IMPORTANT POINT
The judgment establishes that the burden of proof for the genuineness of share capital transactions lies with the assessee, requiring substantial evidence beyond mere documentation.

JUDGMENT :

T.S. SIVAGNANAM, C.J.

1. This appeal by the assessee filed under Section 260A of the Income Tax Act, 1961 (the Act) is directed against the order dated May 04, 2023 passed by the Income Tax Appellate Tribunal “B” Bench Kolkata in Income Tax Appeal (ITA) No. 456/Kol/2019 for the assessment year 2012-2013. The assessee has raised the following substantial questions of law for consideration:

(i) Whether the Tribunal can examine facts and/or issues which were not in contention before the Assessing Officer?

(ii) Without prejudice to the aforesaid, whether the Tribunal ought to give the appellant an opportunity to file documents and submissions countering the issues raised by it and the failure to do the same renders the order of the Tribunal to be in gross violation of the principles of natural justice?

(iii) Whether the identity and creditworthiness of subscribers to the share capital and the genuineness of the transaction be doubted on account of a non-compliance to a notice issued under section 131 of the Act, especially since the notice was received after the completion of the assessment, and without considering the other documents and submissions filed by the appellant in support of the same?

(iv) Whether the findings and observations of the Tribunal with respect to the identity and creditworthiness of the shareholders and the genuineness of the transaction are erroneous, perverse and contrary to law?

(v) Whether the Tribunal could have rejected the genuineness of a share subscription transaction on the basis of a possible future use of the property acquired using the premium received?

(vi) Whether the creditworthiness of a shareholder can be doubted on the basis of the fact that the investment in immovable property was made by it using the share premium received by it?

(vii) Whether the understanding of transfer of rights held by under an agreement for sale can be regarded as a part of the consideration for allotment of shares or reason for higher valuation of shares subsequently allotted?

2. We have heard Mr. J.P. Khaitan, learned Senior Advocate assisted by Mr. Pratyush Jhunjhunwala, Ms. Sretapa Sinha and Mr. Samit Rudra, learned advocates appearing for the appellant assessee and Mr. Om Narayan Rai, learned Senior Standing Counsel along with Mr. Soumen Bhatacharyya, learned Senior Standing Counsel appearing for the respondent department.

3. The assessee filed the return of income disclosing a total income of Rs. NIL. The return was processed under Section 143(1) of the Act. Subsequently, the case was selected for scrutiny and notices under Section 143(2) and 142(1) were issued and served on the assessee. In response to the said notice, the authorised representative of the assessee appeared and filed details as called for. The assessing officer noted that the business of the assessee is only investment and during the previous year, the assessee had received huge share application money along with the premium. Summons under Section 131 were served on the directors of the assessee calling upon them to produce the proof of identity/Pan Card, list of companies where the directors was a director or shareholder from the assessment year 2008-2009 and the date of appointment along with DIN, proof of acknowledgement of filing personal income tax return, copies of the accounts, proof of address, copy of bank statement of the companies reflecting all transactions during the period 01.04.2011 to 31.03.2012 with complete narration and source of funds, to produce the directors of the investors companies along with the proof of photo identity and copy of bank statements of their compliance reflecting all transactions during the period 01.04.2011 to 31.03.2012 with complete narration and source of funds and right up on justification of large shares premium. The assessing officer records that there was no complaints from the directors of the assessee company in response to the summons issued under Section 131 of the Act and therefore the ide