2013 (1) TMI 624 - HC - Income Tax

Unexplained share application - addition u/s 68 - ITAT deleted the addition - Held that - The facts of the present case are more in line with facts of Lovely Exports (P) Ltd. (2008 (1) TMI 575 - SUPREME COURT OF INDIA) wherein held that if the share application money is received by the assessee-Company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to re-open their individual assessments in accordance with law - not to be treated as undisclosed income. As in the present case there was a clear lack of inquiry on the part of the assessing officer once the assessee had furnished all the material. In such an eventuality no addition can be made under section 68 - in favour of assessee.

Summary

Issues:
1. Whether the Tribunal erred in upholding the deletion of Rs.55,50,000/- added on account of unexplained share application money under Section 68 of the Income Tax Act, 1961.

Analysis:
The case involved a dispute regarding the addition of Rs.55.5 lakhs as unexplained share application money in the assessment year 2004-05. The assessing officer initially sought an explanation for adding Rs.1,11,50,000/- to the respondent's income, which was later clarified to be Rs.55,50,000/-. The respondent provided various documents supporting the share application money received, including details of share applicants, confirmatory letters, bank statements, and incorporation documents. Despite this, the assessing officer deemed the explanation unacceptable and made the addition to the income.

The Commissioner of Income Tax (Appeals) ruled in favor of the respondent, emphasizing that the identity of share applicants was established beyond doubt, especially since transactions were through banking channels with a/c payee cheques. The CIT (Appeals) cited judicial precedents, including the Supreme Court decision in CIT v. Lovely Exports (P) Ltd., to support the conclusion that once the identity of share applicants is proven, no addition can be made unless the revenue proves otherwise.

The Income Tax Appellate Tribunal upheld the CIT (Appeals) decision, noting that the revenue failed to rebut the findings and evidence presented by the assessee. The Tribunal emphasized the lack of proof that the documents were false or that the share applicants were not creditworthy, thus supporting the deletion of the addition.

The Court differentiated the present case from CIT v. Nova Promoters and Finlease (P) Ltd., highlighting the lack of inquiry by the assessing officer despite the furnished material by the assessee. The Court concluded that in cases where all necessary particulars are provided and not rebutted, no addition can be made under section 68 of the Act. Therefore, the Tribunal's decision was deemed correct in law, and the appeal was dismissed.