2010 (10) TMI 37 - HC - Income Tax

Share application money- AO treated the share application money as undisclosed income of the assessee on the basis that it was not genuine. Court dismissed the addition stating that once company establishes the identity of the shareholders AO can not treat the share application money as undisclosed income.

Summary

Issues:
Appeal challenging composite order under Section 260A of Income Tax Act, 1961 for Assessment Years 2001-2002 and 2002-2003. Dispute over deletion of addition under Section 68 of the Act by the Tribunal. Examination of initial onus discharge by the respondent-assessee. Interpretation of judicial pronouncements regarding share application money and undisclosed income.

Analysis:
The appeals were filed challenging a composite order by the Income Tax Appellate Tribunal (Tribunal) for the Assessment Years 2001-2002 and 2002-2003. The primary issue revolved around the deletion of an addition of ' 32,00,00/- under Section 68 of the Income Tax Act. The revenue contended that the Tribunal erred in law by deleting the addition without the respondent-assessee discharging the initial onus. However, the Commissioner of Income Tax (Appeals) and the Tribunal found that the initial onus had been discharged by the respondent-assessee. The CIT(A) highlighted that the identity of the parties was confirmed, and the AO did not bring any adverse findings regarding their creditworthiness. The Tribunal concurred, emphasizing that if the identity of persons is established, no addition is justified in the hands of the assessee.

The Tribunal referred to the decision in Commissioner of Income Tax vs. Lovely Exports (P) Ltd., where the Supreme Court held that share application money, even if received from alleged bogus shareholders, does not constitute undisclosed income of the assessee if the identity of persons is established. The Tribunal reiterated that if the Assessing Officer had concerns about the creditworthiness of the depositors, action should have been taken against them, not the assessee company. Consequently, the Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) in deleting the addition, citing the mandate of law and the concurrent findings of fact by the authorities below.

In conclusion, the High Court dismissed the appeal, affirming that the share application money could not be considered undisclosed income of the assessee under Section 68 of the Act. The judgment underscored the importance of establishing the identity of persons in such cases and reiterated the principle that if doubts exist regarding the creditworthiness of depositors, action should be directed towards them, not the assessee company. The decision aligned with the interpretation of relevant judicial pronouncements, emphasizing the need for proper assessment based on established facts and legal precedents.