2011 (4) TMI 1433 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 53,00,000/- made by the Assessing Officer (AO) on account of cash credit u/s 68 of the Income Tax Act.
2. Whether the order of the CIT(A) should be upheld or the AO's order restored.

Summary:

Issue 1: Deletion of Addition u/s 68 of the Income Tax Act
The Revenue challenged the deletion of Rs. 53,00,000/- added by the AO u/s 68 of the Income Tax Act. The AO had issued a commission u/s 131(1)(d) to the Additional Director of Income Tax (Inv.), Kolkata, who reported that certain shareholders were not genuine. The AO, relying on various judicial decisions, added the amount as unexplained cash credit.

On appeal, the CIT(A) deleted the addition, noting that the companies were registered under the Companies Act and regularly assessed to tax. The CIT(A) found that the AO's notices were duly served, and detailed replies were furnished by the applicant companies. The CIT(A) also noted that one of the companies, M/s. Hanuman Coke Plant Pvt. Ltd., was a Non-Banking Financial Company (NBFC) registered with the RBI, and thus could not be considered non-existent. The CIT(A) concluded that the genuineness, creditworthiness, and identity of the shareholders were established, and no addition u/s 68 was warranted.

Issue 2: Whether the Order of CIT(A) Should be Upheld
The Revenue argued for restoring the AO's order, while the assessee relied on the CIT(A)'s findings and judicial precedents, including CIT vs. Lovely Export Pvt. Ltd. The ITAT noted that in a similar case involving a sister concern, the ITAT had rejected a similar report from the Addl. DIT (Inv.), Kolkata, and concluded that once the identity of shareholders is established, no addition can be made u/s 68. The ITAT upheld the CIT(A)'s findings, emphasizing that the existence of shareholders was not doubted, and the share application money could not be regarded as undisclosed income of the company.

Conclusion:
The ITAT dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the addition of Rs. 53,00,000/- u/s 68 of the Income Tax Act. The ITAT reiterated that the identity, genuineness, and creditworthiness of the shareholders were established, and the share application money could not be treated as undisclosed income of the assessee company.