In a landmark judgment that reinforces the principle of fair assessment, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) delivered a significant verdict in favor of East Delhi Leasing Pvt. Ltd., deleting an addition of ₹14.93 crores under Section 68 of the Income Tax Act, 1961. This amount had been added by the Assessing Officer (AO) during scrutiny, alleging that the company failed to prove the genuineness of the share capital and premium received from investor entities.

However, the ITAT found that the assessee had not only provided complete documentation but also satisfied the legal requirements needed to justify the credit entries in their books. This case emphasizes the legal benchmarks for additions under Section 68 and the importance of maintaining transparent and well-documented financial transactions.

Background of the Case

East Delhi Leasing Pvt. Ltd., a private limited company, filed its return of income for AY 2013–14 on September 30, 2013, declaring a modest income of ₹3,89,400. However, during the assessment process, the AO noticed a significant inflow of funds—₹14.93 crores—recorded as share capital and share premium from several companies.

The AO raised doubts over the credibility of the investors and the genuineness of the transactions. Without conducting proper inquiries or issuing notices to the investing companies, the AO made an addition of the full ₹14.93 crores to the company’s income under Section 68 of the Act, treating it as unexplained cash credit.

Legal Standpoint: What is Section 68?

Section 68 of the Income Tax Act, 1961, deals with unexplained cash credits. If any sum is found credited in the books of the assessee and no satisfactory explanation is provided regarding its nature and source, the income tax officer is empowered to treat it as the income of the assessee.

For a valid addition under Section 68, the assessee must establish:

  1. Identity of the investor/creditor

  2. Creditworthiness of the investor/creditor

  3. Genuineness of the transaction

If these conditions are met, the burden of proof shifts back to the department.

Assessee’s Submissions Before ITAT

In defense, East Delhi Leasing Pvt. Ltd. presented comprehensive evidence to support the legitimacy of the share capital:

  • PAN details and registration certificates of all investor companies

  • Bank statements showing money received through regular banking channels (no cash involved)

  • Affidavits and confirmations from investor companies acknowledging the investment

  • Income Tax Returns (ITRs) and audited financial statements of the investors

The company argued that the transactions were well-documented, transparent, and carried out in compliance with all regulatory norms.

ITAT’s Observations and Final Judgment

After carefully examining the records and hearing the arguments from both sides, the ITAT bench concluded that:

  • The assessee had discharged its initial burden of proof by providing credible documentation for each investor.

  • The AO had not issued any notices or conducted further verification under Section 131 (summons) or Section 133(6) (call for information).

  • There was no material on record to suggest the investor companies were non-existent or mere shell entities.

  • There were no cash transactions; all funds were transferred via banks.

  • No adverse inference could be drawn based solely on the high premium charged or the amount invested.

As a result, the ITAT deleted the entire addition of ₹14.93 crores, holding that the funds were from genuine, identifiable sources and the company had complied with its responsibilities under the law.

Key Takeaways from the Judgment

✅ Proper documentation is key – Having clear paperwork, including confirmations, PAN, bank statements, and financial records, plays a vital role in defending against Section 68 additions.

✅ Onus shifts after initial proof – Once the assessee submits valid evidence, the burden of proof lies with the AO to refute it with a thorough investigation.

✅ No additions based on assumptions – Merely suspecting a transaction as dubious without proper inquiry cannot form the basis for an addition.

✅ Transparency wins – All funds were received through official banking channels, and no cash involvement helped strengthen the assessee’s case.

FAQs

❓ What is the purpose of Section 68 of the Income Tax Act?

Section 68 is used by the Income Tax Department to assess unexplained credits in an assessee’s books, such as loans, capital, or other sums whose source and authenticity cannot be verified.

❓ Can share capital received from other companies be taxed under Section 68?

Yes, if the company fails to prove the identity, creditworthiness, and genuineness of the investor companies, such share capital can be taxed under Section 68.

❓ What documents can help defend against Section 68 additions?

  • PAN and registration details of investors

  • Income tax returns and audited accounts of investors

  • Bank transaction records

  • Shareholder confirmations/affidavits

❓ Who has the burden of proof in Section 68 cases?

Initially, the assessee must prove the transaction is genuine. Once done, the burden shifts to the AO to disprove it or conduct a detailed investigation.

Conclusion

The ITAT’s verdict in favor of East Delhi Leasing Pvt. Ltd. sends a powerful message: Additions under Section 68 must be evidence-based, not assumption-driven. The case reiterates the importance of maintaining clean financial records and comprehensive documentation.

In an era of increasing scrutiny and digital compliance, companies must ensure that capital inflows—especially share capital and premium—are supported with verifiable and traceable documents. This judgment will likely serve as a useful reference for future disputes involving unexplained credits and investor transactions.