Calcutta High Court Rejects Revenue's Bid To Reopen Facts In ₹9.32 Crore Unlisted Share Sale Addition

The Calcutta High Court on 5 October dismissed the Revenue's appeal against deletion of a Rs. 9.32 crore addition relating to sale proceeds from unlisted equity shares of Superdeal Resources Private Limited, finding that the Tribunal's conclusions were based on the evidence on record.

A Division Bench comprising Justices Rajarshi Bharadwaj and Sudip Deb held that the Revenue cannot seek a fresh examination of factual findings in an appeal under Section 260A of the Income Tax Act in the absence of any substantial question of law, particularly where an addition is sought to be sustained on suspicion or generalised allegations. The judges observed:

“The applicability of Section 68 of the Act depends upon the nature of the credit and the material available in the particular assessment year. The assessee must explain the nature and source of the credit and the explanation must be tested on the entirety of the evidence. The Assessing Officer shall consider the surrounding circumstances and the test of human probabilities, but shall not authorise an addition founded on suspicion, generalised allegations or an inference unsupported by evidence.”

The case concerned the assessment of Superdeal Resources for Assessment Year 2022-23. The Assessing Officer had made the Rs. 9.32 crore addition under Section 68 in respect of sale proceeds received from unlisted equity shares.

The Revenue contended that the purchaser entities were shell or paper companies and that the transactions were accommodation entries. The Income Tax Appellate Tribunal (ITAT) deleted the addition after noting that the investments had been acquired in earlier years and were disclosed in the books.

The High Court noted that the Tribunal had considered Superdeal Resources' regular purchase and sale of investments, the movement of the investments over the years and the fact that the sale proceeds were received through banking channels. It also noted that the investments had not been doubted in earlier scrutiny proceedings.

It held that although the Assessing Officer can examine surrounding circumstances and apply the test of human probabilities, an addition under Section 68 cannot be founded on suspicion or generalised allegations unsupported by evidence.

Further, the Bench clarified that its earlier decision in Pr. CIT v. Swati Bajaj does not mean that every sale of unlisted shares, or every transaction involving a company alleged to be a shell entity, must automatically be treated as bogus. The evidence and surrounding circumstances have to be examined as a whole.

It held that whether the documents established the identity, creditworthiness and genuineness of the purchasers, and whether the circumstances warranted an inference of accommodation entry, were essentially questions of fact. The Revenue had not shown that the Tribunal applied an incorrect legal test or ignored any material evidence.

The judges noted that earlier acceptance of the investments did not create an absolute bar against examining a subsequent sale transaction. However, such acceptance remained relevant evidence while considering the Revenue's allegation that the investments themselves were fictitious from the beginning. They observed:

“...In the present case, the Tribunal did not treat earlier assessments as an estoppel in law rather it considered them cumulatively with the books, investment statements, sale documents, bank records, purchaser confirmations and replies to statutory notices. The Revenue's contention therefore does not raise any substantial question of law”

The Bench also held that the Revenue was essentially seeking a reappraisal of the factual record, which falls beyond the limited jurisdiction of the High Court under Section 260A, and found that no substantial question of law arose.

Accordingly, the it dismissed the appeal at the admission stage.

For the Revenue/Appellant: Mr. Soumen Bhattacharjee, Mr. Kuntal Kr. Goswami and Mr. Raunak Seal, Advocates.

For the Assessee/Respondent: Mr. Subash Agarwal and Mr. Smit Shaw, Advocates.