2011 (7) TMI 661 - HC - Income Tax

Unexplained cash credit u/s 68 - editworthiness of Shri G.L. Sharma father of the Managing Director of the company not being disclosed - Held that - As far as share applicants money are concerned, the assessee has proved the identity of the applicant. Mode of receipt of the money and also raised the plea that these amounts have also been received prior to the commencement of the commercial production proved. Regarding a sum of Rs. 1,65,000/- appearing in the name of Shri Jitender Kumar Sharma it was submitted that this investment was made on receipt of money from Shri GL Sharma. The addition has been made on the ground that creditworthiness of Shri G.L. Sharma has been doubted. How he could have given loan to Shri Jitender Sharma. Since the addition appearing against the name of Shri GL Sharma deleted on same logic this addition is also not sustainable. More particularly, the identity of share applicant has not been doubted delete the addition - in favour of assessee.

Summary

Issues:
Assessment of unexplained cash credits under Section 68 of the Income-Tax Act for share application money and loans received by the assessee during the year 2001-02.

Analysis:
In the assessment year 2001-02, the Assessing Officer made additions totaling Rs. 28,15,000/- for unexplained cash credits related to share application money and loans received by the assessee. The Assessing Officer raised concerns regarding the identity and creditworthiness of some creditors and the genuineness of the transactions. Additionally, a loan of Rs. 2,25,000/- from Mr. G.L. Sharma was also questioned. The CIT (A) partially sustained the additions, reducing the share application money addition to Rs. 19,85,000/- and confirming the Rs. 2,25,000/- loan addition. Both the Revenue and the assessee filed appeals. The Tribunal dismissed the Revenue's appeal but allowed the assessee's appeal. The Tribunal accepted the explanation provided by the assessee regarding Mr. G.L. Sharma's creditworthiness and share capital subscription, stating that he was a person of means. The Tribunal found that the assessee had proven the identity and creditworthiness of other share applicants as well.

The Tribunal highlighted that the share application money was received before the commencement of commercial production, and the assessee had demonstrated the identity of the share applicants, the genuineness of the transactions, and the creditworthiness of Mr. G.L. Sharma. The Tribunal emphasized that Mr. G.L. Sharma's known sources of income, agricultural land, and assets distribution among family members indicated his creditworthiness. Consequently, the Tribunal deleted the addition of Rs. 12,50,000/- related to Mr. G.L. Sharma's share application money. Regarding other share applicants, the Tribunal found that the identity and creditworthiness were proven, and the additions were not sustainable. The Tribunal also considered small cash credits from various creditors, noting that even small amounts could be expected from labor savings. Therefore, the Tribunal allowed the assessee's appeal and deleted the additions made by the Assessing Officer.

The High Court concluded that these were factual findings, and no question of law arose. As a result, the appeals were dismissed, upholding the Tribunal's decision to delete the additions of Rs. 19.85 lacs and Rs. 2.25 lacs made by the Assessing Officer.