 103 taxmann.com 48 (SC); Civil Appeal No. 2463 of 2019. This is the department's leading authority on s.68 additions. It is on this site as a warning, not as ammunition — build the evidence file assuming this standard applies. If it applies to you, the first step is this: For every credit: identity proof, financial capacity of the payer, and banking trail.
For assessment year 2009-10 the assessee company filed a return on 29 September 2009 declaring income of Rs 7,01,870. The assessment was reopened by a notice under s.148 on 13 April 2012; objections were rejected on 13 August 2012 and a show cause notice issued on 13 January 2014. The return showed Rs 17,60,00,000 received as share capital and premium from nineteen companies - six based at Mumbai, eleven at Kolkata and two at Guwahati - shares of Rs 10 face value being subscribed at a premium of Rs 190 per share (paras 3.1 to 3.3, 12). Field enquiry by the Assessing Officer found that Hema Trading Co. Pvt. Ltd. and Eternity Multi Trade Pvt. Ltd. at Mumbai and Ispat Sheets Ltd. and Novelty Traders Ltd. at Guwahati did not exist at the addresses given; the Kolkata companies did not appear before the Assessing Officer or produce bank statements; and several investors had returned negligible income - Neha Cassettes Pvt. Ltd. Rs 9,744, Ganga Builders Ltd. Rs 5,850 and Warner Multimedia Ltd. a nil return - while subscribing Rs 90 lakh to Rs 95 lakh each (para 12). The Assessing Officer added the whole amount under s.68. The Commissioner (Appeals), the Tribunal and the Delhi High Court all set the addition aside. The matter was decided on 2019-03-05 by the Supreme Court (Uday Umesh Lalit J and Indu Malhotra J). On those facts the Supreme Court held as follows. The Revenue's appeal was allowed. The judgments of the Delhi High Court, the Tribunal and the Commissioner (Appeals) were set aside and the Assessing Officer's order was restored (para 16). Where share capital or premium is credited in the assessee's books, the assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors and the creditworthiness of the investors - who must have the financial capacity to make the investment in question - to the satisfaction of the Assessing Officer, so as to discharge the primary onus; the Assessing Officer is in turn duty bound to investigate creditworthiness, verify identity and ascertain whether the entries are those of name-lenders; and if enquiry shows the creditors to be dubious or lacking creditworthiness, the genuineness of the transaction is not established and the primary onus is not discharged (para 11). On these facts the assessee had failed to discharge that onus and the addition was justified (paras 13 to 15).
The Court set out the emerging principles at para 11 and then applied them to the field enquiry the Assessing Officer had actually conducted (para 12). It held that the lower appellate authorities had ignored those findings and had wrongly treated the filing of primary evidence as itself discharging the onus, without asking how investors returning meagre or nil income could have invested such sums, and without adverting at all to the enquiry that found several investor companies non-existent (para 13). The mere mention of an investor's income tax file number was held insufficient to discharge the onus under s.68 (para 12(v)). The Court then stated that the practice of converting unaccounted money through the cloak of share capital and premium must be subjected to careful scrutiny, particularly on a private placement of shares, where a higher onus lies on the assessee because the information is within its personal knowledge (para 14). The survey of authority at para 10 is a review of earlier decisions rather than fresh holdings: Sumati Dayal and P. Mohankala on the operation of s.68, Roshan Di Hatti on the initial onus, the Gauhati High Court in Nemi Chand Kothari for the proposition that a transaction by cheque is not invariably sacrosanct, and N.R. Portfolio for the factors bearing on creditworthiness. In the words reproduced by the source cited on this page: "The practice of conversion of un-accounted money through the cloak of Share Capital/Premium must be subjected to careful scrutiny."
It was decided by the Supreme Court on 2019-03-05 and is reported as [2019] 412 ITR 161 (SC); [2019] 262 Taxman 74 (SC); [2019] 103 taxmann.com 48 (SC); Civil Appeal No. 2463 of 2019. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 68, section 148, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The Revenue's appeal was allowed. The judgments of the Delhi High Court, the Tribunal and the Commissioner (Appeals) were set aside and the Assessing Officer's order was restored (para 16). Where share capital or premium is credited in the assessee's books, the assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors and the creditworthiness of the investors - who must have the financial capacity to make the investment in question - to the satisfaction of the Assessing Officer, so as to discharge the primary onus; the Assessing Officer is in turn duty bound to investigate creditworthiness, verify identity and ascertain whether the entries are those of name-lenders; and if enquiry shows the creditors to be dubious or lacking creditworthiness, the genuineness of the transaction is not established and the primary onus is not discharged (para 11). On these facts the assessee had failed to discharge that onus and the addition was justified (paras 13 to 15). It arises in Cash Credits & Unexplained Money matters, on section 68, section 148 of the Income Tax Act 1961, and was decided by Uday Umesh Lalit J and Indu Malhotra J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Bank statements of the payer showing the source of the funds — not just of the receipt. Do not rely on PAN and a return copy alone.
Still good law. The report carries a citator banner recording that this decision is affirmed by NRA Iron and Steel (P.) Ltd. v. Pr. CIT [2020] 117 taxmann.com 752 / 273 Taxman 14 (SC), the order of 4 February 2020 by which the same two-judge Bench dismissed the review petition, rejected the application for an open court oral hearing, and recorded that it found no substance in the submissions raised. An earlier attempt to have the ex parte judgment recalled was also dismissed, by the order reported at [2019] 110 taxmann.com 491 (SC) dated 25 October 2019. The judgment therefore stands as delivered. Because that later treatment is by the same Bench in the same proceeding rather than by a later Court applying the ratio, it confirms the judgment's standing but does not add independent authority. Section 68 becomes s.102 of the Income-tax Act 2025 from 1 April 2026. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Read alongside Lovely Exports and Ami Industries - the three together mark where the s.68 standard sits. The decision turned on the Assessing Officer having actually conducted a field enquiry that produced findings the appellate authorities ignored (paras 12 and 13); Ami Industries distinguishes it on exactly that ground. Note also that this was a reassessment under s.148 for assessment year 2009-10, and that the Supreme Court restored the assessment order rather than remanding. The judgment is internally inconsistent on the year: para 3.1 states the case pertains to assessment year 2009-10, while para 3.3 describes the share capital as received during 'the Financial Year 2009-10'. Cite the assessment year, which the Court used throughout and which paras 12 and 15 confirm. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeal was allowed. The judgments of the Delhi High Court, the Tribunal and the Commissioner (Appeals) were set aside and the Assessing Officer's order was restored (para 16). Where share capital or premium is credited in the assessee's books, the assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors and the creditworthiness of the investors - who must have the financial capacity to make the investment in question - to the satisfaction of the Assessing Officer, so as to discharge the primary onus; the Assessing Officer is in turn duty bound to investigate creditworthiness, verify identity and ascertain whether the entries are those of name-lenders; and if enquiry shows the creditors to be dubious or lacking creditworthiness, the genuineness of the transaction is not established and the primary onus is not discharged (para 11). On these facts the assessee had failed to discharge that onus and the addition was justified (paras 13 to 15).
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