Sanchayita Lahkar

The High Court at Calcutta, Division Bench comprising Chief Justice T.S. Sivagnanam and Justice Chaitali Chatterjee (Das), dismissed an appeal filed by the Revenue challenging the deletion of an addition of Rs. 32.5 crore under Section 68 of the Income Tax Act, 1961. The court, on 06 May 2025, affirmed that the three necessary elements—identity, creditworthiness, and genuineness—had been established, thereby upholding the Income Tax Appellate Tribunal's (ITAT) earlier decision. The judgment clearly stated that "there is no question of law much less substantial question of law arising for consideration in this appeal."

The matter originated from an assessment proceeding for the Assessment Year (AY) 2012–2013, wherein the assessee, Wise Investment Private Limited, declared a total income of Rs. 42,000. The scrutiny proceedings initiated under Section 143(2) and 142(1) of the Act led the Assessing Officer (AO) to question the receipt of share capital and premium amounting to Rs. 32,50,42,000.

Also Read: Supreme Court Upholds Forfeiture Of Advance Money | Time Held As Essence Of Contract | No Refund Without Alternative Relief Plea

The AO concluded that the share premium was abnormally high and that the assessee had failed to establish the genuineness of the transaction, identity, and creditworthiness of the investors. It was further opined that "dumping papers and documents on the table does not in any way mean compliance with the notice" and termed the investing companies as shell entities used for routing unaccounted money.

On appeal, the Commissioner of Income Tax (Appeals), Kolkata [CIT(A)], called for a remand report. The AO examined directors of both the assessee and the investing companies under Section 131 and acknowledged in the report that the documents provided did not suffer from infirmity. It was found that "the share capital issued by the assessee is explained" and the AO accepted that the "assessee has offered its explanation along with complete documentary evidences and produced the directors of the company for examination."

A second remand report reaffirmed these findings, recording that 25 out of 26 directors of the share applicant companies appeared before the AO and submitted the necessary evidence. Field enquiries were also conducted by a departmental inspector to verify the physical existence of these companies. The CIT(A), on review, stated that the AO had effectively confirmed the identity and creditworthiness of the investor companies and added that the AO had not expressed any dissatisfaction regarding the genuineness of the documents provided.

The Revenue appealed against the CIT(A)'s order before the ITAT, which upheld the deletion of the addition under Section 68. The tribunal reviewed the extensive paper book filed by the assessee and concurred with the CIT(A)'s findings.

The High Court recorded that the fundamental issue was whether the identity, creditworthiness, and genuineness of the investor companies and transactions had been established.

In response to the Revenue's argument regarding the excessive share premium, the court noted that the CIT(A) had considered this issue in detail. The order quoted the CIT(A)'s reasoning:

"It has been explained that this premium was paid on account of the anticipated future prospects of the appellant company... the appellant was engaged in the business of Investment and Finance... had a turnover of over 12.46 crores... the growth... was apparent... profits had grown by over 3 times... the EPS (Earning Per Share) had grown by two and half times to 16% per share of Rs. 10."

The court found that the AO had not disputed the identity or creditworthiness and that the genuineness had been validated through substantial documentation, field enquiries, and personal examination of directors.

Also Read: “Demarcation Is Conclusive, Collector Not Functus Officio”: High Court Orders Compensation Proceedings for Brick Kiln Affected by Highway Expansion

Referring to precedents cited by the Revenue—CIT vs Precision Finance Pvt Ltd, CIT vs NR Portfolio Pvt Ltd, and Navodaya Castles Pvt Ltd—the court clarified that these decisions must be applied contextually. It recorded:

"The CIT(A) had made an elaborate exercise to examine the facts, called for two remand reports after which finding has been recorded in favour of the assessee... Therefore, the above decisions cannot be applied to the facts and circumstances of the case on hand."

The Division Bench concluded that: "there is no question of law much less substantial question of law arising for consideration in this appeal" and accordingly held: "the appeal fails and is dismissed."

Advocates Representing the Parties:

For the Appellant: Mr. Soumen Bhattacharjee, Advocate, Mr. Ankan Das, Advocate, Ms. Shradhya Ghosh, Advocate

For the Respondent: Mr. Abhratosh Majumdar, Senior Advocate, Mr. Avra Mazumdar, Advocate, Mr. Kausheyo Roy, Advocate, Ms. Alisha Das, Advocate, Mr. Suman Bhowmik, Advocate, Mr. Samrat Das, Advocate, Ms. Elina Das, Advocate, Mr. Soumendra Nath Banerjee, Advocate

Case Title: The Principal Commissioner of Income Tax Central 1, Kolkata Versus Wise Investment Private Limited
Case Number: ITAT/238/2024
Bench: Chief Justice T.S. Sivagnanam and Justice Chaitali Chatterjee (Das)

[Read/Download order]