EKALAVYA GIFT GAILERIES PRIVATE LIMITED,. VS. INCOME TAX OFFICER, WARD-1(3), FARIDABAD, ITA 1471/DEL/2024
In a significant decision, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT), in its order dated 12th February 2025, has held that share application money received in an earlier year cannot be taxed as unexplained cash credit under Section 68 merely because the shares were allotted in the subsequent year. The Tribunal ruled in favor of the assessee for Assessment Years 2016-17 and 2017-18.
Background of the Case
The assessee company had issued shares at a premium to several investor companies:
- M/s Cee Aar Decors Pvt. Ltd.
- M/s Rishikesh Buildcon Pvt. Ltd.
- M/s RSM Constructions Pvt. Ltd.
- M/s Acquatic Exim Pvt. Ltd. (in AY 2017-18)
During the course of assessment proceedings, although the assessee had submitted complete documentary evidence to establish the identity, creditworthiness, and genuineness of the investors, the Assessing Officer (AO) rejected the explanations and made additions under Section 68. The AO noted common addresses of the investing companies and the non-appearance of directors as reasons to doubt the genuineness.
The Commissioner of Income Tax (Appeals) [CIT(A)], NFAC, also confirmed the additions, leading to appeals before the ITAT.
Assessee’s Arguments
The assessee forcefully argued that:
- Complete documentary evidences were filed, including PAN, ITRs, bank statements, audited accounts, and valuation reports.
- Technical glitches during the faceless assessment process sometimes resulted in documents not being properly uploaded or noticed.
- No cash was received during the current assessment year — the share application money was received and recorded in the previous year (AY 2015-16 for AY 2016-17’s allotments).
- The source, identity, and genuineness were fully proved; hence, the onus had shifted to the Department, which failed to bring any adverse material.
- Existence of multiple companies at the same address is a common business practice and cannot be the sole basis for making additions.
- Valuation of shares was duly supported by a certificate under Rule 11UA of the Income Tax Rules.
Tribunal’s Observations
After examining the case records and hearing both sides, the Tribunal made critical observations:
- Section 68 can only be invoked when there is an unexplained credit in the books during the same assessment year. In the instant case, the share application money was credited in an earlier year, and only allotment of shares happened in the current year. Hence, no addition could be made under Section 68 for the year of allotment.
- The assessee had fully discharged its burden by submitting confirmations, financials, and bank statements of investors.
- The mere non-appearance of directors or multiple companies operating from one address did not invalidate the share transactions.
- The valuation report under Rule 11UA adequately justified the share premium charged.
Accordingly, the Tribunal deleted the entire additions for both the assessment years under consideration.
Final Decision
The ITAT allowed the assessee’s appeals.
All additions made under Section 68 were deleted.
Key Takeaways
- Share application money received in a previous year cannot be taxed in the year of allotment under Section 68.
- Once an assessee provides complete evidences regarding the identity, creditworthiness, and genuineness of investors, the burden shifts to the Revenue.
- Common registered addresses or non-appearance of directors are not conclusive grounds for making additions.
- Proper valuation under Rule 11UA strengthens the assessee’s defense in share premium cases.