2007 (6) TMI 70 - HC - Income Tax

Undisclosed income - AO made addition in the total income on the ground that share application money in fictitious name treated as undisclosed income of assessee - Held that addition was not sustainable and set aside

Summary

Issues:
1. Treatment of share application money in fictitious names as undisclosed income.
2. Conducting enquiries in the hands of shareholders for additions due to non-existent/fictitious persons.

Issue 1: Treatment of share application money in fictitious names as undisclosed income:
The judgment pertains to tax case appeals against the Income-tax Appellate Tribunal's order for the assessment years 1998-99 and 1999-2000. The Assessing Officer had made additions under Section 68 of the Act regarding share application money in fictitious names, treating it as undisclosed income. The Commissioner of Income Tax (Appeals) deleted the addition for 1998-99 but upheld it for 1999-2000. Both the Revenue and the assessee appealed to the Income Tax Appellate Tribunal, where the appeal by the assessee was allowed, and the Revenue's appeal was dismissed. The key question was whether share application money in fictitious names could be considered undisclosed income. The court referred to a case where the Delhi High Court held that even if subscribers to increased share capital were not genuine, the amount could not be treated as undisclosed income. The court applied this precedent and found no substantial question of law, leading to the dismissal of the appeals.

Issue 2: Conducting enquiries in the hands of shareholders for additions due to non-existent/fictitious persons:
The second issue raised was whether enquiries could be conducted in the hands of shareholders when additions were made due to non-existent or fictitious persons. The court's decision on this issue was intertwined with the treatment of share application money as undisclosed income. Since the court found no substantial question of law regarding the treatment of share application money, the issue of conducting enquiries in the hands of shareholders did not require separate consideration. The court dismissed the appeals based on the precedent cited and confirmed by the Apex Court, emphasizing that the share capital could not be regarded as undisclosed income even if the subscribers were not genuine.

In conclusion, the High Court dismissed the tax case appeals based on the precedent that share application money in fictitious names cannot be treated as undisclosed income, as established by the Delhi High Court and confirmed by the Apex Court. The court found no substantial question of law for consideration and upheld the Tribunal's decision in favor of the assessee, leading to the dismissal of the appeals and the related miscellaneous petition.