Holding

The Court held that where the assessee fails to prove the identity, credit‑worthiness and genuineness of share‑capital or premium credits, the assessing officer is justified in adding the amount back to income under Section 68 of the Income‑Tax Act.

Summary

The assessee, NRA Iron & Steel Pvt. Ltd., claimed receipt of Rs 17.6 crore as share capital/premium from various companies in AY 2009‑10. The Assessing Officer questioned the genuineness of the transaction and issued notices, but the investor companies did not appear and field enquiries revealed many were non‑existent or lacked credit‑worthiness. The assessee submitted bank‑cheque copies and PAN details, but could not explain the high premium of Rs 190 per share or the source of funds. The AO added the amount back to income under Section 68, a decision affirmed by the ITAT and the Delhi High Court. On appeal, the Supreme Court held that the onus on the assessee to prove identity, capacity and genuineness of the investors was not discharged, and therefore the addition was justified. The Court allowed the revenue’s appeal and restored the AO’s order.

Issues considered

The assessee’s burden to prove the identity, credit‑worthiness and genuineness of share‑capital or premium credits under Section 68 of the Income‑Tax Act.
Whether the Assessing Officer’s field enquiries and the lack of satisfactory explanation by the assessee discharge the primary onus under Section 68.
Whether the addition of the credited amount to income is justified when the investor companies are non‑existent or lack financial capacity.

Legislation cited

Income Tax Act, 1961s. 68

Subjects

Section 68share capitalshare premiumgenuineness of transactioncredit‑worthinessidentity of creditorsincome taxassessment yearprivate placementadd backtax avoidance

Judgment

[2019] 4 S.C.R. 163 163

PRINCIPAL COMMISSIONER OF INCOME A
TAX (CENTRAL) - I
v.
NRA IRON & STEEL PVT. LTD.
(Civil Appeal No. 2463 of 2019) B
MARCH 05, 2019
[UDAY UMESH LALIT AND INDU MALHOTRA, JJ.]
Income Tax Act, 1961 – s.68 – Cash credits – Money received
through Share Capital/Premium from various companies – Assessing C
Officer (A.O.) issued show cause notice to respondent-assessee to
establish the genuineness of the transaction – Assessee inter alia
submitted that the entire Share Capital was received through normal
banking channels by account payee cheques/demand drafts, and
produced documents such as income tax return acknowledgments
to establish the identity and genuineness of the transaction – A.O. D
issued summons to the representatives of the investor companies –
None appeared on behalf of any of the investor companies – A.O.
independently got field enquiries conducted with respect to the
identity and credit-worthiness of the investor companies – Enquiries
were made at Mumbai, Kolkatta, and Guwahati where these E
Companies were stated to be situated – On the basis of the enquiries
conducted, A.O. held that the assessee had failed to prove the
genuineness of the transaction – On appeal, held: The assessee is
under a legal obligation to prove the genuineness of the transaction,
the identity of the creditors, and credit-worthiness of the investors
who should have the financial capacity to make the investment in F
question, to the satisfaction of the A.O., so as to discharge the
primary onus – If the enquiries and investigations reveal the identity
of the creditors to be dubious or doubtful, or lack credit-worthiness,
then the genuineness of the transaction would not be established –
In such a case, the primary onus contemplated by s.68 of the Act is G
not discharged – In the instant case, the survey conducted by A.O.
revealed that some of the investor companies were non-existent,
and had no office at the address mentioned by the assessee – The
companies at Kolkatta did not appear before the A.O., nor did they
produce their bank statements to substantiate the source of the funds
H
163
164 SUPREME COURT REPORTS [2019] 4 S.C.R.

A from which the alleged investments were made – Also, there was no
explanation whatsoever offered as to why the investor companies
had applied for shares of the assessee Company at a high premium
of Rs. 190 per share, even though the face value of the share was
Rs. 10/- per share – Furthermore, none of the so-called investor
companies established the source of funds from which the high share
B
premium was invested – Assessee failed to discharge the onus
required under s.68 – Therefore, A.O. was justified in adding back
the amounts to the assessee’s income.
Allowing the appeal, the Court
C HELD: 1. The use of the words “any sum found credited
in the books” in Section 68 of the I.T. Act (prior to the Finance
Act, 2012) indicates that the section is widely worded, and
includes investments made by the introduction of share capital
or share premium. As per settled law, the initial onus is on the
Assessee to establish by cogent evidence the genuineness of
D the transaction, and credit-worthiness of the investors under
Section 68 of the Act. The assessee is expected to establish to
the satisfaction of the Assessing Officer, the proof of identity of
the creditors; capacity of creditors to advance money; and
genuineness of transaction. With respect to the issue of
E genuineness of transaction, it is for the assessee to prove by
cogent and credible evidence, that the investments made in share
capital are genuine borrowings, since the facts are exclusively
within the assessee’s knowledge. [Paras 8.1, 8.2 and 8.3]
[176-C-E; 177-A]

F Kale Khan Mohammad Hanif v. CIT (1963) 50 ITR
1(SC); Roshan Di Hatti v. CIT (1977) 107 ITR (SC) –
affirmed.
CIT v. Precision Finance Pvt. Ltd. (1994) 208 ITR 465
(Cal); CIT v. Oasis Hospitalities Pvt. Ltd. 333 ITR 119
G (Delhi) (2011); Shankar Ghosh v. ITO (1985) 23 TTJ
(Cal.); CIT v. Kamdhenu Steel & Alloys Limited and
Other (2012) 206 Taxman 254 (Delhi) – approved.
2. In the instant case, the Assessing Officer made an
independent and detailed enquiry, including survey of the so-called
investor companies from Mumbai, Kolkata and Guwahati to verify
H
PRINCIPAL COMM OF IT (CENT) - I v. NRA IRON & STEEL 165
PVT. LTD.

the credit-worthiness of the parties, the source of funds invested, A
and the genuineness of the transactions. The field reports
revealed that the share-holders were either non-existent, or
lacked credit-worthiness. The A.O. had conducted detailed
enquiry which revealed that there was no material to prove that
the share application money was received from independent legal
B
entities. The survey revealed that some of the investor companies
were non-existent, and had no office at the address mentioned
by the assessee. The companies at Kolkatta did not appear before
the A.O., nor did they produce their bank statements to
substantiate the source of the funds from which the alleged
investments were made. The two companies at Guwahati were C
found to be non-existent at the address provided. The
genuineness of the transaction was found to be completely
doubtful. The enquiries revealed that the investor companies had
filed returns for a negligible taxable income, which would show
that the investors did not have the financial capacity to invest
D
funds ranging between Rs. 90,00,000 to Rs. 95,00,000 in the A.Y
2009-10, for purchase of shares at such a high premium. There
was no explanation whatsoever offered as to why the investor
companies had applied for shares of the Assessee Company at a
high premium of Rs. 190 per share, even though the face value
of the share was Rs. 10/- per share. Furthermore, none of the E
so-called investor companies established the source of funds from
which the high share premium was invested. The mere mention
of the income tax file number of an investor was not sufficient to
discharge the onus under Section 68 of the Act. The entire
transaction seemed bogus, and lacked credibility. The practice
F
of conversion of un-accounted money through the cloak of Share
Capital/Premium must be subjected to careful scrutiny. This would
be particularly so in the case of private placement of shares, where
a higher onus is required to be placed on the Assessee since the
information is within the personal knowledge of the Assessee.
[Paras 9, 12 and 14][178-A, B; 180-F-H, 181-A-D, F-H, G
182-C-E]
Sumati Dayal v.CIT [1995] 214 ITR 801 (SC); CIT v.
P. Mohankala 291 ITR 278; PR.CIT -6, New Delhi v.
NDR Promoters Pvt. Ltd. 410 ITR 379; Roshan Di Hatti
v. CIT (1992) 2 SCC 378; Nemi Chand Kothari v. CIT H
166 SUPREME COURT REPORTS [2019] 4 S.C.R.

A [2003] 264 ITR 254 (Gau.); CIT v. Divine Leasing &
Financing Ltd. (2007) 158 Taxman 440; CIT v. Value
Capital Service (P) Ltd. (2008) 307 ITR 334 – relied
on.
CIT v. Lovely Exports Pvt. Ltd (2008) 299 ITR 268
B (Delhi) – referred to.
Case Law Reference
(2008) 299 ITR 268 (Delhi) referred to Para 4
(1994) 208 ITR 465 (Cal) approved Para 8.2
(1963) 50 ITR 1(SC) affirmed Para 8.2
C
(1977) 107 ITR (SC) affirmed Para 8.2
333 ITR 119 (Delhi) (2011) approved Para 8.3
(1985) 23 TTJ (Cal.) approved Para 8.3
(2012) 206 Taxman 254 (Delhi) approved Para 8.4
D [1995] 214 ITR 801 (SC) relied on Para 10 (i)
291 ITR 278 relied on Para 10 (i)
410 ITR 379 relied on Para 10 (iii)
(1992) 2 SCC 378 relied on Para 10 (iv)
E [2003] 264 ITR 254 (Gau.) relied on Para 10 (v)
(2007) 158 Taxman 440 relied on Para 10 (vii)
(2008) 307 ITR 334 relied on Para 10 (vii)
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2463
of 2019.
F
From the Judgment and Order dated 26.02.2018 of the High
Court of Delhi at New Delhi in ITA No. 244 of 2018.
A. N. S. Nadkarni, ASG, Ms. Praveenha Gautam, Rupesh
Kumar, Mrs. Anil Katiyar, Advs. for the Appellant.
G The Judgment of the Court was delivered by
INDU MALHOTRA, J. Leave granted.
1. The present appeal arises out of the Judgment and Order dated
26.02.2018 passed by a division bench of the Delhi High Court in Income
Tax Appeal No. 244 of 2018. The Revenue has challenged the judgment
H
PRINCIPAL COMM OF IT (CENT) - I v. NRA IRON & STEEL 167
PVT. LTD. [INDU MALHOTRA, J.]

of the High Court by way of the present Appeal. A
2. The issue which arises for consideration is that in a case where
Share Capital/Premium is credited in the books of account of the Assessee
company, the onus of proof is on the assessee to establish by cogent and
reliable evidence of the identity of the investor companies, the credit-
worthiness of the investors, and genuineness of the transaction, to the B
satisfaction of the Assessing Officer.
3. The facts of the case, briefly stated are as under :
3.1. The instant case pertains to the Assessment Year of 2009–
10, for which the Respondent Company – Assessee had filed the original
Return of Income on 29.9.2009 declaring a total income of Rs.7,01,870. C

A Notice was issued u/S. 148 of the Act to re-open the assessment
on 13.04.2012 for the reasons recorded therein.
3.2. The Assessee filed submissions on 23.04.2012 to the Notice
u/S. 148, and objections on 30.04.2012. The objections were rejected on D
13.08.2012. A Show Cause Notice was issued on 13.01.2014. The
Assessee filed detailed Written Submissions on 22.01.2014.
3.3. The Assessee Company in its Return showed that money
aggregating to Rs. 17,60,00,000/- had been received through Share
Capital/Premium during the Financial Year 2009-10 from the following
E
companies situated at Mumbai, Kolkatta, and Guwahati:

S. No. Nam e of the shareholder Amount
(A)M umbai Based Com panies
1. Cli fton Securities Pvt. Ltd. 95,00,000
2. Lexus Infotech Ltd. 95,00,000 F
3. Nicco Securities Pvt. Ltd. 95,00,000
4. Real Gold Trading Company Pvt. Ltd. 90,00,000
5. Hema Trading Company P vt. Ltd. 95,00,000
6. Eternity Multi-trade Pvt. Ltd. 90,00,000
(B)Kolkata Based Companies
1. Neha Cassettes Pvt. Ltd. 90,00,000
2. Warner Multim edia Ltd. 95,00,000 G
3. Gopikar Supply Pvt. Ltd. 90,00,000
4. Ganga B uilders Ltd. 90,00,000
5. Gromore F und Management Co. Ltd. 95,00,000
6. Bayanwala Brothers P vt. Ltd. 95,00,000
7. Super Finance Ltd. 90,00,000
8. Shivalaxmi Export Ltd. 95,00,000
H
168 SUPREME COURT REPORTS [2019] 4 S.C.R.

A
9. Natraj Vinimay Pvt. Ltd. 95,00,000
10. Neelkanth Commodities Pvt. Ltd. 95,00,000
11. Prominent Vyapaar Pvt. Ltd. 95,00,000
(C) Guwahati based companies
1. Ispat Sheets Ltd. 90,00,000
2. Novelty Traders Ltd. 90,00,000
B Total Amount 17,60,00,000
It is pertinent to mention that the shares had a face value of Rs.
10 per share, were subscribed by the investor companies at Rs. 190 per
share.
3.4. The issue before the Assessing Officer (hereinafter referred
C
to as “AO”) was whether the amount of Rs. 17,60,00,000/-allegedly
raised by the Respondent through share capital/premium were genuine
transactions or not.
3.5. The Respondent Company – Assessee was called upon to
furnish details of the amounts received, and provide evidence to establish
D
the identity of the investor companies, credit-worthiness of the creditors,
and genuineness of the transaction.
The AO issued a detailed questionnaire to the Assessee to provide
information with respect to the amount of Rs. 17,60,00,000 shown to
have been received as Share Capital/Premium from various legal entities.
E
The AO gave various opportunities to the A.R. of the Assessee to
attend the proceedings, and file necessary clarification on the queries
raised.
3.6. The Assessee inter alia submitted that the entire Share Capital
F had been received by the Assessee through normal banking channels by
account payee cheques/demand drafts, and produced documents such
as income tax return acknowledgments to establish the identity and
genuineness of the transaction. It was submitted that, there was no cause
to take recourse to Section 68 of the Act, and that the onus on the
Assessee Company stood fully discharged.
G
3.7. The AO had issued summons to the representatives of the
investor companies. Despite the summons having been served, nobody
appeared on behalf of any of the investor companies. The Department
only received submissions through dak, which created a doubt about the
identity of the investor companies.
H
PRINCIPAL COMM OF IT (CENT) - I v. NRA IRON & STEEL 169
PVT. LTD. [INDU MALHOTRA, J.]

3.8. The AO independently got field enquiries conducted with A
respect to the identity and credit-worthiness of the investor companies,
and to examine the genuineness of the transaction. Enquiries were made
at Mumbai, Kolkatta, and Guwahati where these Companies were stated
to be situated.
The result of the enquiry is summarised by the A.O. in his Order B
as under :
S. No. Name of AO’s Enquiries Amounts
Investor invested & Tax
Company returns filed
1. Clifton Notice Served on 29.11.2011 at the given 95,00,000
Securities Pvt. address but no reply received till date. C
Ltd.- Mumbai
2. Lexus Infotech Notice Served on 19.11.2011 at the given 95,00,000
Ltd.- Mumbai address but no reply received till date.
3. Nicco Securities Notice Served on 29.11.2011 at the given 95,00,000
Pvt. Ltd. – address but no reply received till date.
Mumbai D
4 Real Gold Address incorrect. The correct address is 90,00,000
Trading Co. Pvt. 2ndflorr, Big Three Building where office
Ltd.- Mumbai found closed bearing the name Hema
Trading Co.
5. Hema Trading Notice could not be served as 95,00,000
Co. Pvt. Ltd.- Respondent-Assessee not available at the
Mumbai address given. The premises is owned by E
some other person.
6. Eternity Multi Notice could not be served as 90,00,000
Trade Pvt. Ltd.- Respondent-Assessee not available at the
Mumbai address given. The premises is owned by
some other person.
7. NehaCassetes A submission on 15.12.2011 through dak
F
Pvt. Ltd.- was received wherein it was submitted,
Kolkatta that the company had applied for 45,000 Rs. 90,00,000
equity shares of Rs. 10/- of NRA Iron and invested on
Steel Pvt. Ltd. each at a premium of Rs. 21.10.2008
190/- each. The Company had not given Returned income
any reason for paying such a high Rs. 9744
premium. (45,00,000/- Ch. No. 039302 dt. G
21.10.2008 & Rs. 45,00,000/- Ch. No.
039315 dt. 21.10.2008 drawn on Axis
Bank.
The Company had shown a total income
of Rs. 9,744/- in return for A.Y. 2009-10

H
170 SUPREME COURT REPORTS [2019] 4 S.C.R.

A 8. Warner A submission on 15.12.2011 through
Multimedia Ltd. dak was received wherein it was Rs. 95,00,000
Kolkatta submitted, that the company had invested on
applied for 47,500 equity shares of Rs. 21.10.2008
10/- of NRA Iron and Steel Pvt. Ltd. Returned income
each at a premium of Rs. 190/- each. Rs. Nil
B The Company had not given any
reason for paying such a high
premium. (50,00,000/- Ch. No. 000084
dt. 21.10.2008 & Rs. 45,00,000/- Ch.
No. 000083 dt. 21.10.2008 drawn on
Kotak Mahindra Bank.
C The Company had shown Nil income
for A.Y. 2009-10.
9. Gopikar Supply A submission on 15.12.2011 through
Pvt. Ltd. dak was received wherein it was Rs. 90,00,000
Kolkatta submitted, that the company had invested on
applied for 45,000 equity shares of Rs. 21.10.2008
D 10/- of NRA Iron and Steel Pvt. Ltd. Return income
each at a premium of Rs. 190/- each. Rs.28,387
The Company had not given any
reason for paying such a high
premium. (50,00,000/- Ch. No. 000040
dt. 21.10.2008 & Rs. 40,00,000/- Ch.
E No. 000039 dt. 21.10.2008 drawn on
Kotak Mahindra Bank.
The Company had shown income of
Rs. 28,387/- for A.Y. 2009-10.
10. Ganga Builders It was submitted, that the company had
Ltd. Kolkatta applied for shares of NRA Iron and Rs. 90,00,000
F Steel Pvt.Ltd. However, they had not invested on
specified how many shares, and at 21.10.2008
what premium they had purchased. The Return income
Company had not enclosed their Bank Rs.5850
Statement showing the source of fund
for share application money.
G (50,00,000/- Ch. No. 000001 dt.
24.10.2008 & Rs. 40,00,000/- Ch. No.
000002 dt. 24.10.2008 drawn on Kotak
Mahindra Bank.
The Company had shown income of
Rs. 5,850/- for A.Y. 2009-10
H
PRINCIPAL COMM OF IT (CENT) - I v. NRA IRON & STEEL 171
PVT. LTD. [INDU MALHOTRA, J.]

A
11. Gromore Fund It was submitted, that the company had
Management applied for 47,500 equity shares of Rs. 10/- Rs. 95,00,000
Ltd. Kolkatta of NRA Iron and Steel Pvt. Ltd. each at a invested on
premium of Rs. 190/- each. The Company 24.10.2008
had not given any reason for paying such a Return income
high premium. Rs.14130
The Company had shown income of Rs.
B
14,130/- for A.Y. 2009-10
12. Bayanwala It was submitted, that the company had
Brothers Pvt. applied for 47,500 equity shares of Rs. 10/- Rs. 95,00,000
Ltd. Kolkatta of NRA Iron and Steel Pvt. Ltd. each at a invested on
premium of Rs. 190/- each. The Company 6.11.2008
had not given any reason for paying such a Return income Rs. C
high premium. (50,00,000/- Ch. No. 10626
000020 dt. 06.11.2008 & Rs. 45,00,000/-
Ch. No. 000021 dt. 06.11.2008 drawn on
Kotak Mahindra Bank
The Company had shown income of Rs.
10,626/- for A.Y. 2009-10 D
13. Super Finance It was submitted, that the company had
Ltd. Kolkatta applied for shares of NRA Iron and Steel
Pvt. Ltd. However, they had not specified Rs. 90,00,000
how many shares, and at what premium invested on
they had purchased. The Company had not 17.11.2008
enclosed their Bank Statement showing the Return income Rs. E
source of fund for share application money. 10730
(50,00,000/- Ch. No. 069123 dt.
17.11.2008 & Rs. 40,00,000/- Ch. No.
069124 dt. 17.11.2008 drawn on Deutsche
bank.
The Company had shown income of Rs. F
10,730/- for A.Y. 2009-10
14. Shivlaxmi It was submitted, that the company had
Export Ltd. applied for 47,500 equity shares of Rs. 10/-
Kolkatta of NRA Iron and Steel Pvt. Ltd. each at a Rs. 95,00,000
premium of Rs. 190/- each. The Company invested on
had not given any reason for paying such a 18.11.2008
high premium. (50,00,000/- Ch. No. Return income
G
121824 dt. 18.11.2008 & Rs. 45,00,000/- Rs.10480
Ch. No. 121825 dt. 18.11.2008 drawn on
Deutsche Bank.
The Company had shown income of Rs.
10,480/- for A.Y. 2009-10
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172 SUPREME COURT REPORTS [2019] 4 S.C.R.

A 15 Natraj Vinimay It was submitted, that the company had
Pvt. Ltd. applied for 41,500 equity shares of Rs. 10/- Rs. 95,00,000
Kolkatta of NRA Iron and Steel Pvt. Ltd. each at a invested on
premium of Rs. 190/- each. The Company 19.11.2008
had not given any reason for paying such a Return income
high premium. (50,00,000/- Ch. No. Rs.42083
B 000098 dt. 19.11.2008 & Rs. 45,00,000/-
Ch. No. 000009 dt. 19.11.2008 drawn on
Kotak Mahindra Bank.
The Company had shown income of Rs.
42,083/- for A.Y. 2009-10
16 Neelkanth It was submitted, that the company had 95,00,000
C Commodities applied for 47,500 equity shares of Rs. 10/- Return income
Pvt. Ltd. of NRA Iron and Steel Pvt. Ltd. each at a Rs.9420
Kolkatta premium of Rs. 190/- each. The Company
had not given any reason for paying such a
high premium. (50,00,000/- Ch. No.
209681 dt. 5.12.2008 & Rs. 45,00,000/-
Ch. No. 209677 dt. 5.12.2008 drawn on
D Centurion Bank of Punjab
Rs. 95 lakhs invested on 5.12.2008
By 2 cheques
The Company had shown income of Rs.
9,470/- for A.Y. 2009-10
17 Prominent It was submitted, that the company had
E Vyappar Pvt. applied for 47,500 equity shares of Rs. 10/- Rs. 95,00,000
Ltd. Kolkatta of NRA Iron and Steel Pvt. Ltd. each at a invested on
premium of Rs. 190/- each. The Company 5.12.2008
had not given any reason for paying such a By 2 cheques
high premium. (50,00,000/- Ch. No. Return income
205185 dt. 5.12.2008 & Rs. 45,00,000/- Rs.10307
F Ch. No. 205189 dt. 5.12.2008 drawn on
HDFC (Centurion Bank of Punjab)
The Company had shown income of Rs.
10,307/- for A.Y. 2009-10

The AO recorded that the enquiries at Mumbai revealed that out
of the four companies at Mumbai, two companies were found to be non-
G
existent at the address furnished.
With respect to the Kolkata companies, the response came through
dak only. However, nobody appeared, nor did they produce their bank
statements to substantiate the source of the funds from which the alleged
investments were made.
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PRINCIPAL COMM OF IT (CENT) - I v. NRA IRON & STEEL 173
PVT. LTD. [INDU MALHOTRA, J.]

With respect to the Guwahati companies – Ispat Sheet Ltd. and A
Novelty Traders Ltd., enquiries revealed that they were non-existent at
the given address.
3.9. On the basis of the detailed enquiries conducted, the A.O.
held that the Assessee had failed to prove the existence of the identity of
the investor companies and genuineness of the transaction. B
The A.O. found that :
i. None of the investor-companies which had invested amounts
ranging between Rs. 90,00,000 and Rs. 95,00,000 as share
capital in the Respondent Company – Assessee during the A.Y.
2009-10, could justify making investment at such a high premium C
of Rs. 190 for each share, when the face value of the shares
was only Rs. 10;
ii. Some of the investor companies were found to be non-existent;
iii. Almost none of the companies produced the bank statements D
to establish the source of funds for making such a huge
investment in the shares, even though they were declaring a
very meagre income in their returns;
iv. None of the investor-companies appeared before the A.O.,
but merely sent a written response through dak.
E
The AO held that the Assessee had failed to discharge the onus
by cogent evidence either of the credit worthiness of the so-called
investor-companies, or genuineness of the transaction.
As a consequence, the amount of Rs. 17,60,00,000/- was added
back to the total income of the Assessee for the assessment year in F
question.
4. The Respondent Company – Assessee filed an Appeal before
the Commissioner of Income Tax (Appeals)-I, New Delhi. Reliance
was placed on the decision of the Delhi High Court in CIT v. Lovely
Exports Pvt. Ltd1. wherein it was held that : G
“In the case of a company the following are the propositions
of law under section 68. The assessee has to prima facie prove
(1) the identity of the creditor/subscriber; (2) the genuineness
of the transaction, namely, whether it has been transmitted
1
(2008) 299 ITR 268 (Delhi) H
174 SUPREME COURT REPORTS [2019] 4 S.C.R.

A through banking or other indisputable cannels; (3) the
creditworthiness or financial strength of the creditor/
subscriber; (4) if relevant details of the address of PAN indetity
of the creditor/subscriber alongwith copies of the shareholders
register, share application forms, share transfer register, etc,
it would constitute acceptable proof or acceptable explanation
B
by the assessee; (5) the Department would not be justified in
drawing an adverse inference only because the creditor/
subscriber fails or neglects to respond to its notice; The
Assessing Officer is duty bound to investigate the
creditworthiness of the creditor/subscriber the genuineness
C of the transaction and the veracity of the repudiation.” The
SLP filed against the judgment was dismissed.”
The Commissioner of Income Tax (Appeals)-I, New Delhi vide
Order dated 11.04.2014 deleted the addition made by the A.O. on the
ground that the Respondent had filed confirmations from the investor
D companies, their Income Tax Return, acknowledgments with PAN
numbers, copies of their bank account to show that the entire amount
had been paid through normal banking channels, and hence discharged
the initial onus under Section 68 of the Act, for establishing the credibility
and identity of the shareholders.
E 5. The Revenue filed an Appeal before the Income Tax Appellate
Tribunal (hereinafter referred to as “ITAT”). The ITAT dismissed the
appeal, and confirmed the order of the CIT(A) vide Order dated
16.10.2017 on the ground that the Assessee had discharged their primary
onus to establish the identity and credit-worthiness of the investors,
especially when the investor companies had filed their returns and were
F being assessed.
6. The Revenue filed an Appeal bearing I.T.A. No. 244/2018 u/S.
260A of the Act before the Delhi High Court to challenge the order of
the Tribunal. The Respondent Company – Assessee did not appear before
the High Court. Hence, the matter proceeded ex-parte. The High Court
G dismissed the Appeal filed by the Revenue vide the Impugned Order
dated 26.02.2018, and affirmed the decision of the Tribunal on the ground
that the issues raised before it, were urged on facts, and the lower appellate
authorities had taken sufficient care to consider the relevant
circumstances. Hence no substantial question of law arose for their
H consideration.
PRINCIPAL COMM OF IT (CENT) - I v. NRA IRON & STEEL 175
PVT. LTD. [INDU MALHOTRA, J.]

7. Aggrieved by the Order passed by the High Court, the Revenue A
filed the present S.L.P. (C) No. 29855/2018 before this Court. This Court
issued Notice on 12.11.2018 returnable in six weeks. After service was
effected on the Respondent Company – Assessee, the matter was listed
on 02.01.2019. However, none appeared on behalf of the Respondent
Company – Assessee. Consequently, the matter was adjourned for two
B
weeks, and posted on 18.01.2019, when it was ordered that in case the
Respondent Company – Assessee chooses not to enter appearance, the
matter would be disposed of ex-parte.
The matter was thereafter listed again on 23.01.2019, when the
following Order was passed:
C
“Notice was issued in the matter on 12.11.2018, Office report
dated 22.12.2018 indicated that notice was served upon the
sole Respondent but none had entered appearance.
By order dated 02.01.2019, last opportunity was given to the
Respondent and it was indicated that if the Respondent chose D
not to enter appearance, the matter would be disposed of ex-
parte. Even then none has entered appearance.
Having gone through the matter, we give one more opportunity
to the Respondent to enter appearance and make submissions
with respect to the merits of the matter. If the Respondent still E
chooses not to appear, the matter shall definitely be decided
ex-parte.”
The Respondent Company – Assessee however remained
unrepresented even on the subsequent dates i.e. on 31.01.2019 and
05.02.2019. The matter was finally heard on 05.02.2019, when judgment F
was reserved.
8. We have heard the Ld. Counsel for the Revenue, and examined
the material on record.
8.1. The issue which arises for determination is whether the
Respondent / Assessee had discharged the primary onus to establish the G
genuineness of the transaction required under Section 68 of the said
Act.
Section 68 of the I.T. Act (prior to the Finance Act, 2012) read as
follows:
H
176 SUPREME COURT REPORTS [2019] 4 S.C.R.

A “68. Cash credits- Where any sum is found credited in the
book of an Assessee maintained for any previous year, and
the Assessee offers no explanation about the nature and source
thereof or the explanation offered by him is not, in the opinion
of the Assessing Officer, satisfactory, the sum so credited may
be charged to income-tax as the income of the Assessee of
B
that previous year”
(emphasis supplied)
The use of the words “any sum found credited in the books” in
Section 68 of the Act indicates that the section is widely worded, and
C includes investments made by the introduction of share capital or share
premium.
8.2. As per settled law, the initial onus is on the Assessee to establish
by cogent evidence the genuineness of the transaction, and credit-
worthiness of the investors under Section 68 of the Act.
D The assessee is expected to establish to the satisfaction of the
Assessing Officer2 :
• Proof of Identity of the creditors;
• Capacity of creditors to advance money; and
E • Genuineness of transaction
This Court in the land mark case of Kale Khan Mohammad
Hanif v. CIT3 and, Roshan Di Hatti v. CIT4 laid down that the onus of
proving the source of a sum of money found to have been received by
an assessee, is on the assessee. Once the assessee has submitted the
F documents relating to identity, genuineness of the transaction, and credit-
worthiness, then the AO must conduct an inquiry, and call for more
details before invoking Section 68. If the Assessee is not able to provide
a satisfactory explanation of the nature and source, of the investments
made, it is open to the Revenue to hold that it is the income of the
G assesse, and there would be no further burden on the revenue to show
that the income is from any particular source.
8.3. With respect to the issue of genuineness of transaction, it is
for the assessee to prove by cogent and credible evidence, that the
2
CIT v. Precision Finance Pvt. Ltd. (1994) 208 ITR 465 (Cal)
3
[1963] 50 ITR 1 (SC)
H 4
[1977] 107 ITR (SC)
PRINCIPAL COMM OF IT (CENT) - I v. NRA IRON & STEEL 177
PVT. LTD. [INDU MALHOTRA, J.]

investments made in share capital are genuine borrowings, since the A
facts are exclusively within the assessee’s knowledge.
The Delhi High Court in CIT v. Oasis Hospitalities Pvt. Ltd.5,
held that :
“The initial onus is upon the assessee to establish three things
necessary to obviate the mischief of Section 68. Those are: B
(i) identity of the investors; (ii) their creditworthiness/
investments; and (iii) genuineness of the transaction. Only
when these three ingredients are established prima facie, the
department is required to undertake further exercise.”
It has been held that merely proving the identity of the investors C
does not discharge the onus of the assessee, if the capacity or credit-
worthiness has not been established.
In Shankar Ghosh v. ITO6, the assessee failed to prove the
financial capacity of the person from whom he had allegedly taken the
loan. The loan amount was rightly held to be the assessee’s own D
undisclosed income.
8.4. Reliance was also placed on the decision of CIT v. Kamdhenu
Steel & Alloys Limited and Other7 wherein the Court that :
“38. Even in that instant case, it is projected by the Revenue
E
that the Directorate of Income Tax (Investigation) had
purportedly found such a racket of floating bogus companies
with sole purpose of lending entries. But, it is unfortunate
that all this exercise if going in vain as few more steps which
should have been taken by the Revenue in order to find out
causal connection between the case deposited in the bank F
accounts of the applicant banks and the assessee were not
taken. It is necessary to link the assessee with the source when
that link is missing, it is difficult to fasten the assessee with
such a liability.”
9. The Judgments cited hold that the Assessing Officer ought to G
conduct an independent enquiry to verify the genuineness of the credit
entries.
5
333 ITR 119 (Delhi)(2011)
6
[1985] 23 TTJ (Cal.)
7
(2012) 206 Taxaman 254 (Delhi) H
178 SUPREME COURT REPORTS [2019] 4 S.C.R.

A In the present case, the Assessing Officer made an independent
and detailed enquiry, including survey of the so-called investor companies
from Mumbai, Kolkata and Guwahati to verify the credit-worthiness of
the parties, the source of funds invested, and the genuineness of the
transactions. The field reports revealed that the share-holders were
either non-existent, or lacked credit-worthiness.
B
10. On the issue of unexplained credit entries /share capital, we
have examined the following judgments :
i. In Sumati Dayal v. CIT8 this Court held that :
“if the explanation offered by the assessee about the nature
C and source thereof is, in the opinion of the Assessing Officer,
not satisfactory, there is prima facie evidence against the
assessee, vis., the receipt of money, and if he fails to rebut the
same, the said evidence being unrebutted can be used against
him by holding that it is a receipt of an income nature. While
considering the explanation of the assessee, the department
D cannot, however, act unreasonably”
ii.In CIT v. P. Mohankala9 this Court held that:
“A bare reading of section 68 of the Income-tax Act, 1961,
suggests that (i) there has to be credit of amounts in the books
maintained by the assessee ; (ii) such credit has to be a sum
E of money during the previous year ; and (iii) either (a) the
assessee offers no explanation about the nature and source
of such credits found in the books or (b) the explanation
offered by the assessee, in the opinion of the Assessing Officer,
is not satisfactory. It is only then that the sum so credited may
be charged to Income-tax as the income of the assessee of
F
that previous year. The expression “the assessee offers no
explanation” means the assessee offers no proper, reasonable
and acceptable explanation as regards the sums found
credited in the books maintained by the assessee.
The burden is on the assessee to take the plea that, even if the
G explanation is not acceptable, the material and attending
circumstances available on record do not justify the sum found
credited in the books being treated as a receipt of income
nature.”
(emphasis supplied)
8
[1995] 214 ITR 801 (SC)
H 9
291 ITR 278
PRINCIPAL COMM OF IT (CENT) - I v. NRA IRON & STEEL 179
PVT. LTD. [INDU MALHOTRA, J.]

iii. The Delhi High Court in a recent judgment delivered in A
PR.CIT -6, New Delhi v. NDR Promoters Pvt. Ltd.10 upheld the
additions made by the Assessing Officer on account of introducing bogus
share capital into the assessee company on the facts of the case.
iv. The Courts have held that in the case of cash credit entries, it
is necessary for the assessee to prove not only the identity of the creditors, B
but also the capacity of the creditors to advance money, and establish
the genuineness of the transactions. The initial onus of proof lies on the
assessee. This Court in Roshan Di Hatti v. CIT11, held that if the assessee
fails to discharge the onus by producing cogent evidence and explanation,
the AO would be justified in making the additions back into the income
of the assessee. C

v.The Guwahati High Court in Nemi Chand Kothari v. CIT12
held that merely because a transaction takes place by cheque is not
sufficient to discharge the burden. The assessee has to prove the identity
of the creditors and genuineness of the transaction. :
D
“It cannot be said that a transaction, which takes place by
way of cheque, is invariably sacrosanct. Once the assessee
has proved the identity of his creditors, the genuineness of
the transactions which he had with his creditors, and the
creditworthiness of his creditors vis-a-vis the transactions
which he had with the creditors, his burden stands discharged E
and the burden then shifts to the revenue to show that though
covered by cheques, the amounts in question, actually
belonged to, or was owned by the assessee himself”
(emphasis supplied)
F
vi. In a recent judgment the Delhi High Court13 held that the
credit-worthiness or genuineness of a transaction regarding share
application money depends on whether the two parties are related or
known to each other, or mode by which parties approached each other,
whether the transaction is entered into through written documentation to
protect investment, whether the investor was an angel investor, the G
quantum of money invested, credit-worthiness of the recipient, object
10
410 ITR 379
11
(1992) 2 SCC 378
12
[2003] 264 ITR 254 (Gau.)
13
CIT v. N.R. Portfolio (P.) Ltd.[2014] 42 taxmann.com 339/222 Taxman 157 (Mag.)
H
(Delhi)
180 SUPREME COURT REPORTS [2019] 4 S.C.R.

A and purpose for which payment/investment was made, etc. The
incorporation of a company, and payment by banking channel, etc. cannot
in all cases tantamount to satisfactory discharge of onus.
vii. Other cases where the issue of share application money
received by an assessee was examined in the context of Section 68 are
B CIT v. Divine Leasing & Financing Ltd.14, and CIT v. Value Capital
Service (P.) Ltd.15
11. The principles which emerge where sums of money are
credited as Share Capital/Premium are :
i. The assessee is under a legal obligation to prove the genuineness
C of the transaction, the identity of the creditors, and credit-
worthiness of the investors who should have the financial
capacity to make the investment in question, to the satisfaction
of the AO, so as to discharge the primary onus.
ii. The Assessing Officer is duty bound to investigate the credit-
worthiness of the creditor/ subscriber, verify the identity of the
D subscribers, and ascertain whether the transaction is genuine,
or these are bogus entries of name-lenders.
iii. If the enquiries and investigations reveal that the identity of the
creditors to be dubious or doubtful, or lack credit-worthiness,
then the genuineness of the transaction would not be
E established.
In such a case, the assessee would not have discharged the primary
onus contemplated by Section 68 of the Act.
12. In the present case, the A.O. had conducted detailed enquiry
which revealed that :
F i. There was no material on record to prove, or even remotely
suggest, that the share application money was received from
independent legal entities. The survey revealed that some of
the investor companies were non-existent, and had no office
at the address mentioned by the assessee.
G For example:
a. The companies Hema Trading Co. Pvt. Ltd. and Eternity
Multi Trade Pvt. Ltd. at Mumbai, were found to be non-
existent at the address given, and the premises was owned
by some other person.
14
(2007) 158 Taxman 440
H 15
[2008]307 ITR 334
PRINCIPAL COMM OF IT (CENT) - I v. NRA IRON & STEEL 181
PVT. LTD. [INDU MALHOTRA, J.]

b. The companies at Kolkatta did not appear before the A.O., A
nor did they produce their bank statements to substantiate
the source of the funds from which the alleged investments
were made.
c. The two companies at Guwahati viz. Ispat Sheet Ltd. and
Novelty Traders Ltd., were found to be non-existent at the B
address provided.
The genuineness of the transaction was found to be completely
doubtful.
ii.The enquiries revealed that the investor companies had filed
returns for a negligible taxable income, which would show that C
the investors did not have the financial capacity to invest funds
ranging between Rs. 90,00,000 to Rs. 95,00,000 in the
Assessment Year 2009-10, for purchase of shares at such a
high premium.
For example: D
Neha Cassetes Pvt. Ltd. - Kolkatta had disclosed a taxable income
of Rs. 9,744/- for A.Y. 2009-10, but had purchased Shares worth
Rs, 90,00,000 in the Assessee Company.
Similarly Warner Multimedia Ltd. – Kolkatta filed a NIL return,
E
but had purchased Shares worth Rs. 95,00,000 in the Assessee
Company – Respondent.
Another example is of Ganga Builders Ltd. – Kolkatta which had
filed a return for Rs. 5,850 but invested in shares to the tune of
Rs. 90,00,000 in the Assessee Company – Respondent, etc.
F
iii. There was no explanation whatsoever offered as to why the
investor companies had applied for shares of the Assessee
Company at a high premium of Rs. 190 per share, even though
the face value of the share was Rs. 10/- per share.
iv. Furthermore, none of the so-called investor companies G
established the source of funds from which the high share
premium was invested.
v.The mere mention of the income tax file number of an investor
was not sufficient to discharge the onus under Section 68 of
the Act. H
182 SUPREME COURT REPORTS [2019] 4 S.C.R.

A 13. The lower appellate authorities appear to have ignored the
detailed findings of the AO from the field enquiry and investigations
carried out by his office. The authorities below have erroneously held
that merely because the Respondent Company – Assessee had filed all
the primary evidence, the onus on the Assessee stood discharged.
B The lower appellate authorities failed to appreciate that the investor
companies which had filed income tax returns with a meagre or nil income
had to explain how they had invested such huge sums of money in the
Assesse Company - Respondent. Clearly the onus to establish the credit
worthiness of the investor companies was not discharged. The entire
transaction seemed bogus, and lacked credibility.
C
The Court/Authorities below did not even advert to the field enquiry
conducted by the AO which revealed that in several cases the investor
companies were found to be non-existent, and the onus to establish the
identity of the investor companies, was not discharged by the assessee.
D 14. The practice of conversion of un-accounted money through
the cloak of Share Capital/Premium must be subjected to careful scrutiny.
This would be particularly so in the case of private placement of shares,
where a higher onus is required to be placed on the Assessee since the
information is within the personal knowledge of the Assessee. The
Assessee is under a legal obligation to prove the receipt of share capital/
E premium to the satisfaction of the AO, failure of which, would justify
addition of the said amount to the income of the Assessee.
15. On the facts of the present case, clearly the Assessee Company
- Respondent failed to discharge the onus required under Section 68 of
the Act, the Assessing Officer was justified in adding back the amounts
F to the Assessee’s income.
16. The Appeal filed by the Appellant – Revenue is allowed. In
the aforesaid facts and circumstances, and the law laid down above, the
judgment of the High Court, the ITAT, and the CIT are hereby set-aside.
The Order passed by the AO is restored.
G
Pending applications, if any are disposed of.
Ordered accordingly.

Devika Gujral Appeal allowed.
H