2010 (5) TMI 563 - HC - Income Tax

Addition - unexplained share application money - Tribunal recorded that all payments were received by cheques and were credited in the bank account of the respondent; the share application forms contained all details of the depositors; their confirmations were clear with all addresses; and that they were on the departmental records as tax-payers - Tribunal was of the view that the assessee had given the names and addresses of the share applicants, it was within the knowledge of the revenue that the said share applicants were assessed to Income-tax, hence the burden was on the revenue to make further inquiry - In absence of any findings recorded by the Assessing Officer to the effect that the share applicants are bogus, there is nothing on record to doubt or disbelieve the confirmations and application forms submitted by the depositors - Whether burden has been discharged or not is a question of fact - Decided in the favour of assessee

Summary

Issues:
1. Addition of unexplained share application money.
2. Applicability of Supreme Court's decision on unexplained share application money.

Issue 1: Addition of unexplained share application money
The appellant revenue challenged the deletion of the addition of Rs. 81,07,000 made by the Assessing Officer on account of unexplained share application money for the assessment year 1997-98. The Assessing Officer completed an ex parte assessment as the assessee failed to provide details despite several opportunities. The Commissioner (Appeals) upheld the addition, but the Income-tax Appellate Tribunal (the Tribunal) reversed it. The Tribunal noted that the respondent-assessee had submitted confirmations from all share applicants with detailed information, including addresses, PAN numbers, and tax jurisdiction. All payments were made by cheques and credited to the respondent's bank account. The Tribunal found that the assessee had sufficiently discharged its burden of explanation, and the revenue failed to prove the depositors were bogus. The Tribunal relied on the Supreme Court's decision in CIT v. Divine Leasing Finance Co., stating that the department could reopen individual assessments based on the information provided by the assessee.

Issue 2: Applicability of Supreme Court's decision on unexplained share application money
The second question raised was whether the Tribunal erred in applying the Supreme Court's decision regarding unexplained share application money. The appellant argued that query letters issued by the Assessing Officer were not served on some share applicants, making the Supreme Court's decision inapplicable. However, the Tribunal found that the respondent had provided substantial evidence, including bank details, audited balance-sheets, and returns of allotment, to prove the genuineness of share applicants like Mangal Finance Limited. The Tribunal held that the burden was on the revenue to conduct further inquiries if they doubted the genuineness of the share applicants. As the Tribunal found no evidence to doubt the confirmations and application forms submitted by the depositors, it concluded that the assessee had discharged its burden of proof. The Tribunal's decision was based on factual findings and did not suffer from any legal infirmity, leading to the dismissal of the appeal.

In conclusion, the Gujarat High Court upheld the Tribunal's decision, emphasizing that the assessee had adequately substantiated the legitimacy of the share application money, and the revenue failed to prove otherwise. The Tribunal's reliance on factual evidence and legal precedents, including the Supreme Court's decision, supported the conclusion that the burden of proof had been discharged by the assessee. Therefore, the appeal was dismissed due to the absence of any substantial legal question warranting interference.