2010 (7) TMI 39 - HC - Income Tax

Share application money credit worthiness identity of creditors - Revenue submits that just by filing income tax return or confirmation of creditors does not prove the creditworthiness and identity of a creditor specially when the creditor s bank accounts revealed credit by way of cash deposit or by clearing just before issuing cheques of almost equivalent amount. Held that - since the identity of the share applicants has been established and it has been found that the said applicants are corporate assessees who were assessed to tax with the Income Tax Department, we are of the view that in the present case no substantial question of law arises revenue appeal dismissed decision of SC in the matter of Commissioner of Income Tax Vs. Lovely Exports (P) Ltd 2010 TMI - 76942 - SUPREME COURT OF INDIA followed

Summary

Issues:
Challenge to deletion of share application money under Section 68 of the Income Tax Act, 1961.

Analysis:
The appeal was filed challenging the deletion of Rs. 51,50,000 under Section 68 of the Income Tax Act, 1961, regarding share application money received by the assessee. The Revenue argued that merely filing income tax returns or creditor confirmations does not establish the creditworthiness and identity of a creditor, especially when the creditor's bank accounts show cash deposits or "clearing" just before issuing cheques of similar amounts. However, the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT) both deleted the addition based on confirmations filed during assessment proceedings, showing that all share applicants were corporate assessees assessed by the Income Tax Department. The Commissioner and ITAT detailed the corporate entities purchasing the shares and the cheque numbers used for payment, concluding that the assessee had proven the identity of the share applicants.

In a similar context under Section 68 of the Act, 1961, the Supreme Court's judgment in the case of Commissioner of Income Tax Vs. Lovely Exports (P) Ltd. emphasized that if share application money is received from alleged bogus shareholders, the Department can reopen individual assessments. Since the identity of the share applicants was established as corporate assessees assessed by the Income Tax Department, the court found no substantial question of law in the present case. Consequently, the appeal was dismissed without costs.

This judgment highlights the importance of establishing the identity and creditworthiness of creditors, especially in cases involving share application money under Section 68 of the Income Tax Act, 1961. The decision underscores the significance of providing concrete evidence to support claims and the authority's discretion to reopen assessments in cases of alleged bogus transactions.