2012 (5) TMI 118 - HC - Income Tax

Addition u/s 68 made with respect to the share capital of the assessee in the hands of the assessee company Held that - As decided in Commissioner of Income Tax Vs. Lovely Exports (P) Ltd (2008 (1) TMI 575 - SUPREME COURT OF INDIA), if the assessee has furnished complete details of investors and all the investors have confirmed having invested money in the assessee company filling the income tax details and bank account statement etc. no addition on account of share capital can be made in the hands of the assessee company - Merely because creditworthiness of all the shareholders has not been established to the satisfaction of the AO or because some of the shareholders having not appeared before the AO for examination, no addition u/s 68 could be made against revenue.

Summary

Issues:
1. Appeal against the judgment and order of the Income Tax Appellate Tribunal.
2. Addition of share application money in the income of the assessee.
3. Consideration of creditworthiness of creditors for unsecured loans.
4. Application of the judgment of the Apex Court in Lovely Exports case.

Issue 1:
The case involves an Income Tax Appeal under Section 260-A of the Income Tax Act, 1961 against the judgment and order of the Income Tax Appellate Tribunal. The Tribunal partially allowed the appeal by setting aside the addition of share application money in the income of the assessee. The matter was remitted to the Assessing Officer for reconsideration of the issue related to unsecured loans.

Issue 2:
The Tribunal considered the case of the assessee, a Private Limited Company, and found that complete details of share applicants/shareholders were provided, along with their addresses and affidavits. The Tribunal observed that the identity of shareholders was not disputed, and the creditworthiness of shareholders was not established to the satisfaction of the Assessing Officer. Referring to the judgment in Lovely Exports case, the Tribunal held that no addition on account of share capital could be made in the hands of the assessee company. The Tribunal set aside the addition made by the Assessing Officer and CIT(A) regarding the share capital, based on the principles laid down in the Lovely Exports case.

Issue 3:
The Tribunal emphasized the importance of establishing the creditworthiness of creditors for unsecured loans. The matter was remitted to the Assessing Officer to reconsider the issue of creditworthiness. The Tribunal highlighted that the Tribunal's remittance for considering the creditworthiness did not require the deletion of income and that the matter should have been considered afresh by the Assessing Officer.

Issue 4:
The Tribunal referred to the judgment of the Apex Court in Lovely Exports case, which laid down the principle that if share application money is received from alleged bogus shareholders, the department can proceed to reopen individual assessments. The Tribunal found that the issue raised in the appeal was fully covered by the judgment in Lovely Exports case, and no substantial questions were raised. Therefore, the appeal was dismissed based on the application of the principles established in the Lovely Exports case.

In conclusion, the High Court dismissed the appeal, upholding the Tribunal's decision regarding the addition of share application money and emphasizing the importance of establishing creditworthiness for unsecured loans based on the principles laid down in the Lovely Exports case.