2014 (3) TMI 895 - HC - Income Tax

Addition made u/s 68 of the Act Unexplained cash credit Held that - The assessee disclosed the identity and address and particulars of share allocation of the shareholders - all the shareholders were in existence - Only nine shareholders subscribing to about 900 shares out of 6,12,000 shares were not found available at their addresses, and that too, in course of assessment proceedings in the year 1994, i.e., almost 3 years after the allotment - The Tribunal was of the view that there were materials to show that the assessee had disclosed the particulars of the shareholders - The factual findings cannot be interfered with, in appeal -once the identity and other relevant particulars of shareholders are disclosed, it is for those shareholders to explain the source of their funds and not for the assessee company to show wherefrom these shareholders obtained funds thus, there is no reason to interfere in the findings of the Tribunal Decided against Revenue.

Summary

Issues:
1. Addition of Rs.52,03,500 as unexplained cash credit in the Assessment Year 1991-92.
2. Validity of the order of the Commissioner of Income Tax (Appeals) deleting the addition.
3. Application of Section 68 of the Income Tax Act regarding unexplained cash credit.
4. Compliance with the guidelines of the Stock Exchange in issuing shares.

Analysis:

1. The case involved the addition of Rs.52,03,500 as unexplained cash credit in the Assessment Year 1991-92 by the Assessing Officer under Section 68 of the Income Tax Act. The Assessing Officer believed that the increase in share capital was the introduction of undisclosed funds/income by the company. The Commissioner of Income Tax (Appeals) later deleted this addition after considering the details provided by the company regarding the shareholders and the share allotment process.

2. The Commissioner of Income Tax (Appeals) found that the company had disclosed detailed information about the shareholders, including their addresses and share allocations. The Commissioner concluded that the share capital increase could not be treated as unexplained cash credit under Section 68 of the Income Tax Act. It was noted that the Assessing Officer's inquiry lacked substantial evidence and was deemed arbitrary and illegal. The Commissioner held that the shareholders, not the company, were responsible for explaining the source of their funds.

3. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) after agreeing with the factual findings. The Tribunal emphasized that once the identity and relevant details of the shareholders are disclosed, the burden of explaining the source of funds falls on the shareholders, not the company. The Tribunal cited a previous judgment highlighting the importance of proving the identity, creditworthiness, and genuineness of transactions under Section 68.

4. The compliance with Stock Exchange guidelines in issuing shares was crucial in this case. The company had received applications through appointed bankers following Stock Exchange guidelines, and the share allotment was approved accordingly. The company had also filed the return of allotment with the Registrar of Companies, demonstrating transparency in the share issuance process.

In conclusion, the High Court dismissed the appeal, affirming the decision of the Tribunal and supporting the deletion of the addition of Rs.52,03,500 as unexplained cash credit. The judgment highlighted the importance of disclosing shareholder details, complying with regulatory guidelines, and placing the burden of proof on shareholders regarding the source of funds.