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Section 68 - Doubt on genuineness of the transaction

1. CIT v. Gangeshwari Metal (P) Ltd. (2014) 361 ITR 10 (Del) : 2013 TaxPub(DT) 1319
(Del-HC)

The Hon'ble High Court of Delhi has held that the genuineness of the transactions is
established as the transactions are routed through banking channels It was seen that the share
application money was received through account payee cheques, detail of which had been
filed by the assessee by filing the copy of the bank account of the share applicants. Thus
where the return of income was filed by the creditors of the assessee and was accepted by the
AG and payments were through account payee cheques the genuineness of the transaction
cannot be doubted. The revenue could not prove that the money received by the appellant in
the form of share application has come from its own sources. No evidences regarding this
have been brought on record by the assessing officer.

2. In CIT v. Gangour Investment Ltd. (2011) 335 ITR 359 (Delhi) : 2009 TaxPub(DT) 1400
(Del-HC)

The Hon'ble High Court of Delhi held that assessee company having filed the subscription
forms of the investors, including TT Ltd., a group company, containing details and
information with respect to their addresses as well as PAN, thereby establishing their identity
and also supplied a copy of the statement of bank accounts of TT Ltd., it has discharged its
onus in respect of the veracity of the transaction and therefore, the addition under sections 68
made by the assessing officer in respect of the impugned investment made by TT Ltd, has
been rightly deleted.

3. Assistant Commissioner of Income Tax, Central Circle – 13, New Delhi v. Adamine
Construction (P) Ltd (2017) (87 Taxmann 216)

Section 68 of the Income-tax Act, 1961 - Cash credits (Share application money) -
Assessment year 2009-10 - Assessee-company received share application money from several
companies - In support of their identity and creditworthiness and genuineness of transactions,
assessee furnished investor companies confirmations, income-tax return acknowledgements,
copies of bank accounts with submission that entire amount was received by assessee through
normal banking channels by account payee cheques/demand drafts - Confirmations filed
revealed source of funds, particulars of bank account through which payments were received
and Income Tax particulars establishing identity and creditworthiness of respective share
applicants - Whether on facts, assessee had discharged its primary onus to establish identity
and creditworthiness of investors companies as well as genuineness of its transaction, thus,
additions made under section 68 by Assessing Officer was rightly deleted by Commissioner
(Appeals) - Held, yes [Para 18] [In favour of assessee]IT: Where in order to prove
genuineness of share transactions, and creditworthiness of investor companies, assessee
company furnished investor companies confirmations, tax return acknowledgement, etc,
additions under section 68 was to be deleted

4. Assistant Commissioner of Income Tax, Central Circle – IX, New Delhi v. Ravnet
Solutions (P) Ltd (2018) (93 Taxmann 59)

Section 68 of the Income-tax Act, 1961 - Cash credit (Share application money) - Assessment
years 2005-06 to 2008-09 - Assessing Officer noted that assessee had shown some receipts as
share capital and as share premium - Assessee was asked to file evidences to establish identity
and capacity of persons who had given him share capital and share premium - Since assessee
had failed to furnish any evidence to establish their credibility and capacity, Assessing Officer
made addition under section 68 - Assessee pleaded that no sufficient opportunity had been
given to him to file required details and he filed additional evidence, i.e., confirmation of
accounts of all investors, their Board Resolution, Copy of Form No. 2, Copy of master data,
Copy of PAN, Copy of ITR, Copy of Certificate of incorporation, bank statements and share
application forms - Said evidences clearly proved identity of investors, their creditworthiness
and genuineness of transaction - Whether Assessing Officer was not justified in treating share
capital and share premium as unexplained credits under section 68 - Held, yes [Paras 10 and
11][In favour of assessee]IT : Where assessee had filed evidences, i.e., confirmation of
accounts of all investors, their Board Resolution, Copy of PAN, Copy of ITR, Copy of
Certificate of incorporation, bank statements and share application forms addition under
section 68 treating share capital receipt by assessee from investors as cash credit, could not be
made IT : There should be recovery of incriminating material (unearthed) during course of
search and, then only, Assessing Officer can interfere with completed assessments

The interest paid on such loans were also allowed as deduction in the earlier years.
The entire transactions i.e., the receipt of loans, repayment of loans and payment of
interest thereon had been made through regular banking channels from account
payee cheques. Thus, the entire addition of principal amount of loans and
disallowance of interest on loans had been made by AO with surmise and conjecture
and without any basis. No deficiencies whatsoever were found in the documentary
evidences submitted by assessee before AO which admittedly included copy of PAN,
ITR acknowledgement, audited financial statements, computation of income,
confirmation from lender, bank statements evidencing the immediate source of credit
of the lender etc. All these documents clearly proved the identity, creditworthiness of
the lender and genuineness of the transaction in the peculiar facts of the instant
case. Hence, it could be safely concluded that assessee had indeed complied with all
the three necessary ingredients of Section 68.