2014 (8) TMI 605 - HC - Income Tax

Addition u/s 68 Share application and share premium amount credited but not proved - Whether the Tribunal was right in upholding the order of the CIT(A) who deleted the addition made u/s 68, being the share application money and share premium amount credited by the assessee which was not proved Held that - Following the decision in CIT v. Lovely Exports (P) Ltd. 2008 (1) TMI 575 - SUPREME COURT OF INDIA - all the four parties, who are subscribers of the shares, are limited companies and enquiries were made and received from the four companies and all the companies accepted their investment - the assessee has categorically established the nature and source of the sum and discharged the onus that lies on it in terms of Section 68 of the Act - When the nature and source of the amount so invested is known, it cannot be said to be undisclosed income - the addition of such subscriptions as unexplained credit under Section 68 of the Act is unwarranted Decided against Revenue.

Issues:
1. Whether the Income Tax Tribunal was right in upholding the order of the CIT(A) deleting the addition of Rs. 2,20,00,000 under Section 68 of the Income Tax Act, 1961, regarding share application money and share premium amount credited by the assessee?

Analysis:
1. The case involved the receipt of share application money and share premium money totaling to Rs. 2.20 Crores from four limited companies by the assessee. The department contended that the amount should be treated as unexplained credit under Section 68 of the Income Tax Act. However, the assessee argued that the nature and source of the amount had been established, making it a bona fide transaction not subject to treatment as unexplained credit.

2. The Commissioner of Income Tax (Appeals) reversed the Assessing Officer's decision, emphasizing that the share applicants were registered companies who provided confirmations and IT assessment details. Citing relevant case laws, the Commissioner held that the addition under Section 68 was unwarranted as the genuineness and creditworthiness of the parties were proven by the assessee.

3. The Tribunal upheld the Commissioner's order, distinguishing a Delhi High Court decision and relying on a Supreme Court judgment. The Tribunal noted that the share application money was received from legitimate parties, and there was no evidence of bogus shareholders. It referenced the Supreme Court's ruling that if alleged bogus shareholders were identified, individual assessments could be reopened, but in this case, the transactions were genuine.

4. The High Court referred to Section 68 of the Act, emphasizing that the assessee must provide a satisfactory explanation for any sum found credited in the books of account to avoid it being treated as undisclosed income. In this instance, the Court found that the assessee had established the nature and source of the investment from the limited companies, thereby discharging the burden under Section 68.

5. The Court concluded that the decision in Lovely Exports (P) Ltd. case applied to the present scenario, as the assessee had proven the legitimacy of the transactions with the limited companies. It dismissed the Revenue's reliance on other case laws, stating that the assessee had fulfilled the requirements of proving the nature and source of the transactions, and the department could pursue action against the investors if needed.

6. Ultimately, the High Court dismissed the appeal, finding no substantial question of law to consider. The decision to delete the addition under Section 68 was upheld based on the assessee's fulfillment of the burden of proof and the genuine nature of the transactions with the limited companies.

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