Calcutta HC Rejects Revenue's Shell Company Allegations in Unlisted Share Sale Case
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The Calcutta High Court has slammed the door on the Revenue's attempt to treat genuine sale proceeds of unlisted shares as unexplained cash credit, ruling that generalized allegations of 'shell companies' cannot override substantive documentary evidence and banking channel transactions. This decision reinforces the principle that the tax department cannot substitute factual findings with suspicion, even when invoking the 'human probabilities' test in suspected accommodation entries.
A bench comprising Justice Rajarshi Bharadwaj and Justice Sudip Deb heard the appeal filed by the Revenue against the Income Tax Appellate Tribunal's decision to delete a significant addition under Section 68 of the Income-tax Act, 1961. The Court scrutinized whether the Revenue could challenge the genuineness of a transaction solely based on the characterization of the purchaser entities as shell companies, despite the assessee providing a comprehensive paper trail.
Key Takeaways
Substantive Evidence Over Suspicion
Tax additions under Section 68 cannot be founded on generalized allegations of accommodation entries if the assessee provides audited financials and bank statements that remain undisturbed by independent evidence.
Finality of Fact-Finding
The High Court's jurisdiction under Section 260A of the Income-tax Act, 1961 is strictly limited to substantial questions of law and does not permit a total reappreciation of evidence unless the Tribunal's finding is proved to be perverse.
Limited Scope of Shell Company Precedents
Judicial precedents concerning shell companies do not create a blanket rule that every transaction with such entities is bogus; instead, they require a holistic, case-specific evidentiary examination.
Tribunal's Factual Findings Upheld
The Court observed that the Tribunal had recorded a detailed evidentiary record where the respondent furnished purchase and sale bills, investment statements, bank statements, and audited financials. It was noted that the purchasers responded to notices under Section 133(6), and the Revenue failed to produce independent evidence to displace these findings. The Court emphasized that the Assessing Officer should consider surrounding circumstances but must not authorize additions founded on suspicion.
The Court, in its reasoning, observed: "The decision in Principal Commissioner of Income Tax v. Swati Bajaj ( "[2022] 446 ITR 56": 2022 CaseBase(CAL) 1746) does not lay down the proposition 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 principles laid down therein require a holistic examination of the evidence and surrounding circumstances. In the present case, the Tribunal undertook such an examination."
The Court has following directions:
"The appeal is, accordingly, dismissed at the stage of admission. The connected application, if any, is disposed of. There shall be no order as to costs."
Ratio
The High Court held that under Section 260A of the Income-tax Act, 1961, a finding of fact by the Tribunal can only be interfered with if it is perverse. Furthermore, the nature and source of a credit under Section 68 must be tested on the entirety of the evidence, and the 'test of human probabilities' cannot be used to sustain an inference unsupported by specific evidence that the sale proceeds represented the assessee's own undisclosed money.
Background
The dispute originated from an assessment year where the Assessing Officer made an addition of ₹9,32,00,000 under Section 68, alleging that the respondent received sale proceeds for unlisted equity shares from shell companies. The Revenue relied heavily on Principal Commissioner of Income Tax v. Swati Bajaj ( "[2022] 446 ITR 56": 2022 CaseBase(CAL) 1746), arguing that the transactions were sham accommodation entries. However, the Tribunal deleted the addition, noting that the investments were made in earlier years and were consistent with the respondent's regular business activity. The Revenue challenged this before the High Court, asserting that the Tribunal ignored the modus operandi of tax evasion. The High Court ultimately found that the Revenue's arguments merely sought a reappraisal of facts, which is not permissible in a Section 260A appeal.
Case Details:
Case No.: ITAT No.162 of 2026
Neutral Citation: 2026:CHC-OS:425-DB
Case Title: Principal Commissioner of Income Tax-2, Kolkata Vs Superdeal Resources Private Limited
Appearances:
For the Petitioner(s): Mr. Soumen Bhattacharjee, Adv.; Mr. Kuntal Kr. Goswami, Adv.; Mr. Raunak Seal, Adv.
For the Respondent(s): Mr. Subash Agarwal, Adv.; Mr. Smit Shaw, Adv.
Source: 2026 CaseBase(CAL) 2930
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