Facts of the Case

The dispute arose from an addition of ₹1,78,51,005/- made by the Assessing Officer under Section 68 of the Income Tax Act, 1961 on account of share premium and calls in arrears received by the assessee company.

The assessee, a public limited company, had issued zero-interest debentures during the financial year 1994-95 through a public issue to existing shareholders as well as the general public. The unpaid allotment amounts remained reflected as calls in arrears in the books for several years and were subsequently liquidated in Assessment Year 2005-06.

The Assessing Officer considered the delayed payment pattern unusual and sought details regarding the identity and genuineness of the shareholders. Since the assessee could not furnish complete details of all shareholders, the amount was treated as unexplained cash credit under Section 68. 

Issues Involved

  1. Whether share premium and calls in arrears received from public issue subscribers could be treated as unexplained cash credit under Section 68?
  2. Whether a public limited company with a large shareholder base is required to establish identity and creditworthiness of each shareholder?
  3. Whether delayed liquidation of calls in arrears could justify addition under Section 68?

Petitioner’s Arguments (Revenue’s Contentions)

The Revenue contended that:

  • The assessee failed to discharge its primary burden under Section 68.
  • It failed to furnish complete names and addresses of all shareholders.
  • The payment of pending call arrears after nearly ten years was abnormal and suspicious.
  • The assessee could not satisfactorily explain the genuineness of the receipts.
  • Test-check verification conducted under Section 133(6) raised doubts regarding the authenticity of the transactions.

Respondent’s Arguments (Assessee’s Contentions)

The assessee submitted that:

  • The receipts pertained to a genuine public issue undertaken in 1994-95.
  • The company had over 50,000 shareholders and was listed on stock exchanges.
  • It was practically impossible to maintain or furnish complete details of each shareholder after such a long period.
  • The trading results had been regularly accepted by the Department.
  • There was no evidence of unaccounted money being introduced by the directors or related parties.
  • The company faced operational difficulties, including strikes, affecting record maintenance.

Court Findings / Court Order

The High Court upheld the findings of the Commissioner (Appeals) and ITAT and dismissed the Revenue’s appeal.

The Court held that:

  • The assessee was a public limited company with a large shareholder base.
  • In public issues, it is not practical to expect the company to maintain detailed identity and financial particulars of every subscriber.
  • The amounts represented old call arrears relating to an earlier public issue.
  • There was no evidence of introduction of unaccounted money.
  • Mere delayed realization of call arrears cannot by itself justify addition under Section 68.
  • Concurrent factual findings by appellate authorities did not warrant interference.

Accordingly, the addition of ₹1,78,51,005/- under Section 68 was deleted.

Important Clarification

This judgment clarifies that:

  • In cases involving public issue share capital, the standard of proof under Section 68 differs from private placements.
  • A public company cannot be expected to prove the identity and financial capacity of every public subscriber.
  • Delay in receipt of call money alone is not sufficient to invoke Section 68.
  • The Revenue must bring substantive evidence showing introduction of unexplained money.

Sections Involved

Income-tax Act, 1961

  • Section 68 – Unexplained Cash Credits
  • Section 133(6) – Power to call for information

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:1005-DB/AKC09022018ITA1512018.pdf

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