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Noticeable Business Activity An Essential Ingredient Under Section 68 Of The Income Tax Act

Raya Banerjee ,
  23 May 2024       Share Bookmark

Court :
High Court of Calcutta
Brief :

Citation :
ITAT 232 of 2023 IA No. GA. 1 of 2023


Balgopal Merchants Pvt Ltd. Vs. The Principal Commissioner of Income Tax- 2, Kolkata 


May 13, 2024


Hon’ble Mr. Chief Justice T. S. Sivagnanam

Hon’ble Mr. Justice Hiranmay Bhattacharya 


Appellant: Balgopal Merchants Pvt. Ltd.

Respondent: The Principal Commissioner of Income 


The case included a disagreement on the 2012-2013 assessment year as defined by the Income Tax Act, 1961. It concerned, in particular, the validity of the share capital and premium that the assessee had received, the identity and creditworthiness of investors, and the procedurally fair conduct of the assessing officer.


 The Income Tax Act, 1961:

  • Section 260A: It deals with appeals to High Court for challenging the decisions of the Appellate Tribunal .
  • Section 131: It grants authority to the Income Tax Officials to conduct inquiries, summon witnesses, and request documents .
  • Section 143(1): Covers initial processing of Income Tax Returns by the Tax department. 
  • Section 143(2): It allows for deep scrutiny assessments of tax returns to ensure accuracy .
  • Section 143(3): It enables reassessments of income if it has escaped assessment initially.
  • Section 142(1): It empowers tax authorities to make inquiries before the formal assessment of income.
  • Section 68: It deals with unexplained cash credits appearing in a tax payer’s account.
  • Section 147: It provides the legal basis for reopening assessments if income has escaped taxation.


Under Section 260A of the Income Tax Act, 1961, an appeal had been lodged.

  • It was ordered in opposition to a decision made by the Income Tax Appellate Tribunal over the 2012-2013 assessment year.
  • Significant legal issues were brought up, including the tribunal’s jurisdiction to review uncontested facts, the denial of the chance to provide pertinent documentation, and uncertainties about the investor’s identities, creditworthiness, and transaction legitimacy.
  • The topics of contention included investor credibility, premium, and the veracity of share application money.
  • The appellant claimed that there was not enough time for the assessment.
  • The respondent asserted that the tribunal, CIT(A), and assessing officer had thoroughly examined him.
  • The mentioned case law established the elements for transaction authenticity, the officer’s obligations, and the burden of proof.
  • It was up to the court to assess the evidence and decide whether or not the appellant had established investor credibility and sincerity.


What particular issues were raised in the court proceedings over the validity of the share premium and its application to real estate investments?


  • The appellant argued that because the summons was sent subsequent to receiving the assessment order, they were not given a sufficient opportunity to appear before the assessing officer.
  • The evaluating officer ignored the provided documents even though they were submitted in response to notices and included all pertinent information.
  • Because the stockholders used the share premium they received to invest in real estate, their creditworthiness should not have been questioned.
  • The appellant contended that the premium collected from the share subscribers was justified by the land’s inherent value.
  • After giving the assessee a chance, the appellant requested that the case be remitted back to the authorities for review of all documents.


  • The respondent emphasised that the assessee’s arguments were dismissed by the assessing officer, the first appellate authority, and the tribunal following a thorough review of the relevant factual circumstances.
  • The respondent identified contradictions in the appellant’s assertions, including claims that the appellant received a summons under Section 131 and comments that contradicted one another. 
  • The distribution of shares to firms the following day with a premium and to people the day before without one was not satisfactorily explained.
  • When the assessee fails to provide sufficient proof of the source and type of cash receipts, the respondent argued that the law assessing officer has the right to make assumptions about the nature of those receipts 
  • The department’s stance on the assessee’s burden of proof and the assessing officer’s function had been backed by reference to legal precedents.


  • Regarding the service of a summons under Section 131 of the Act, the assesses’s position was deemed unclear by the court.
  • It found differences in the assessee’s statements, raising questions about whether the summons was followed.
  • The company’s lack of a significant track record or asset basis, according to the court, made it unreasonable for it to claim the large share premium.
  • The entity that bought the shares at a large premium raised questions about its creditworthiness and the authenticity of the transactions.
  • The assessee’s land development efforts were not supported by any proof, hence the tribunal questioned the company’s reasoning for charging a share premium.
  • The authenticity of land transactions and share distribution documents was called into question, especially because the company acknowledged a conspicuous absence of commercial activity.
  • In the end, the court dismissed the appeal after finding that the case raised no significant legal issues.


In conclusion, the appeal was denied by the court’s judgement because there were questions about the reliability of the investors, as well as inconsistencies in the appellant’s claims and the summons served. The appellant’s arguments had been dismissed due to insufficient evidence, specifically concerning the legitimacy of property transactions and the rationale behind a substantial share premium.


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