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ARTICLE · 23 MAY 2019

Taxation Of Unexplained Cash Credits: Recent Developments

Nishith Desai Associates
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In this hotline, we discuss three recent judgments which have been pronounced on the subject of the taxation of unexplained cash credits in the form of share capital/ premium under Section 681 of the Income Tax Act.

IndiaTax
Shashwat Sharma
Shashwat Sharma
Ashish Sodhani
Ashish Sodhani
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  • The Supreme Court allows the addition of share premium to the income of a company once field enquiries revealed that some of new shareholders / subscribers were not existent at the addresses supplied by the company in its explanation to the tax authorities.
  • The fact that shareholders had negligible taxable income and were unable to explain the source of the funds used to make the investment at premium in the company held against them by the Supreme Court.
  • Mumbai Bench of the ITAT, however, holds that it is not open to a tax officer to question valuation under Section 68 of the ITA.
  • ITAT disallows the addition of share premium as income of company where company is able to produce comprehensive documentary evidence demonstrating the genuineness of the transaction.

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