2010 (1) TMI 1296 - AT - Income Tax

Summary

Issues involved: Appeal against order of CIT(Appeals) for Assessment Year 1998-99, deletion of addition of unexplained cash credit u/s.68, and disallowance of interest payable on share application money.

Deletion of addition of unexplained cash credit u/s.68:
The assessee-company failed to prove the genuineness of share application money of Rs.14,71,000 for 17 parties. Despite opportunities, the assessee could not provide sufficient evidence for these cash credits. The Assessing Officer's inquiries were inconclusive as the addresses provided by the assessee were invalid. The onus to establish the genuineness of the funds was on the assessee, which was not discharged. Therefore, the addition of Rs.14,71,000 was justified.

Disallowance of interest payable on share application money:
The counsel for the assessee argued that the share application money represented capital receipt as no business activity was commenced during the pre-operative year. The company provided evidence to support this claim, including balance sheets and incorporation certificates. The Hon'ble Gujarat High Court's decision in Mitesh Rolling Mills case was cited to support the argument that the share application money was not unexplained income. The dispute among directors and lack of details about share applicants further strengthened the case for deletion of the addition. The interest payable on share application money was deemed not allowable as it was raised for share capital, not business purposes.

Conclusion:
The appeal and cross objection were dismissed, affirming the deletion of the addition of unexplained cash credit u/s.68 and the disallowance of interest payable on share application money. The decision was based on the lack of income-earning activities, the nature of share application money, and the failure to prove the genuineness of funds.