2011 (1) TMI 190 - HC - Income Tax

Money laundering - It appears from the record that in the assessment proceedings it was noticed that the assessee company during the year under consideration had brought ₹ 4,00,000/- and ₹ 20,00,000/- towards share capital and share premium respectively amounting to ₹ 24,00,000/- from four shareholders being private limited companies - Assessing Officer invoked the provisions under Section 68/69 of the Income Tax Act and made addition of ₹ 24,00,000 - Supreme Court in the case of C.I.T. vs. M/s. Lovely Exports Pvt. Ltd., reported in (2008 (1) TMI 575 - SUPREME COURT OF INDIA) allowed the appeal by holding that share capital/premium of ₹ 24,00,000/- received from the investors was not liable to be treated under Section 68 as unexplained credits and it should not be taxed in the hands of the appellant company - Decided against the revenue

Summary

Issues:
1. Appeal against order of Income Tax Appellate Tribunal related to Assessment Year 2003-04.
2. Validity of share capital and share premium brought in by the assessee company.
3. Application of Section 68/69 of the Income Tax Act.
4. Interpretation of the decision in the case of C.I.T. vs. M/s. Lovely Exports Pvt. Ltd.
5. Dismissal of the appeal and stay application.

Analysis:
1. The appeal was filed against the order of the Income Tax Appellate Tribunal concerning the Assessment Year 2003-04. The revenue contended that the transaction entered into by the assessee was a scheme to convert black money into white or accounted money, questioning the genuineness of the transaction.

2. During the assessment proceedings, the assessee company brought in Rs.4,00,000/- as share capital and Rs.20,00,000/- as share premium from four shareholders who were private limited companies, totaling Rs.24,00,000/-. The Assessing Officer found certain abnormal features, leading to doubts about the nature and source of the funds. Consequently, invoking Sections 68/69 of the Income Tax Act, an addition of Rs.24,00,000/- was made.

3. The Learned CIT (A) referred to the Supreme Court decision in the case of C.I.T. vs. M/s. Lovely Exports Pvt. Ltd. and held that the share capital/premium received was not unexplained credits under Section 68, thereby ruling in favor of the appellant company. The Tribunal upheld this decision, dismissing the revenue's appeal.

4. Upon review, the High Court concurred with the Tribunal's decision, citing the Supreme Court's ruling in the case of C.I.T. vs. M/s. Lovely Exports Pvt. Ltd. The Court found no substantial question of law in the appeal and dismissed it, emphasizing that the point in question was covered by the Supreme Court's decision favoring the assessee.

5. Consequently, the appeal was deemed devoid of substance and dismissed, leading to the dismissal of the connected stay application as well. The Court directed the provision of a certified copy of the order to the parties upon compliance with formalities.