2010 (7) TMI 146 - HC - Income Tax

Undisclosed income creditworthiness of shareholders genuineness of transaction burden of proof Held that - if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law - the share application money of rupees twelve lacs cannot be regarded as undisclosed income of assessee under Section 68 of Act, 1961

Summary

Issues involved: Appeal challenging ITAT order on addition of undisclosed income under Section 68 of Income Tax Act, 1961 for assessment year 2001-2002.

Analysis:
1. Issue: Challenge to ITAT order on addition of undisclosed income.
- The appeal was filed under Section 260A of the Income Tax Act, 1961, challenging the ITAT order dated 19th June, 2009, regarding the addition of rupees twelve lacs as undisclosed income under Section 68.
- The Revenue contended that the ITAT erred in law by deleting the addition, emphasizing that the burden was on the assessee to prove the identity and creditworthiness of the shareholder and the genuineness of the transaction.

2. Issue: Burden of proof on the assessee.
- The counsel for Revenue argued that the assessee failed to discharge the burden of proving the identity and creditworthiness of the shareholder and the genuineness of the transaction.
- However, both the Commissioner of Income Tax (Appeals) and the ITAT found that the assessee had submitted relevant documents like share applications, certificates, affidavits, and income tax returns, along with PAN numbers of the investors to the assessing officer.

3. Issue: Compliance with legal requirements.
- The Commissioner and ITAT's approach was deemed consistent with the Supreme Court decision in Commissioner of Income Tax Vs. Lovely Exports (P) Ltd., where it was held that if share application money is received from alleged bogus shareholders, the Revenue can proceed to reopen their individual assessments.
- The lower authorities concluded that if the share application money was received from alleged bogus shareholders, the Revenue could reopen the shareholders' assessments in accordance with the law.

4. Conclusion:
- The High Court, in line with the legal precedent, held that the share application money of rupees twelve lacs cannot be considered undisclosed income under Section 68 of the Act.
- Consequently, the appeal was dismissed with no order as to costs, upholding the decision of the lower authorities and the legal position established by the Supreme Court.

This detailed analysis of the judgment highlights the key legal issues, arguments presented, compliance with legal requirements, and the court's conclusion based on the established legal precedent.