2011 (9) TMI 958 - AT - Income Tax

Summary

Issues involved: Appeal filed by Revenue against CIT(Appeals) orders for assessment year 2004-05 in cases of M/s. Victory Spinning Mills Ltd., Shri R. Thangavelu, and Shri P. S. Sundaram regarding treatment of share application money as unexplained cash credit.

Issue 1 - Treatment of share application money in M/s. Victory Spinning Mills Ltd.:
The Assessing Officer treated investments in share capital by 181 shareholders as unexplained cash credit based on lists found during search operations. However, CIT(A) deleted the addition citing the decision in CIT v. Lovely Exports Pvt. Ltd., stating that share application money from alleged bogus shareholders cannot be treated as undisclosed income of the company. Revenue's appeal was dismissed as the share applicants' identities were known, allowing Revenue to proceed with individual assessments.

Issue 2 - Treatment of share application money in cases of Shri R. Thangavelu and Shri P. S. Sundaram:
Revenue contended that investments by share applicants were funds of the Managing Directors, as creditworthiness of applicants was not proven. However, it was argued that since the share applicants confirmed the transactions and identities were known, the investments could not be considered unexplained. The Tribunal held that as only lists of shareholders were found, without evidence of funds advanced by the Managing Directors, no addition could be made in their hands. The appeals by Revenue were dismissed.

The Tribunal pronounced the order on 16/09/2011, dismissing all appeals related to the treatment of share application money in the mentioned cases.