HOLLIS VITRIFIED PRIVATE LIMITED,MORBI, GUJARAT, INDIA V. THE PRINCIPAL COMMISSIONER OF INCOME TAX - 1, RAJKOT, RAJKOT, GUJARAT, INDIA

ITA 363/RJT/2024

AI Insights

Hollis Vitrified Pvt. Ltd. appealed against the order of the Principal Commissioner of Income Tax, Rajkot, which set aside the assessment order for the assessment year 2018-19 under section 263 of the Income-tax Act, 1961. The appeal challenged the revision order which directed a de-novo assessment concerning the share capital subscription under section 68 of the Act. The Tribunal found that the assessing officer had not conducted necessary inquiries into the creditworthiness of the investors and the source of funds, leading to the conclusion that the investments were not genuine. The Tribunal upheld the revision order, emphasizing the need for thorough investigation in cases involving substantial financial transactions.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 836347 (ITAT-RAJKOT)
• Duration Of Justice: 1 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2026
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2018-2019
• Appeal Filed On: 21-05-2024
• Other Referred Cases: PCIT (Central)-1 vs. NRA Iron & Steel Pvt. Ltd, CIT vs. P. Mohanakala, CIT v. Durga Prasad More, Sumati Dayal v. CIT, Umesh Krishnani v. ITO, Neelkanth Commensals (P.) Ltd. v. ITO, Maharaja Corporate Services (P.) Ltd. v. ITO, Deepak Kumar Garg v. ITO, Malabar Industrial Co. Ltd. v. CIT, Vedanta Ltd vs. CIT, Daniel Merchants (P.) Ltd. vs. ITO, Indian Textiles vs. CIT, CIT vs. Emery Stone Manufacturing Company, CIT vs. M. M. Khambhatwala
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SANJAY PUNGLIA
• Assessee Lawyers: FENIL H. MEHTA; LD
• Keywords: Set aside; Opportunity of being heard; Additional evidence; Unexplained cash credit; Capital receipt; Principle of natural justice; Third party statement; TDS; Assessment record; Revision of order; Prejudicial to interest; Bogus
• Section: 147; 143(3); 263; 32; 68; 56(2); 133(6)

Judgement Text

" आयकर अपीलीय अिधकरण,राजकोट Ɋायपीठ,राजकोट। IN THE INCOME TAX APPELLATE TRIBUNAL, RAJKOT BENCH, RAJKOT BEFORE DR. ARJUN LAL SAINI, ACCOUNTANT MEMBER AND DR. DINESH MOHAN SINHA, JUDICIAL MEMBER आयकरअपीलसं./ITA No. 363/RJT/2024 (Assessment Year: 2018-19) (Hybrid Hearing) Hollis Vitrified Pvt. Ltd. Revenue Survey No. 756/P1/P1/P1, Opp. Antique Granito, Ghuntu,-Lakhdhirpur Road, Morbi (Gujarat)-363642 Vs. The Pr. Commissioner of Income Tax-1, Rajkot ˕ायीलेखासं./जीआइआरसं./PAN/GIR No.: AACCH5628Q (अपीलाथŎ/Appellant) (ŮȑथŎ/Respondent) िनधाŊįरतीकीओरसे/Assessee by : Shri Fenil H. Mehta, Ld. AR राजˢकीओरसे/Revenue by : Shri Sanjay Punglia, CIT-DR सुनवाईकीतारीख/ Date of Hearing : 01/12/2025 घोषणाकीतारीख/Date of Pronouncement : 12/02/2026 आदेश/ORDER Per Dr. Arjun Lal Saini, AM: By way of this appeal, the assessee has challenged the correctness of the order dated 31.03.2024 passed by the Learned Principal Commissioner of Income-tax (in short “Ld PCIT”) under section 263 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year 2018-19. Grievances, raised by the assessee, which, being interconnected, will be taken up together, are as follows: “The grounds of appeal mentioned herein below are without prejudice to one another. 1. The revision order u/s 263 of the Act dated 31.03.2024 is bad in law. Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 2 of 37 2. The Hon'ble Pr. CIT-1, Rajkot has erred in law as well as on facts in not considering the submissions of the appellant in true perspective on the strength of which the assessment order was neither erroneous nor prejudicial to the interest of revenue and therefore, the provisions of Section 263 of the Act were not applicable to the case of the appellant. 3. The Hon'ble Pr. CIT-1, Rajkot has erred in law as well as on facts in passing the order u/s. 263 of the Act directing proper inquiries with respect to share capital subscription u/s 68 of the Act which issue is beyond the scope of 'Limited Scrutiny' criterion for the assessment before the Id. A.O. and thus, the same is without jurisdiction and invalid in the eyes of law 4. The Hon'ble Pr. CIT-1, Rajkot has erred in law as well as on facts in setting aside the assessment order passed by the Id. A.O. (NEAC) u/s 143(3) r.w.s. 143(3A) & (3B) of the Act dated 01.04.2021 and directing de-novo assessment to make proper inquiries with respect to share capital subscription of Rs.10,15,00,000/-without controverting the submissions of the appellant. The appellant craves leave to add, alter, amend, delete or withdraw one or more grounds of appeal. 2. The relevant material facts, as culled out from the material on record, are as follows. The Assessee had filed its return of income for assessment year (A.Y.) 2018-19, on 17.09.2018, declaring total income of Rs. Nil. The Assessment was finalized u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Income-tax Act,1961 on 01/04/2021, determining total income at Rs. 1,08,43,431/-. 3. Later on, Learned Principal Commissioner of Income-tax (in short “Ld PCIT”) has exercised his jurisdiction under section 263 of the Income- tax Act, 1961. On perusal of case records, it was observed by ld.PCIT that the assessee had introduced huge amount in the company account in the form of Share Application money amounting Rs. 10,15,00,000/-. On perusal of the audit report of the current year (under assessment) vis-a-vis audit report of the previous year revealed that the company has received share Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 3 of 37 capital & share premium to the tune of Rs. 10,15,00,000/- in financial year (F.Y.) 2017-18. It was further observed by ld.PCIT that share capital and share premium and unsecured loans has been received from 30 persons. Although the assessment record contains the names of all the 30 persons, however, the available details as per the records are incomplete. The records reveal that assessee has submitted only details like Acknowledgement of return of income for all the 30 persons for assessment year (AY) 2018-19 and Bank statements of the depositors only, other than these two details, no others details to prove the credit worthiness of the investors has been filed. The share capital, share premium and unsecured loan received by the assessee from these 30 persons were thoroughly verified. Out of 30 persons, some 25 persons did not have sufficient creditworthiness to make such huge capital. Considering these facts, notice u/s 263 of the Income-tax Act, 1961 was issued, dated 07.02.2024 and duly served upon the assessee, which is reproduced as under. \"In your case, the Assessment for A.Y. 2018-19 was finalized u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Act on 01.04.2021 accepting the retum income of Rs. Nil 2. On perusal of record, it was seen that the case was selected for limited scrutiny under CASS mainly on the reason that \"large share premium received during the year (verify applicability of section 56(2)(viib) or any other relevant section). Therefore, it was incumbent upon the assessing officer to verify all the aspects of the share capital minutely. It was seen that during the previous year 2017-18 relevant to A. Y. 2018-19, the assessee company has received share capital & share premium to the tune of Rs. 10,15,00,000/- which have been subscribed by 30 persons/ entities. Unsecured loans have also been raised from various persons during the year under consideration. 3.The assessee, during the course of assessment proceedings, submitted various documents in support of such share capital receipt and unsecured loans. On perusal of such documents, it was seen that many of such share subscribers have declared returned income in the income bracket of Rs.0.15 lacs to Rs. 5.00 lacs and claimed to have invested amount 6 to 466 times higher to their income which proves that these subscribers are not persons having capacity of making Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 4 of 37 investments irrespective of the chances of return on investments. It is not a secret that share investment in an un-listed company does not give easy exit route and are normally illiquid for a considerable time with few/limited exit options. Further, looking to the income declared by the assessee company, it can be stated that no reasonable return on such investment by way of dividend is visible in these cases. In such scenario, no prudent investor would like to stack such huge amount of money in shares of the assessee- company where no return on investment appeared forthcoming. It was also observed that the assessee had not furnished balance sheet of most of subscribers/lenders in order to gauge the creditworthiness of such subscribers. From the submissions, it is seen that the bank entries of these persons who have invested in the share capital or lent unsecured loans to the assessee are backed by immediate cash/cheque deposits. For example, in case of Shri Anandbhai Dhanjibhai Janva who has invested Rs. 7,47,500/- in the shares and given Rs. 17,52,500/- as loan, having capital of Rs. 8,52,800/-, only as per the balance sheet for the year ended as on 31.03.2018 of Shri Anandbhai Dhanjibhai Janve. The assessing officer has not bothered to examine the true nature of this money and its source in the hands of these shareholders/loan providers. 4. In the present case, apart from filing of ITR, Bank Statement and balance sheet in some cases, no explanation of these share- holders (i.e. the person in whose name the share capital is recorded in the books of assessee-company)is available on record explaining the nature and source of their investment recorded in the books of assessee-company. It is thus seen that the assessing officer accepted the claim of genuineness of Share Capital Investment without making inquiries or verification of the claim, as prescribed in clause (a) & (b) of first proviso to section 68 of the Act. 5. Further, in respect of cases where balance sheets were filed, it is seen that huge unsecured loans were shown as the source for share investment in the assessee- company. From the Balance Sheets / Bank Statements, it appears that most of these loans have been taken for the purpose of Share Capital Investment and unsecured loans. For example, in the case of Shri Ashishkumar AmarshibhaiKagathara, whereas his own capital is Rs. 55.28 lacs, loan taken is about Rs. 126.04 Lacs from which Share Capital and Unsecured loans are provided. Similarly, in the case of Shri MaulikbhaiHasmukhbhaiHalvadia, it is seen that his own capital is Rs.21.93 lacs whereas Rs.40.60 lacs is claimed to have been taken as loan from which Rs. 12.90 lacs invested in the Share Capital and Rs.37.10 lacs is provided as loan during the year. It is further noted that Shri Jayantilal Prabhudashas shown returned income of Rs. 14,960/- which also raises grave doubts on the creditworthiness of the person of investing Rs.69.81 lacs in share capital and unsecured loan during the year under consideration. These are only few instances of such glaring discrepancies and manipulation of Books. The above point to glaring and obvious mismatch/discrepancies between the source of income/funds and the capacity/creditworthiness for making investment in the Share Capital as well as in providing loans. These glaring Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 5 of 37 discrepancies/mismatches should have raised the antenna of the assessing officer and he should have conducted necessary enquiries/verifications. However, the assessing officer accepted the share capital investment and loans without carrying out inquiry/verification that should have been done. 6. First proviso to section 68 of the Act clearly provides that in respect of share capital, explanation offered by the assessee-company shall be deemed to be not satisfactory unless the shareholders offers explanation about the nature and source of such investment and the assessing officer is satisfied about such explanation. First proviso to section 68 of the Act is as under- \"Provided that where the assessee is a company (not being a company in which the public are substantially interest), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (1). The person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited, and (2). Such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory 7. Recently, Hon'ble Supreme Court in a landmark judgment in the case of PCIT (Central)-1 vs. NRA Iron & Steel Pvt. Ltd [2019] 103 taxmann.com 48 (SC) vide order dated. 5/3/2019 upheld the addition of Share Capital/Share Premium in the hands of the Company, in similar facts. The Hon'ble Supreme Court analyzed and discussed various judgments so far on section 68 and pronounced the said judgement. The relevant portion of the above judgment is reproduced hereunder for ready reference \"11. The principles which emerge where sums of money are credited as Share Capital/Premium are i The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the assessing officer, so as to discharge the primary onus. ii The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/subscriber, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 6 of 37 8. It is evident from the facts of the case that the assessing officer, who is duty bound to verify and enquire/investigate the identity and credit-worthiness of the lenders/shareholder and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders, has failed to conduct even preliminary verifications, leave alone conducting investigations and accepted the share capital as well as the unsecured loans as genuine. 9. The facts mentioned above show that the assessment order passed u/s 143(3) r.w.s. 143(3A) & 143(38) of the Act on 01.04.2021 by the Assessing Officer for the A.Y. 2018-19 is erroneous in so far as it is prejudicial to the interests of Revenue as the assessing officer has passed the assessment order without making inquiries or verification which should have been made. In view of the above, I hereby initiate proceedings u/s 263 of the Act with a view to pass a suitable order. Before passing of such order, you are hereby given an opportunity of being heard in the matter. In this connection you are requested to furnish your reply/submission / explanation or objection if any by mail address [e-mail]/speed post/personally to this office on or before 14.02.2024” 4. In response to such notice, the assessee, vide letter dated 15.02.2024 has requested for adjournment till 21.02.2024. However, the assessee submitted its reply on 29-02-2024 before the ld. PCIT. The assessee submitted that during the course of assessment proceedings, the A.O. raised specific queries with respect to the said 'Share Premium' charged on the shares allotted during the year including valuation of shares and in response, the detailed submission was furnished before the ld. A.O. by clearly justifying valuation of shares at Rs.25.86 per share against issue price of Rs. 20/- per share as required u/s. 56(2) (viib) of the Act. Besides, the assessee also submitted required details and documents before the assessing officer for each shareholder, to prove identity, creditworthiness and genuineness, therefore assessment order framed by the assessing officer should not be erroneous and prejudicial to the interest of the revenue. Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 7 of 37 5. However, the Pr. CIT rejected the above reply of the assessee and observed that the contention of the assessee that as the case was selected for limited scrutiny, examination of the creditworthiness etc. of the persons who have invested in share capital in terms of section 68 was outside the purview of the assessment proceedings. The contention of the assessee was not accepted by ld. PCIT. One of the reasons for selection of case under scrutiny is large share premium received during the year. Share premium is paid as part of investment in share capital of the company, hence while examining the share premium, it was incumbent on the assessing officer to examine the identity and creditworthiness of the persons who have subscribed to share capital and paid share premium and the genuineness of such transactions. During the course of assessment proceedings, assessee submitted various documents in support of such share capital receipt and unsecured loans. On perusal of such documents, it was seen that many of such share subscribers have declared returned income in the income bracket of Rs.0.15 lacs to Rs.5.00 lacs and claimed to have invested amount to 400 times higher to their income which proves that these subscribers are not persons having capacity of making investments irrespective of the chances of return on investments. It is not a secret that share investment in an un-listed company does not give easy exit route and are normally liquid for considerable time with few limited exit options. Further, looking to the income declared by the assessee- company can be stated that no reasonable return on such investment by way of dividend is visible in these cases in such scenario, no prudent investor would like to stack such huge amount of money in shares of the assessee- company where no return on investment appeared forthcoming. It was also observed that the assessee had not furnished balance sheet of Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 8 of 37 most of subscribers lenders in order to gauge the creditworthiness of such subscribers. From the submissions, it is seen that the bank entries of these persons who have invested in the share capital or lent unsecured loans to the assessee are backed by immediate cash/cheque deposits. For example, in case of Shin Anandthai Dhanithailanva who has invested Rs.7,47,500/- in the shares and given Rs.17,52,500/- as loan having capital of Rs.8,52,800/- only as per the balance sheet for the year ended as on 31.03.2018 of Shri Anandbiha Dhanjibhajanva. The assessing officer has not bothered to examine the true nature of this money and its source in the hands of these shareholders/loan providers. 6. The ld. PCIT noted that in the present case, apart from fling of ITR, Bank Statement and balance sheet some cases, explanation of these shareholders (i.e., the person in whose name the share capital is recorded in the books of assessor company is available on record explaining the nature and source of their investment recorded in the books of assessee-company. It is thus seen that the assessing officer accepted the claim of genuineness of Share Capital Investment without making inquiries or verification of the claim, as prescribed in clause (a) & (b) of first proviso to sec. 68 of the Act. In respect of cases, where balance sheets were filed, it is seen that huge unsecured loans were shown as the source for share investment in the assessee-company. From the Balance Sheets/Bank Statements, it appears that most of these loans have been taken for the purpose of Share Capital Investment and unsecured loans. For example, in the case of Shri Ashishkumar Amarshibha Kagattara, whereas his own capital is Rs.55.28 lacs, loan taken is about Rs.126.04 Lacs from which Share Capital and unsecured loans are provided. Similarly, in the case of Shri Mallabha Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 9 of 37 Hasmukhbhal Halvadia, it is seen that his own capital is Rs.21.93 lacs whereas Rs.40.60 lacs is claimed to have been taken as loan from which Rs.12.90 lacs invested in the Share Capital and Rs.37.10 lacs is provided as loan during the year and it is further noted that Shri Jayantilal Prabhudashas shown returned income of Rs.14,960/-, which also raises grave doubts on the creditworthiness of the person of investing Rs.69.81 lacs in share capital and unsecured loan during the year under consideration. These are only few instances of such glaring discrepancies and manipulation of Books. The above point to glaring and obvious mismatch/discrepancies between the source of income/funds and the capacity/creditworthiness for making investment in the Share Capital as well as in providing loans. These glaring discrepancies/mismatches should have raised the antenna of the assessing officer and he should have conducted necessary enquiries/verifications. However, the assessing officer accepted the share capital investment and loans without carrying out inquiry/verification that should have been done. The assessee was also required to furnish the explanation about nature & source as well as to prove the capacity of creditors to advance money. However, the assessee failed to furnish/prove the same. The assessing officer did not carry out any enquiry to examine the creditworthiness of the persons who are said to have subscribed to the share capital in view of the huge discrepancies/mismatches as mentioned above. 7. The ld. PCIT noted that it is a trite law, approved and reiterated by Hon'ble Supreme Court in several of its judgements, that to satisfactorily explain the nature and source the assessee must establish the following three ingredients: (1) Identity of his creditors, (2) Capacity of creditors to advance money, and (3) Genuineness of transaction. The assessee not only has to Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 10 of 37 give explanation about nature & source on three basic ingredients, the explanation has to be proper, reasonable & acceptable. Hon'ble Supreme Court in the case of CIT VS. P. Mohanakala 291 ITR 278 (SC), while considering the scope of section 68, observed that the expression the assessee offers no explanation means where the assessee offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessee. While discussing the phrases proper, reasonable & acceptable, Hon'ble Apex Court in case of CIT v. Durga Prasad More [1971] 82 ITR 540 (SC) has pronounced that \"Science has not yet invented any instrument to test the reliability of the evidence placed before a Court or Tribunal. Therefore, the Courts and Tribunals have to judge the evidence before them by applying the test of human probabilities\" This test of human probability has again been reiterated by Hon'ble Apex Court in the case of Sumati Dayal v. CIT (214 ITR 801 (SC), wherein it was specifically pronounced that revenue authorities are supposed to consider the surrounding circumstances and apply human probability.The principles which emerge where sums of money are credited as Share Capital/Premium are: (i). The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the assessing officer, so as to discharge the primary onus. (ii). The Assessing Officer is duty bound to investigate the credit- worthiness of the creditor/subscriber, verify the identity of the subscribers, Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 11 of 37 and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. (iii). If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary anus contemplated by Section 60 of the Act. 8. The ld.PCIT also noticed that under section 68, the onus is on the assessee to offer explanation where any sum is found credited in the books of account and where the assessee fails to prove to the satisfaction of the Assessing Officer, the source and nature of the amount of cash credits, he is entitled to draw an inference that the credit entries represent income taxable in the hands of the assessee. It is not the duty of the Assessing Officer to locate the exact source of the cash credits. The burden to identify the source lies upon the assessee and he is required to explain the genuineness of the credit entry. Hon'ble Delhi High Court in the case of CIT v Independent Media (P.) Ltd. [2012] 25 taxmann.com 276 (Delhi) held that for making addition under section 68, it is not incumbent upon assessing officer to establish that money had come from assessee's coffers. In A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC), Supreme Court observed that it was not the duty of the Revenue to adduce evidence to show from what source, income was derived and why it should be treated as concealed income. The assessee must prove satisfactorily the source and nature of cash received during the accounting year. Similarly, observations were made in Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 12 of 37 CIT v. M. Ganapathi Mudaliar [1964] 53 ITR 623 (SC), inter alia holding that it was not necessary for the Revenue to locate the exact source. This principle was reiterated in CIT v. Devi Prasad Vishwanath [1969] 72 ITR 194 (SC), wherein the contention that the Assessing Officer should indicate the source of income before it was taxable, was described as an incorrect legal position. Thus, when there is an unexplained cash credit, it is open to the Assessing Officer to hold that it was income of the assessee and no further burden lies on him to show the source. If assessing officer is not satisfied and asks additional evidences from assessee, the assessee is duty bound to produce further details or persons for verification. The assessee cannot take the plea that he has submitted some papers and his onus has been discharged. If assessing officer tries to probe on his own, and gathers some material, which is sufficient to cast doubt on source & nature of credit, it is the duty of assessee to provide further explanation and material as required by assessing officer. Similarly, if the assessing officer at any stage of probe reaches a dead end, and informs the assessee about the same, it is duty of assessee, to help him in and provide whatever is asked and is in his possession, to resolve that dead end. This position of shifting of onus depends on the specific facts of any case. 9. The Ld. PCIT relied on the judgment of Hon'ble Delhi High Court in the case of Riddhi Promoters (P.) Ltd. v. CIT [2015] 58 taxmann.com 367 (Delhi) wherein it was held that it is not sufficient that the identity of the share applicant or the creditor should be established for the assessee to discharge the initial onus, which is upon the assessee. Under the requirement of Section 68, the assessee has to further satisfy the Revenue as to the genuineness of the transaction and the creditworthiness of the share Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 13 of 37 applicant or the individual who is advancing amounts. The ld. PCIT further relied on the following decisions: (1)Though the Assessing Officers, often, acts on confirmatory letters as evidence, the onus does not get discharged merely by such confirmatory letters as found in CIT v. United Commercial and industrial Co. (Pvt.) Ltd. [1991] 187 ITR 596 (Cal). (2)In the case of Kamal Motors v. CIT [2003] 131 Taxman 155 (Raj.), it was held that the responsibility is on the assessee to discharge the onus that the cash creditor is a man of means to allow the cash credit. (3) Hon'ble Rajkot bench of ITAT in the case of Lado Ceramic (P.) Ltd. v. PCIT [2023] 157 taxmann.com 194 (Rajkot - Trib.) held that where assessee had issued equity share to certain persons and out of 21 persons, only four persons had filed their balance sheets, which showed that huge amount of unsecured loans was availed by them and investments in share capital of assessee-company were made out of borrowed funds but A.O had accepted said share capital investment, enquiry made by Assessing Officer was not adequate and accordingly, order passed by Assessing Officer was erroneous and prejudicial to interests of revenue. (4)In the case of Umesh Krishnani v. ITO [2013] 35 taxmann.com 598/217 Taxman 13 (Gujarat), the Gujarat High Court held that where substantial amount was deposited in bank accounts of lenders shortly prior to issuance of cheques by them, transaction in question being sham, loan amount was to be added to assessee's taxable income under section 68. (5) In the case of Neelkanth Commensals (P.) Ltd. v. ITO [2022] 135 taxmann.com (Calcutta), the Hon'ble High Court held that even under non- amended provision of Section 68, an Income-tax Officer was not precluded from making an inquiry about true nature and source of sum found credited in books of assessee, even if same was credited as receipt of share application money. (6) Hon'ble Ahmedabad bench of ITAT in the case of Maharaja Corporate Services (P.) Ltd. v. ITO [2024] 158 taxmann.com 42 (Ahmedabad - Trib.) held that simply because a transaction has been carried out through banking channels or confirmation of the parties has been furnished would not make a non-genuine transaction into genuine one, and all the concerning facts of the case to be looked into in totality. 10. The ld. PCIT noticed that it is evident from the facts of the case that the assessing officer, who is duty bound to verify and enquire the identity and credit-worthiness of the creditor and ascertain whether the transaction is Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 14 of 37 genuine, or these are bogus entries of name-lenders etc, has failed to conduct even preliminary verifications and accepted the unsecured loans as genuine. In the case of CIT v. Deepak Kumar Garg [2008] 299 ITR 435 (Madhya Pradesh), the High Court held that where from order of Assessing Officer, it was clear that where the Assessing Officer had done only a semblance of enquiry and, that too, in very slipshod manner and Assessing Officer had accepted version of assessee without proper enquiry, as a result of which substantial amount of taxable income was not brought to tax, Commissioner rightly held assessment order as erroneous and prejudicial to interest of revenue. In view of the above facts, it was observed by ld. PCIT that the order passed u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Income-tax Act, 1961 on 01/04/2021 by the assessing officer is erroneous since the assessing officer not made inquiries regarding creditworthiness of persons who are said to have subscribed to the share capital of the assessee- company. It is a settled legal position that any order passed by the assessing officer without proper inquiry and investigation is erroneous and prejudicial to the interest of revenue. The assessing officer passed the assessment order without examination, enquiry and verification in respect of the issue(s) raised in the Show Cause Notice. It was held by the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 109 Taxman 66/243 ITR 83 (SC) that if due to an erroneous order of the Income-tax Officer, the revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the revenue. Hon'ble Supreme Court in the case of CIT v. Paville Projects (P.) Ltd. [2023] 149 taxmann.com 115 (SC) has held as under: \"7.2 Thus, even as observed in paragraph 9 by this Court in the case of Malabar Industrial Co. Ltd. (supra) that the scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. It is further observed that if due to an erroneous Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 15 of 37 order of the Income-tax Officer, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. However, only in a case where two views are possible and the Assessing Officer has adopted one view, such a decision, which might be plausible and it has resulted in loss of Revenue, such an order is not revisable under section 263.\" 11. Hon'ble Bombay High court in the case of Vedanta Ltd [2021] 124 taxmann.com 435 has held that \"Where assessment was completed without proper inquiries, Commissioner was competent to invoke revisional jurisdiction and direct Assessing Officer for fresh assessment\". Hon'ble Kolkata High court in the case of Daniel Merchants (P.) Ltd. [2018] 95 taxmann.com 365 (SLP dismissed by Hon'ble Supreme Court in [2018] 95 taxmann.com 366) has held as under: \"5. In all these cases, we find that the Commissioner of Income Tax had passed an order under section 263 of the Income-tax Act, 1961 with the observations that the Assessing Officer did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry. It is this order which is upheld by the High Court. We see no reason to interfere with the order of the High Court.\" 12. It has been held in the following cases that jurisdiction of revision proceedings u/s 263 by the Commissioner is warranted in a case where assessments have been made without enquiry or verification: (i) CIT v. Himachal Pradesh Financial Corpn. [2010] 186 Taxman 105 (Himachal Pradesh) The Commissioner has power to exercise jurisdiction, if the order of the Income-tax Officer is erroneous and prejudicial to the interest of the Revenue. An incorrect assumption of fact or an incorrect application of law would satisfy the requirement of the order being erroneous. The expression \"prejudicial to the interest of Revenue\" as understood in its ordinary meaning is of wide import and not confined to the loss of tax alone. If due to an erroneous order of the Assessing Officer, the revenue is loosing, as lawfully payable by a person, it should be certainly prejudicial to the interest of Revenue. (ii) CIT v. Jawahar Bhattacharjee [2012] 24 taxmann.com 215 (Gauhati) Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 16 of 37 Jurisdiction under section 263 can be exercised, whenever it is found that the order of assessment was erroneous and prejudicial to the interest of the revenue. Cases of assessment order passed on wrong assumption of facts, on incorrect application of law, without due application of mind or without following principles of natural justice are not beyond the scope of section 263. (iii) Kumar Rajaram v. ITO [2016] 67 taxmann.com 110 (Chennai - Trib.) In order to ascertain whether an order sought to be revised under s. 263 is erroneous, it should be seen whether it suffers from any of the aforesaid forms of error. In our view, an order sought to be revised under s. 263 would be erroneous and fall in the aforesaid category of \"errors\" if it is, inter alia, based on an incorrect assumption of facts or an incorrect application of law or non- application of mind to something which was obvious and required application of mind or based on no or insufficient materials so as to affect the merits of the case and thereby cause prejudice to the interest of the Revenue. (iv) Addl. CIT v. Krishna Narayan Naik [1984] 150 ITR 513 \"An order could be said to be erroneous when either it did not decide a point and record a finding on an issue which ought to have been done or decided it wrongly.\" 13. The ld. PCIT also noted that with effect from 01/06/2015, Explanation 2 to the section 263(1) has been inserted by which scope of section 263 of the Act has been expanded by incorporating the concept of \"deemed to be erroneous\". The same is reproduced as under: “Explanation 2.-For the purposes of this section, it is hereby declared that an order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, it, in the opinion of the Principal Commissioner or Commissioner; - (a) The order is passed without making inquiries or verification which should have been made; (b) The order is passed allowing any relief without inquiring into the claim; (c) The order has not been made in accordance with any order, direction or instruction issued by the Board under Section 119; or (d) rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person. The order has not been passed in accordance with any decision which is prejudicial to the assessee, 14. Once in the opinion of Ld. PCIT, the order is passed without making inquiries or verification which should have been done is not done, such order Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 17 of 37 needs to be treated as \"erroneous\". It is apparent from assessment order that assessing officer has not applied his mind and has not conducted any enquiry. Keeping in view above these facts, the ld PCIT was of the view that this is a fit case for invoking section 263 of 1. T. Act, as the twin conditions namely, (i) the order of the Assessing Officer sought to be revised is erroneous: and (ii) it is prejudicial to the interests of the revenue, are satisfied. Accordingly, the impugned assessment order passed by the A.O. u/s 143(3) r.w.s. 143(3A) & 143(3B) of the Income-tax Act, 1961 on 01/04/2021 was set aside by ld. PCIT for fresh assessment only to the extent of the issues discussed (supra) and ld. PCIT directed the Assessing Officer to pass a fresh assessment order after making necessary enquiries. 15. Aggrieved by the order of ld. Pr. CIT, the assessee is in appeal before us. 16. Learned Counsel for the assessee, vehemently argued that assessee’s case was reopened for limited scrutiny purpose to verify the exports and to verify the share premium/share capital. The Assessing Officer to verify the share premium, has issued the notice to the assessee, which is placed at paper book page no. 59 wherein specific query was raised by the ld. A.O. In response to the notice of the Assessing Officer during the assessing proceedings, the assessee submitted its reply before the A.O. and following documents were produced: (1) Copy of PAN submitted to prove the genuineness and identity of the shareholders. (2) Copy of Bank statement for the Year 2017-18. Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 18 of 37 (3). Duly signed contra confirmation ledger for the Year 2017-18. (4). Copy of IT return along with computation of income. (5). Copy of financials for the relevant year. Hence, learned Counsel submitted that order passed by the assessing officer is neither erroneous nor prejudicial to the interest of the revenue. 17. On the other hand, ld. D.R. for the revenue submitted that assessee’s case pertains to assessment at 2018-19, therefore assessee needs to prove source of the source in respect of the share capital/share premium received by it, however, no any documentary evidences were produced by the assessee, before the assessing officer to prove the source of source as per the mandatory requirement of section 68 of the Act. The ld DR further stated that even to prove the source of the share capital/share premium, assessee has not furnished the sufficient documentary evidences. 18. The ld. D.R. for the revenue further submitted that assessing officer has not examined the share premium, and no question was asked by the assessing officer about how the share premium is fixed by the assessee. Just to rely on the certificate of the outsider in respect of the share premium is not sufficient. The A.O. need to conduct further inquiry whether the share premium amount fixed the assessee is correct or not. 19. The Ld. DR for the revenue also submitted that when the AO passed the appeal effect order u/s 143(3) r.w.s. 263 of the Act dated 24.03.2025 wherein the assessee even failed to prove the source of the source in respect of share capital. With effect from AY 2013-14, the assessee needs to prove the source of the source, in respect of share capital / share premium. Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 19 of 37 However, in the appeal effect order, the assessee failed to prove the source of the source, hence, order passed by the AO is certainly erroneous and prejudicial to the interests of revenue. The Ld. DR also submitted that some of the shareholders have only meager income and very small income, which does not satisfy the criteria of creditworthiness. Some of the shareholders even did not file return of income and contributed the amount to the assessee-company by way of share-capital and unsecured-loans. The unsecured loan is very much connected with the share capital and share premium and therefore the assessee has failed to prove the genuineness and creditworthiness of share capital as well as unsecured loans. The Ld. PCIT has given lot of examples of shareholders and the persons who had given unsecured loans to the company, stating that these shareholders do not have capacity to lend the money to the company. There were lot of discrepancies and mismatches for making investments in share capital as well as in providing loans as these persons do not have capacity and creditworthiness to lend the amount to the company, therefore, assessee-company has failed to prove the genuineness and creditworthiness of these shareholders and hence, the jurisdiction exercised by the Ld. PCIT is correct. Therefore, the Ld. DR for the revenue referring to the above provisions of section 68 of the Act, submitted that with effect from 01.04.2013, it is mandatory for the assessee to prove the source of the source to explain the genuineness of the share capital / share premium which the assessee failed to do so. Therefore, Ld. PCIT has rightly exercised the jurisdiction u/s 263 of the Act and hence, the order passed by the Ld. PCIT should be upheld. Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 20 of 37 20. We have heard the rival parties and have gone through the material placed on record. For the sake of clarity and also being pertinent, we reproduce, the provisions of section 68 of the Income tax Act 1961, as follows: “Cash credits. 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year : Provided that where the sum so credited consists of loan or borrowing or any such amount, by whatever name called, any explanation offered by such assessee shall be deemed to be not satisfactory, unless,— (a) the person in whose name such credit is recorded in the books of such assessee also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless— (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided also that nothing contained in the first proviso or second proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.” 21. From the above provisions of section 68 of the Income Tax Act, it is vivid that where any sum is found credited in the books of an assessee Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 21 of 37 maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not satisfactory in the opinion of the assessing officer, the sum so credited may be charged to income tax as the income of the assessee of that assessment year. The assessing officer may consider such sum as cash credit due to lack of sufficient explanation. It is well known that provisions of section 68 have been introduced into the taxing enactments step by step in order to plug loopholes. Even long prior to the introduction of section 68 of the Act, in the statute book, courts had held that where any amounts were found credited in the books of the assessee in the previous year and the assessee offered no explanation about the nature and source thereof or the explanation offered was, in the opinion of the assessing officer, is not satisfactory, the sums so credited could be charged to income-tax as income of the assessee of the relevant assessment year. We note that with effect from assessment year 2013-14, section 68 of the Income Tax Act has been amended to provide that if a closely held company fails to explain the source of share capital, share premium or share application money received by it to the satisfaction of the assessing officer, (source of the source) the same shall be deemed to be the income of the company under section 68 of the Act. We note that the amended provisions of section 68, is applicable to the assessee -company under consideration, as the assessee`s, assessment year is 2018-19. The Hon`ble Bombay High Court, in the case of Gagandeep Infrastructure 80 Taxmann.Com 272 (Bom), held that amendment to section 68 is prospective and applicable only from assessment year 2013-14. Therefore, as per mandatory provisions of section 68 of the Act, the assessee needs to explain the source of the source, however, we note that assessee has failed to file the Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 22 of 37 relevant documentary evidences before the assessing officer to prove the source of the source, in respect of the share capital/share premium, therefore, assessment order framed by the assessing officer is not sustainable in the eye of law and it is erroneous as mandatory provisions of section 68 were not followed by the assessing officer. 22. We also note that for unsecured loan, the assessee has also failed to prove the source and assessee also failed to prove the creditworthiness and genuineness of the loan, hence assessment order framed by the assessing officer, is erroneous and prejudicial to the interest of the revenue. We note that the assessee- company has received share capital & share premium to the tune of Rs.10,15,00,000/- in financial year (F.Y.) 2017-18 and the share capital and share premium and unsecured loans has been received from 30 persons. Although the assessment record contains the names of all the 30 persons, however, the available details as per the records are incomplete. The records reveal that assessee has submitted only details like Acknowledgement of return of income for all the 30 persons for assessment year (AY) 2018-19 and Bank statements of the depositors only, other than these two details, no others details to prove the credit worthiness of the investors has been filed. The share capital, share premium and unsecured loan received by the assessee from these 30 persons were thoroughly verified by ld. PCIT and ld. PCIT noted that out of 30 persons, the 25 persons did not have sufficient creditworthiness to make such huge capital and assessing officer has not examined these facts. Therefore, order passed by the assessing officer is erroneous and prejudicial to the interest of the revenue. Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 23 of 37 23. We also note that assessing officer has framed the appeal effect order under section 263 read with section 143(3) of the Act, read with section 144B of the Act, dated 14.03.2025. In this appeal effect order, the assessee again failed to file the documentary evidence to prove the source of the source in respect of share capital/share premium, and source in respect of unsecured loan. The findings of the assessing officer in the appeal effect order is reproduced below for ready reference: “3.6 Summary of information evidence collected after SCN (if any). 3.7 Point-wise rebuttal of reply of the assessed including analysis of any case law relied upon. 3.7.1 The assessee in his reply stated the show cause notice issued proposing the addition of Rs.31,34,61,409/- is high pitched assessment and traveling beyond the jurisdiction conferred by virtue of order u/s 263 of the act. The assessee further stated that the Hon'ble PCIT, vide impugned order u/s. 263 of the Act dated 31.03.2024, has set-aside the aforesaid assessment order passed u/s. 143(3) of the Act dated 01.04.2021 by the Id. A.O. under the 'Limited Scrutiny' criterion only by doubting the creditworthiness of shareholders as well as non-compliance to the requirements of the Proviso to Section 68 of the Act. In view of his contention, it is submitted that in similar case of PCIT (Central)-1vs NRS Iron 7 Steel Pvt. Ltd. [2019], Hon'ble Supreme court upheld the addition of share capital/share premium in the hands of the company. The relevant portion of the above judgment is reproduced hereunder for ready reference:- \"11. The principles which emerge where sums of money are credited as Share Capital/Premium are: 1. The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the question to the satisfaction of the assessing officer, so as to discharge the primary onus. 2. The Assessing Officer is duty bound to investigate the credit-worthiness of the user, verify the identity of the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders 3. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubt, or lack credit-worthiness, then the genuineness of the transaction would not be established. Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 24 of 37 In view of the above contention of the assessee is not acceptable. The PCIT u/s. 263 of the I.T. Act, has set aside the case for doing the de novo. As the issue under scrutiny assessment was inter-linked, the contention that it should be limited to share capital when the unsecured loans are also from the same source. As the assessee is duty bound to prove the credit-worthiness of creditor/investor to prove the genuineness of the investment in share capital and providing unsecured loan, however he failed to prove the same. 3.7.2 The assessee filed his reply in response to show cause notice issued to him after conducting of VC, wherein he mainly contented the ample time was not provided during the VC. In this regard it is submitted that initially 15 minutes time was allotted for the VC, however it was extended up to pprox.. 45 minutes. Hence, his contention for not providing the ample time is not correct. He was provided sufficient time to explain facts of the case. As per the guideline issued by the CBDT for conducting of VC, it is mentioned that “Only assessee can join VC. If any authorized representative has been appointed through e-filling account for such proceeding, then both assessee and authorized representative can join.” For the same representative of the assessee asked to produce the authorization for attending the VC. However, the representative of the assessee failed to provide the same till date. 3.7.3 Further, the assessee in his submission stated that reasonable opportunity was not granted to him to present his case and without appreciating his detailed submission huge variation is proposed in show cause notice. In this regard it is submitted that the assessee was provided sufficient opportunity to make submission and also provided VC to present his case. The details of opportunity provided to him are given below: Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 25 of 37 In view of the above detail of opportunity provided to assessee, it is concluded that the assessee was only adopting the delay tactics during the assessment proceeding. He has not filed any submission on due date provided to him to make submission. However, for the sake of natural justice he was provides time whenever he asked for the adjournment. This fact is reflecting in the table given above. Now, at the last movement after show cause notice, the assessee is saying not sufficient time provided to him is totally incorrect. 3.7.4 Further, the assessee has also filed another reply containing 38 pages and 57 annexure (however, reply filed without any annexure on the portal) wherein in details he tried to prove the creditworthiness of the investor who had made investment in share capital and share premium and also provided unsecured loan to the assessee company. However, on perusal of the same it is found that the assessee has failed to substantiate his claim and to prove the creditworthiness of Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 26 of 37 all the investor. On carefully perusal of reply of the assessee and all the submission made by the investors to whom the notice u/s 133(6) of the act was issued. It is found that all the investors are not having creditworthiness to made investment in share capital and share premium and providing unsecured loan. They all have taken huge unsecured loan to make investment and to further provide unsecured loan to the assessee company. They are not having any self- sufficient income to make investment and to give unsecured loan to company. For example one case of Mr. Mahadevbhai R.Kanani is reproduced below: On perusal of the above submission of assessee, it is found a very unique case that party has invested at his salary, provident fund, commuted pension and also taken huge unsecured loan to make investment of Rs.28,05,000/- in the assessee company. How any person can make a huge investment in an unlisted company without any guarantee and possibility of good return on the investment. On the perusal of his balance sheet it is also pertinent to mention here that he has not investment in any other company share. In all the cases a same pattern is observed that parties are investing and providing unsecured loan Assessee Company by taking huge unsecured loan from Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 27 of 37 other parties. Nobody is having credit worthiness to make such a huge investment in Assessee Company. 3.7.5 Further, the assessee in his submission stated that the impugned difference of Rs.8,82,18,007/- (wrongly taken Rs.8,21,51,884/-) is nothing but representing the opening balance of the share capital subscription by the shareholder and the same does not represent any receipt or payment during the year under consideration. Therefore, proposed huge addition of Rs.8,82,18,007/- u/s. 69 r.w.s. 115BBE of the Act is factually incorrect and completely misconceived. In this regard the assessee has not provided any documentary evidence to substantiate his claim. The assessee has not provided copy of share application, bank statement, board resolution for receiving the unsecured loan and allotment of share to investors. In absence of all these documents, the claim of opening balance is not acceptable. In absence of all the requisite documents, the share allotment year is not ascertainable. 3.8 Conclusion drawn: 3.8.1 During the year under consideration, the assessee had introduced huge amount in the company account in the form of Share Application money amounting Rs.10,15,00,000/-. On perusal of the audit report of the current year (under assessment) vis-à-vis audit report of the previous year revealed that, the company has received share capital & share premium to the tune of Rs.10,15,00,000/- in F.Y 2017-18. It is evident from the facts of the case that the assesse failed to prove the identity and credit-worthiness of the investor who invested as share application money/share capital/share premium. Therefore as per the provision of section 68 of the Income Tax Act, 1961, whenever any sum is found credited in the books of accounts of the assessee then the assessee has to offer an explanation about nature, and source of such credit and explanation offered by him should be found satisfactory by the Assessing Officer. However, the assessee failed to provide the requisite details as asked during the assessment proceedings. Thus in this case as per provision of section 68 such credit amounting to Rs.10,15,00,000/- reflecting in his book is hereby treated as unexplained credit as per section 68 of the Income Tax Act, 1961. 3.8.2 In view of the above facts and material on record a detailed Show- Cause Notice (SCN) was sent to the assessee requiring him to explain as to why the share capital & share premium amounting to Rs.10,15,00,000/- credited in his books of accounts is not considered as unexplained cash credit u/s 68 of the Income Tax Act. The assesses has not submitted any reply on this issue in response to SCN issued to him. Therefore, such cash credit is remained unexplained u/s 68 as the assesse failed to provide any reply on this issue. The value of the credit is considered as the income of the assessee for the year under consideration. Therefore, an addition of Rs.10,15,00,000/- is hereby made u/s 68r.w.s. 115BBE of the income Tax Act and Penalty proceedings u/s 271AAC(1) is hereby initiated separately. Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 28 of 37 3.8.3 During the assessment proceedings, notices u/s 133(6) of the act issued to all 30 parties who had made investment in share capital and share premium, who had made investment in the assessee’s company as a share capital/share premium. In response to the said notice the details filed by the parties. The assessee had also provided audited balance sheet and profit and loss account. On perusal of the replies filed by the parties and details submitted by the assessee, following details has been summarized: Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 29 of 37 Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 30 of 37 On perusal of the above table it is found that the assessee has received unsecured loan amounting to Rs.11,17,22,379/- from the above mentioned parties. The creditworthiness of investor and genuineness of transactions who had also provided unsecured to assessee are doubtful. It is observed from the bank account statements of parties that before making investment or provided unsecured loan are backed by immediate cash/cheque deposit. For example, in case of Shri Anandbhal Dhanjibhai Janva who has invested Rs.7,47,500/- in the shares and given Rs.17,52,500/- as loan, having capital of Rs.8,52,800/- only as per the balance sheet for the year ended as on 31.03.2018 and opening balance in his bank account was nil for the F.Y.2017-18 of Shri Anandbhai Dhanjibhai Janva. Further, on perusal of the balance sheet filed by parties in response to notice issued u/s 133(6), it is seen that huge unsecured loans were shown as the source for share investment in the assessee-company. From the Balance Sheets / Bank Statements, it appears that most of these loans have been taken for the purpose of Share Capital Investment and unsecured loans. For example, in the case of Shri Ashishkumar Amarshibhai Kagathara, whereas his own capital is Rs. 55.28 lacs, loan taken is about Rs. 126.04 Lacs from which Share Capital and Unsecured loans are provided, it is also pertinent to mention here that he was having opening balance in his bank account as on 01.04.2017 amounting to Rs.3,68,462/- as per the bank account statement provided by him. Similarly, in the case of Shri Maulikbhai Hasmukhbhai Halvadia, it is seen that his own capital is Rs.21.93 lacs whereas Rs.40.60 lacs is claimed to have been taken as loan from which Rs.12.90 lacs invested in the Share Capital and Rs.37.10 lacs is provided as loan Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 31 of 37 during the year, it is also pertinent to mention here that he was having opening balance in his bank account as on 01.04.2017 amounting to Rs.30,472/- as per the bank account statement provided by him. It is further noted that Shri Jayantilal Prabhudas has shown returned income of Rs.14,960/- which also raises grave doubts on the creditworthiness of the person of investing Rs.69.81 lacs in share capital and unsecured loan during the year under consideration. In this case also opening balance was amounting to Rs.1,000/- as per the bank account statement provided by him, 3.8.4 On perusal of information received in response to the notice issued u/s. 133(6) of the Income tax Act, it is found that the assessee has received unsecured loan amounting to Rs.11,17,22.379/- from all the 30 parties. However, the creditworthiness of investor who had also provided unsecured loan to assessee are doubtful. It is observed from the bank account statements of parties that before making investment or provided unsecured loan are backed by immediate cash/cheque deposit. Further, on perusal of the balance sheet filed by parties in response to notice issued u/s 133(6), it is seen that huge unsecured loans were shown as the source for share investment and to provide unsecured loan to the assessee-company. From the Balance Sheets / Bank Statements, it appears that most of these loans have been taken for the purpose of Share Capital Investment and unsecured loans. Therefore as per the provision of section 68 of the Income Tax Act, 1961, whenever any sum is found credited in the books of accounts of the assessee then the assessee has to offer an explanation about nature, and source of such credit and explanation offered by him should be found satisfactory by the Assessing Officer. However, the assessee failed to provide the requisite details as asked during the assessment proceedings. Thus in this case as per provision of section 68 such credit amounting to Rs.11,17,22,379/- reflecting in his books is hereby treated as unexplained credit as per section 68 of the Income Tax Act, 1961. 3.8.5 In view of the above facts and material on record a detailed Show- Cause Notice (SCN) was sent to the assessee requiring him to explain as to why the unsecured loan amounting to Rs.11,17,22,379/-credited in his books of accountsis not considered as unexplained cash credit u/s 68 of the Income Tax Act. The assessee has furnished his reply in response to SCN issued to him. In his reply the assessee submitted reconciliation chart of unsecured loan. On perusal of the same, it is found that opening balance of unsecured loan is amounting to Rs.2,52,52,022/-and interest amount Rs.35,70,069/- and TDS amount Rs.3,57,008/- and repayment of unsecured loan of Rs.3,33,744/- net closing balance of unsecured loan accepted during the F.Y.2017-18 of Rs.8,36,60,540/-. The contention of the assessee is accepted and unsecured loan for the year under consideration is taken amounting to Rs.8,36,60,540/-, Therefore, such cash credit is remained unexplained u/s 68 as the assesse failed to provide any reply on this issue. The value of the credit is considered as the income of the assessee for the year under consideration. Therefore, an addition of Rs.8,36,60,540/- is hereby Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 32 of 37 made u/s 68r.w.s. 115BBE of the income Tax Act and Penalty proceedings u/s 271AAC(1) is hereby initiated separately. 3.8.6 Further, on perusal of the details submitted by the assessee’s company and details received from the parties (investors) there is huge difference observed in amount of total investment as a share capital and unsecured loan. As per the submission of assessee company total amount invested as share capital is amounting to Rs.10,15,00,000/- however as per the total investment by the 30 parties as per their submission is amounting to Rs.18,36,51,884/- as a share capital and share premium. Similarly as per the assessee company total unsecured loan is amounting to Rs.11,17,22,379/- however as per the 30 parties submission total unsecured loan provided to assessee company is amounting to Rs.12,98,09,525/-. Thus there is difference of Rs.8,21,51,884/- (18,36,51,884 – 10,15,00,000) in share capital/ share premium investment and Rs.1,80,87,146/- (12,98,09,525 -11,17,22,379 ) in unsecured loan provided by the parties to the assessee company. Therefore. Amounting to Rs.10,02,39,030/- (8,21,51,884 + 1,80,87,146) is found to be owned by the assessee which is not recorded in the books of account of the assessee. In this regard assessee has filed his contention in his reply of show cause notice issued to him. However, he failed to provide any documentary evidence to substantiate his claim. The assessee has not provided copy of share application, bank statement, board resolution for receiving the unsecured loan and allotment of share to investors. In absence of all these documents, the claim of opening balance is not acceptable. In absence of all the requisite documents, the share allotment year is not ascertainable. Therefore, as per provisions of section 69A such money to the tune of Rs.10,02,39,030/- as owned by the assessee is hereby treated as unexplained money. The above analysis shows that all the conditions mentioned the section 69A is squarely fulfilled. 3.8.7 In view of the above, the assessee is found to be the owner of money, therefore a detailed Show- Cause Notice (SCN) was sent to the assessee requiring him to explain as why the money amounting to Rs.10,02,39,030/- which is not recorded in the books of accounts maintained by the assessee is hereby treated as unexplained money u/s 69Arw.s. 115BBE of the Income Tax Act, 1961. The assessee has furnished his reply in response to SCN issued to him. In his reply the assessee submitted reconciliation chart of share capital and share premium wherein he stated that Rs.8,82,18,007/- is an opening balance of share capital and share premium which the company has received before the F.Y.2017-18. The contention of the assessee is considered, however it is not found satisfactory as on perusal of details submitted by the assessee it is observed that share allotted to the investor in F.Y.2017-18, hence all the investment is considered for the F.Y. 2017-18. In view of the above, an addition of Rs.10,02,39,030/- is hereby made u/s 69Ar.w.s. 115BBE of the income Tax Act and Penalty proceedings u/s 271AAC(1) is hereby initiated separately. (a) Penalty proceedings u/s 271AAC(1) is hereby initiated separately. Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 33 of 37 (b) Penalty proceedings u/s 272A(1)(d) for non-compliance of statutory notice is hereby initiated separately. Assessed u/s 147 rws 144B of the Act. Credit for prepaid taxes is allowed as per ITNS 150 enclosed as generated by the ITBA system. The computation of interest u/s. 234B, 234C, 234D on default and deferment of advanced tax and excess refund of income tax, if any, is as per the ITNS-150 which forms a part of this order DN/RO is issued accordingly. Penalty proceedings u/s 271AAC(1), and 272A(1)(d) of the Act are hereby initiated separately.” 24. Therefore, we find merit in the submissions of Learned DR for the revenue, who has explained that proviso to section 68 was inserted with effect from 01.04.2013 and as per the said proviso, the assessee needs to prove “Source of the Source”. The ld DR pointed out that considering the contents of the assessment order, neither the assessing officer examined the “Source of the Source”, nor assessee has submitted documents/evidences to explain “Source of the Source”. Before making investment in shares of the assessee company, there is sufficient cash deposit in the bank account of share applicants and the same has escaped from examination by the assessing officer. As the assessment year involved in the assessee`s case is the assessment year 2018-19, where amended provisions of section are clearly applicable to the assessee. For loan transaction, the Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 34 of 37 assessee has not furnished the documents pertaining to source. Hence, assessment order passed by the assessing officer, is erroneous and prejudicial to the interest of the revenue. 25. To deal with the mandate of the provisions of section 263 of the I.T. Act, 1961, it is important to remember that the assessing officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word 'erroneous' in section 263 emerges out of this context. It is because it is incumbent on the assessing officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word 'erroneous' in the section 263 includes the failure to make such an inquiry becomes erroneous because such an -inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct.Hence, going by the facts narrated above, the language of the Provisions of Section 263 and the interpretation placed on these provisions by the various Courts, the order of the assessing officer falls within the category of being an order which is erroneous as well as prejudicial to the interest of the revenue. In this interpretation of the provisions of the section 263, we relied on the decision of the Hon'ble Delhi High Court delivered in the case of Gee Vee Enterprises vs Add.CIT(1975) 99 ITR 375 (Delhi). The same view has also been held by the Hon'ble Supreme Court in the case of Malabar Industrial Company Ltd vs. CIT 243 ITR 83 (SC). The relevant portion of this Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 35 of 37 judgment which supports our view made in this paragraph above is reproduced as under: \"An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.\" 26. We note that the order u/s. 263 of the I.T. Act, 1961 is valid even if one of the several items dealt with therein is found prejudicial to the interest of revenue and for this proposition of law, we place reliance on the decision of Hon'ble Madras High Court in the case of Indian Textiles Vs. CIT, 157 ITR 112 (Madras). Further, it is also important to mention here that the provisions of section 263 can be invoked even where full facts are disclosed but the assessing officer has not examined these details as per correct provisions of law. In support of this proposition, we place reliance on the decision of the Hon'ble Rajasthan High Court delivered in the case of CIT Vs. Emery Stone Manufacturing Company, 213 ITR 843 (Rajasthan). Further, the provisions of section 263 can be invoked even where the issue is debatable. For this proposition, we place reliance on the decision of Hon'ble Gujarat High Court delivered in the case of CIT Vs. M. M. Khambhatwala, 198 ITR 144 (Gujarat). Considering these facts and circumstances, we find that since the order of the Assessing Officer should be held to be erroneous as well as prejudicial to the interest of the revenue, in the facts and circumstances narrated above, therefore, the usurpation of jurisdiction exercising revisional jurisdiction by the Principal CIT, is valid in the eyes of law and, therefore, we uphold the very assumption of jurisdiction to invoke revisional jurisdiction u/s 263 by the Principal CIT. Therefore, we dismissed the appeal of the assessee. Printed from counselvise.com I.T.A No. 363/Rjt/2024 A.Y. 2018-19 Hollis Vitrified Pvt. Ltd. Page 36 of 37 27. In the result, appeal filed by the assessee, is dismissed. Order is pronounced in the open court on 12/02/2026. Sd/- Sd/- (Dr. Dinesh Mohan Sinha) (Dr. Arjun Lal Saini) Ɋाियक सद˟/ Judicial Member लेखा सद˟/Accountant Member Rajkot Date: 12/02/2026. आदेश की Ůितिलिप अŤेिषत/ Copy of the order forwarded to :  अपीलाथŎ/ The Appellant  ŮȑथŎ/ The Respondent  आयकर आयुƅ/ CIT  आयकर आयुƅ(अपील)/ The CIT(A)  िवभागीय Ůितिनिध, आयकर अपीलीय आिधकरण, सूरत/ DR, ITAT, SURAT  गाडŊ फाईल/ Guard File By order, // TRUE COPY // Assistant Registrar/Sr.PS/PS ITAT, Rajkot Printed from counselvise.com "