2012 (11) TMI 1164 - HC - Income Tax

Addition on account of share application money received from the shareholders - assessee has failed to prove genuineness of transactions and creditworthiness of the shareholders - Held that - The matter is squarely covered by the decision of Hon ble Supreme Court in the case of Steller Investment Ltd. 2000 (7) TMI 76 - SUPREME Court That being the position, we are of the considered opinion that the order passed by the Tribunal does not suffer from any legal infirmity.

Summary

Issues:
1. Interpretation of Section 260(A) of the Income Tax Act, 1961.
2. Validity of share application money received from shareholders.
3. Requirement to prove genuineness of transactions and creditworthiness of shareholders.
4. Application of precedents in the decision-making process.
5. Reopening of assessment of alleged shareholders.

Analysis:

Issue 1:
The appeal was filed under Section 260(A) of the Income Tax Act, 1961, challenging the order passed by the Income Tax Appellate Tribunal. The Commissioner of Income Tax, Meerut raised substantial questions of law regarding the acceptance of agricultural income holders as 'persons' under the Act and the validity of share capital introduced by such individuals.

Issue 2:
During the Assessment Year 2005-06, an addition of Rs. 19,00,000/- on account of share application money received from shareholders was made by the Assessing Authority. The Assessing Officer found that the shareholders had shown low income in their tax returns compared to their investment in share capital. The Commissioner of Income Tax deleted the observation, stating that only the identity of the shareholder needed to be proved, citing relevant Supreme Court decisions.

Issue 3:
The matter was further analyzed by the High Court, which found that the decision of the Tribunal was in line with the Supreme Court's ruling in the case of Steller Investment Ltd. The High Court concluded that the order passed by the Tribunal did not have any legal infirmity, indicating that the genuineness of transactions and creditworthiness of shareholders were not required to be proven beyond the identity of the shareholder.

Issue 4:
The High Court's decision was based on the application of relevant precedents, such as the Supreme Court cases of Steller Investment Ltd. and Lovely Exports (P.) Ltd., which guided the interpretation of the law concerning the acceptance of share capital and the burden of proof on the assessee. The High Court's reliance on these precedents strengthened the justification for dismissing the appeal.

Issue 5:
Regarding the reopening of assessment of alleged shareholders, the High Court highlighted the distinction between the case at hand, where the shareholders were agriculturists not existing in the income tax records, and the scenario discussed in the Supreme Court judgment of CIT v. Lovely Exports. The High Court emphasized that the question of reopening individual assessments did not apply in the present case due to the nature of the alleged shareholders.

In conclusion, the High Court dismissed the appeal, affirming the Tribunal's decision and upholding the validity of the share capital introduced by the shareholders without the need to prove the genuineness of transactions and creditworthiness beyond their identity, as established by relevant legal precedents.