2010 (5) TMI 65 - HC - Income Tax

Share application money - undisclosed income - During the course of assessment, when asked to prove the identity and creditworthiness of the applicants and genuineness of the transactions, the assessee company furnished copies of their applications for allotment of shares, confirmation of payments, copies of their Certificates of Incorporation, printouts of their PAN details, copies of their PAN cards as well as company details, downloaded from the site of the Department of Company Affairs, showing their addresses. Notices under Section 133(6) of the Act were issued to all the 12 applicants, who reiterated the confirmation given by them and also supplied copies of their accounts. The Assessing Officer, however, added the entire amount of ₹ 44 lakhs to the income of the assessee company, on the grounds that the parties were not produced by the assessee, some of the applicants had a common address during inspection by the Income Tax Inspector, five applicants were not found functioning at the given address and reply submitted by the applicants were late. CIT(A) and ITAT deleted the addition. Held that The Assessing Officer was not justified in adding the amount of share application money to the income of the assessee, merely because the applicants did not respond to the notices sent to them. If the Assessing Officer so wanted, he could have found out the current address of those applicants, who, according to the report of the Inspector, were not found functioning at the address given to the Assessing Officer, by summoning the Directors, etc. of those companies and asking them to furnish the current address of the company. The names and addresses of Directors, if not available with the assessee, could have been obtained from the office of Registrar of Companies or from the banks on which the cheques were drawn. No such attempt, however, was made by the Assessing Officer. In these circumstances, we found no reason to disturb the finding of fact recorded by the ITAT. Decided in favor of assessee

Issues:
1. Appeal against the order of Income Tax Appellate Tribunal.
2. Assessment of share application money received by the assessee company.
3. Addition of share application money to the income of the assessee company.
4. Establishment of identity, genuineness, and creditworthiness of share applicants.
5. Compliance with Section 68 of the Income Tax Act.
6. Justification of findings by the Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal.
7. Verification of documents and addresses of share applicants by the Assessing Officer.

Analysis:
1. The appeal was filed against the Income Tax Appellate Tribunal's order dismissing the Revenue's appeal regarding the assessment of share application money received by the assessee company for the Assessment Year 2004-05. The Tribunal noted the documents provided by the assessee, including share application forms, PAN details, and company incorporation certificates, establishing the identity of the share applicants.

2. The Assessing Officer added the entire amount of share application money to the income of the assessee company due to concerns about the identity and creditworthiness of the applicants. However, the Commissioner of Income Tax (Appeals) found that the documents provided by the assessee, along with the confirmation from the applicants and the account payee cheques, sufficiently proved the genuineness of the transactions.

3. The Tribunal, relying on the Supreme Court's decision in CIT vs. Lovely Exports (P) Ltd., upheld the Commissioner's decision, emphasizing that the identity of the share applicants was established through the documents submitted by the assessee. The Tribunal declined to interfere with the Commissioner's order, leading to the dismissal of the Revenue's appeal.

4. The High Court, after reviewing the case law on Section 68 of the Income Tax Act, emphasized the importance of the assessee establishing the identity, genuineness, and creditworthiness of the share applicants. It was noted that the documents provided by the assessee, including PAN cards, incorporation certificates, and confirmation from the applicants, were crucial in proving the legitimacy of the transactions.

5. The Court highlighted that the Assessing Officer failed to verify the documents provided by the assessee through relevant authorities like the Registrar of Companies or the Department of Company Affairs. It was emphasized that the genuineness of the share application money was established through account payee cheques and proper documentation, warranting no interference with the findings of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal.

6. The Court concluded that no substantial question of law arose for consideration, affirming the decisions of the lower authorities based on the established identity of the share applicants and the genuineness of the transactions. The appeal was ultimately dismissed, upholding the findings of fact recorded by the Income Tax Appellate Tribunal.

Judges:
- Hon'ble Mr Justice Badar Durrez Ahmed
- Hon'ble Mr Justice V.K. Jain

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