2012 (11) TMI 856 - HC - Income Tax

Share Application Money - Undisclosed Income u/s 68 - Agriculturist - Whether the bogus shareholders in whose hand only agricultural income has been shown can be accepted as person under the IT Act and the share capital introduced by such persons under the garb of share capital money can be accepted? - held that - in case of capital contributed by a shareholder, the identity of the shareholder is only required to be proved. - order passed by the Tribunal does not suffer from any legal infirmity - appeal fails and is dismissed. Decision in the case Commissioner Of Income Tax Versus Steller Investment Ltd.2000 (7) TMI 76 - SUPREME COURT followed.

Summary

Issues:
1. Acceptance of bogus shareholders with agricultural income as "person" under the IT Act and validity of share capital introduced by them.
2. Compliance with section 68 of the Income Tax Act regarding the genuineness of transactions and creditworthiness of share applications.
3. Consideration of the decision of the Jurisdictional High Court in a similar case.
4. Reliance on the Supreme Court's judgment in Lovely Exports and its applicability.
5. Relevance of the Supreme Court's judgment in CIT vs. Lovely Exports regarding reopening assessments of alleged shareholders.

Issue 1:
The primary issue in this case revolves around the acceptance of bogus shareholders with agricultural income as "person" under the Income Tax Act and the validity of the share capital introduced by them. The Commissioner of Income Tax proposed a substantial question of law regarding this matter, questioning the acceptance of share capital introduced by such individuals. The Assessing Officer had made an addition to the income of the assessee based on the share application money received from shareholders, citing lack of proof regarding the genuineness of transactions and the creditworthiness of the shareholders. However, the CIT deleted this observation, emphasizing that only the identity of the shareholder needs to be proven, citing precedents like the case of CIT vs. Stellar Investments Ltd. The Tribunal upheld the CIT's decision, leading to the appeal before the High Court.

Issue 2:
The second issue pertains to the compliance with section 68 of the Income Tax Act, which requires the genuineness of transactions and the creditworthiness of share applications to be proven. The Assessing Officer found discrepancies in the income declared by the shareholders compared to their investment in share capital. The CIT, however, ruled that only proving the identity of the shareholder suffices, drawing support from legal precedents. The High Court concurred with this interpretation, citing the decision of the Hon'ble Supreme Court in the case of Stellar Investments Ltd., thereby dismissing the appeal.

Issue 3:
The third issue involves the consideration of the decision of the Jurisdictional High Court in a similar case. The Tribunal was questioned for ignoring the decision of the Jurisdictional High Court in the case of Ram Lal Aggarwal vs. Commissioner of Income Tax, which was deemed binding and applicable to the present case. However, the High Court found the matter to be squarely covered by the decision of the Supreme Court in the case of Stellar Investments Ltd., thereby upholding the Tribunal's order.

Issue 4:
The fourth issue concerns the reliance on the Supreme Court's judgment in Lovely Exports and its applicability to the case at hand. The ITAT was criticized for relying on the obiter dicta of the Supreme Court in Lovely Exports, which was deemed inapplicable to the assessee's situation, as the alleged shareholders were agriculturists not existing in the income tax records. The High Court, however, found the Tribunal's decision in alignment with the principles established in the case of Stellar Investments Ltd., thereby dismissing the appeal.

Issue 5:
The final issue questions the relevance of the Supreme Court's judgment in CIT vs. Lovely Exports regarding the reopening of assessments of alleged shareholders. The ITAT's decision to rely on this judgment was contested, as the circumstances of the present case differed, with the alleged shareholders being agriculturists not present in the income tax records. The High Court upheld the Tribunal's decision, emphasizing the applicability of the principles established in the case of Stellar Investments Ltd., ultimately leading to the dismissal of the appeal.