2010 (8) TMI 36 - HC - Income Tax

Share application money production of evidences Held that - the approach adopted by CIT(A) and Tribunal is in consonance with the decision of Supreme Court in Commissioner of Income Tax Vs. Lovely Exports (P) Ltd. 2010 -TMI - 76942 - SUPREME COURT OF INDIA wherein it has been held that, 2. Can the amount of share money be regarded as undisclosed income under s. 68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason 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. - Keeping in view the aforesaid mandate of law, the share application money cannot be regarded as undisclosed income of assessee under Section 68 of Act, 1961.

Summary

Issues:
Appeal under Section 260A of the Income Tax Act challenging the order of the Income Tax Appellate Tribunal regarding addition of share application money.

Analysis:
The appeal was filed challenging the Tribunal's deletion of the addition of 1,70,00,000/- made by the Assessing Officer on account of share application money received by the assessee. The Revenue argued that the Tribunal erred in deleting the addition as the assessee failed to produce Mrs. Shakuntala Devi, leading to unconfronted deposits in her account. However, upon review, it was found that the addition was deleted by the Commissioner of Income Tax (Appeals) and the Tribunal based on substantial evidence provided by the assessee to establish the identity and creditworthiness of Mrs. Shakuntala Devi. The Tribunal noted that most of the money deposited in the account was credited by transfer or clearing, contradicting the Assessing Officer's claim that it was mostly deposited in cash.

The Commissioner of Income Tax (Appeals) observed that the entire amount received as share application money was transferred from a specific bank account, and the balance sheet of the company reflected the amount as "advance to be recoverable in cash or in kind." Additionally, Mrs. Shakuntala Devi had been assessed for the relevant year by the Income Tax department. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals), stating that the assessee had provided substantial evidence to establish the identity and creditworthiness of Mrs. Shakuntala Devi, and the issue of share application money being undisclosed income had been settled by a Supreme Court judgment.

The Tribunal's decision was in line with the Supreme Court ruling in Commissioner of Income Tax Vs. Lovely Exports (P) Ltd., which clarified that share application money cannot be considered undisclosed income under Section 68 of the Income Tax Act if received from alleged shareholders, allowing the Department to proceed with individual assessments. Therefore, the appeal was dismissed as the share application money could not be deemed undisclosed income, following the legal mandate established by the Supreme Court ruling.