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2013 (7) TMI 453 - HC - Income TaxUnexplained investment - NRI company made share subscription to the capital of respondent - A.O. directed addition of the amount of share subscription to assessee s income due to doubt ob crediworthiness of subscriber company - Tribunal deleted the addition - Held that - It is not the case of any of the parties that subscriber is a bogus company or a non-existent company and the amount which was subscribed by the said Company by way of share subscription was in fact the money of the respondent assessee - assessee had established the identity of investor who had provided the share subscription and it was established that the transaction was genuine though as per contention of the respondent the creditworthiness of the creditor was also established. If assessee Company having received subscriptions and furnished complete details of the shareholders, no addition could be made under section 68 in the absence of any positive material or evidence to indicate that the shareholders were benamidars or fictitious persons or that any part of the share capital represented company s own income from undisclosed sources - Following decisions of Commissioner of Income Tax vs. Lovely Exports (P) Ltd 2008 (1) TMI 575 - SUPREME COURT OF INDIA and Commissioner of Income Tax vs. Divine Leasing & Finance Ltd. 2006 (11) TMI 121 - DELHI HIGH COURT - Decided against Revenue.
Issues Involved:
1. Justification of ITAT's decision in affirming the CIT(A)'s deletion of addition under Section 68. 2. Tribunal's handling of additional grounds urged by the Revenue. Detailed Analysis: Issue 1: Justification of ITAT's Decision in Affirming the CIT(A)'s Deletion of Addition Under Section 68 The primary issue revolves around whether the Income Tax Appellate Tribunal (ITAT) was justified in affirming the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] to delete the addition made by the Assessing Officer under Section 68 of the Income Tax Act. The Assessing Officer had made an addition of Rs.21,27,50,403/- to the assessee's income, doubting the creditworthiness of M/s Alliance Industries Limited, Sharjah, which had contributed share capital to the assessee company. The CIT(A) reversed this addition, stating that the assessee had discharged its burden under Section 68 by proving the identity and creditworthiness of M/s Alliance Industries Limited. The CIT(A) noted that the identity of the foreign investor was established beyond any doubt and that the amounts were transferred through proper banking channels, thus proving the genuineness of the transaction. The CIT(A) also highlighted that similar investments from the same company were accepted as genuine in previous assessment years, and there was no justification for a different view in the current year. The ITAT affirmed this decision, agreeing with the CIT(A)'s reasoning. The High Court referred to the Supreme Court's ruling in Commissioner of Income Tax vs. Lovely Exports (P) Ltd., which held that if the identity of the person providing the share application money is established, the burden is not on the assessee to prove the creditworthiness of the said person. The department can proceed against the said company in accordance with the law. The High Court found that the facts of the present case were identical to those in Lovely Exports, and thus, the ITAT's decision was justified. Issue 2: Tribunal's Handling of Additional Grounds Urged by the Revenue The second issue concerned whether the ITAT was justified in not extending and dealing with the additional grounds urged by the Revenue. The High Court did not find merit in this argument, as the substantial questions of law framed in these appeals did not arise for consideration in light of the Supreme Court's ruling in Lovely Exports. The High Court concluded that the ITAT had rightly dismissed the appeals of the Revenue, and there was no need to address additional grounds separately. Conclusion: The High Court dismissed all the appeals, affirming the decisions of the CIT(A) and ITAT. The court held that the identity of the investor was established, and the genuineness of the transaction was proven. The burden was not on the assessee to prove the creditworthiness of the investor once the identity was established. The High Court relied on the Supreme Court's ruling in Lovely Exports and found no merit in the Revenue's appeals.
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