2010 (7) TMI 147 - HC - Income Tax

Bogus share capital - identity, genuineness and creditworthiness of the share applicants. Held that - the identity of the creditors is known and hence the assessing officer can proceed against such creditors in accordance with law. decided in favor of assessee

Summary

Issues:
Delay in re-filing appeal, Challenge to ITAT order on addition of share capital under Section 68 of Income Tax Act, 1961, Burden of proof on identity, genuineness, and creditworthiness of share applicants, Application of legal parameters from previous court judgments, Reliance on Commissioner of Income Tax v. Lovely Exports (P) Ltd., Dismissal of appeal due to lack of substantial question of law.

Delay in re-filing appeal:
The judgment addressed an application for condonation of a 281-day delay in re-filing the appeal, which was granted based on reasons stated in the application, leading to the disposal of the application.

Challenge to ITAT order on addition of share capital under Section 68 of Income Tax Act, 1961:
The appeal was filed challenging the ITAT order dated December 5, 2008, regarding the addition of Rs. 1,32,72,500/- on account of bogus share capital under Section 68 of the Income Tax Act, 1961. The counsel for Revenue argued that the ITAT erred in law and on merits by deleting the addition, stating that the assessee failed to prove the identity, genuineness, and creditworthiness of the share applicants.

Burden of proof on identity, genuineness, and creditworthiness of share applicants:
Upon reviewing the impugned order, the court noted that out of 42 persons who invested in the share capital, 39 appeared before the assessing officer, their statements were recorded, and they provided supporting documents like bank accounts and affidavits. The court referenced the parameters set by previous court judgments regarding the burden of proof on the assessee to establish the identity of shareholders to prevent additions under Section 68.

Application of legal parameters from previous court judgments:
The court highlighted that the assessee had met the burden of proof by producing individuals who confirmed the share application money either in person or through supporting documents. The court emphasized that discrepancies in financial capabilities could not be a basis for denial, except in cases where specific individuals denied making investments. The judgment relied on legal principles from previous court decisions to determine the adequacy of proof provided by the assessee.

Reliance on Commissioner of Income Tax v. Lovely Exports (P) Ltd.:
The court justified the reliance on the decision in Lovely Exports (P) Ltd., emphasizing that if the identity of creditors is known, the assessing officer can proceed against them in accordance with the law. The court found the Tribunal's reliance on this decision justified in the present case.

Dismissal of appeal due to lack of substantial question of law:
After considering the arguments and the Tribunal's decision, the court concluded that no substantial question of law was involved in the appeal. As a result, the appeal was dismissed in limine.

This comprehensive analysis of the judgment covers the issues of delay in re-filing the appeal, the challenge to the ITAT order on share capital addition, the burden of proof on share applicants' identity, the application of legal parameters, reliance on previous court judgments, and the dismissal of the appeal due to the lack of a substantial question of law.