2013 (2) TMI 452 - HC - Income Tax

Share application money Whether deposits in shape of share application money can be treated as genuine Held that - In CIT v. Lovely Exports P. Ltd. 2008 (1) TMI 575 - SUPREME COURT OF INDIA it was held that if the assessee produces the names, addresses, PAN details of the shareholders then the onus on the assessee to prove the source of share application money stands discharged If the AO was not satisfied with the credit worthiness of the shareholders, it was open to the assessing authority to verify the same in the hands of the shareholders concerned Further 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 reopen their individual assessments in accordance with law - Therefore Department is free to proceed to reopen their individual assessments of the shareholders whose names and details were given to the AO.

Summary

Issues:
1. Whether the deposits in the form of share application money were genuine?
2. Whether the primary onus of proving the entries found credited in the books lies with the assessee company as per Section 68 of the Income Tax Act, 1961?

Issue 1:
The appeals were directed against the order of the Income Tax Appellate Tribunal questioning the treatment of deposits in the form of share application money as genuine. The revenue contended that the evidence suggested otherwise, with share applicant companies being identified as bogus in statements recorded under section 131. However, the Tribunal found that the assessee had provided supporting documents such as the return of income filed by shareholders and confirmations indicating payment details. Citing the Supreme Court's judgment in Lovely Exports vs CIT, the Tribunal held that by furnishing shareholder details, the assessee had discharged the onus of proving the source of share application money. The Tribunal also referred to the case of Devine Leasing Company to support its decision.

Issue 2:
Regarding the primary onus of proving entries credited in the books, as per Section 68 of the Income Tax Act, 1961, the revenue argued that the assessee company had to satisfy the Assessing Officer. However, the Supreme Court's decision in CIT vs. Lovely Exports (P) Ltd clarified that if share application money is received from alleged bogus shareholders, the Department can reopen individual assessments of those shareholders. In line with this ruling, the High Court dismissed the appeals in favor of the assessee, stating that the department was free to proceed with the assessments of the shareholders whose details were provided.

This judgment underscores the importance of providing comprehensive documentation to support financial transactions and highlights the division of onus between the assessee company and the Assessing Officer in proving the legitimacy of entries in the books. The reliance on precedent cases and the Supreme Court's interpretation of Section 68 of the Income Tax Act, 1961, played a crucial role in the final decision of the High Court.