2010 (9) TMI 105 - HC - Income Tax

Condonation of delay in refiling the appeal - Unexplained share application money under Section 68 of Act - Held that - Genuineness of the applicants and transfer of money from them has been clearly established - share application money cannot be regarded as undisclosed income of assessee under Section 68 of the Act - Appeal is dismissed

Summary

Issues:
Condonation of delay in refiling the appeal under Section 260A of the Income Tax Act, 1961. Challenge to the order of the Income Tax Appellate Tribunal regarding addition of unexplained share application money under Section 68 of the Act. Interpretation of the evidences provided by the appellant to establish the genuineness of the transaction. Application of legal principles from judicial pronouncements in deciding the treatment of share application money. Compliance with the decision of the Supreme Court in Commissioner of Income Tax Vs. Lovely Exports (P) Ltd.

Analysis:
The judgment involves an application for condonation of delay in refiling an appeal under Section 260A of the Income Tax Act, 1961. The appeal challenged the order of the Income Tax Appellate Tribunal regarding the addition of Rs.12,81,250 as unexplained share application money under Section 68 of the Act for the Assessment Year 2004-2005. The Revenue contended that the Tribunal erred in law by deleting the addition without the respondent-assessee discharging its primary onus regarding the identity, creditworthiness, and genuineness of the transaction. However, both the Commissioner of Income Tax (Appeals) and the Tribunal found that the share applicants were corporate entities who provided various documents confirming the identity and genuineness of the transaction. The Commissioner of Income Tax (Appeals) emphasized the necessity of a speaking order with reasons and opportunity of being heard for the assessee before passing any adverse order, citing a judicial pronouncement by the Delhi High Court. The Tribunal also cited decisions of the Supreme Court to support the conclusion that if the share application money is received from alleged bogus shareholders, the Department should proceed against the shareholders, not the company.

The judgment highlighted the importance of providing evidence to substantiate the genuineness of transactions and the requirement for the Assessing Officer to pass a reasoned order based on proper investigation and confrontation of evidence during assessment proceedings. The Tribunal's decision aligned with the Supreme Court's ruling in Commissioner of Income Tax Vs. Lovely Exports (P) Ltd., emphasizing that if the Department doubts the source of funds, it should proceed against the shareholders, not the company. The judgment emphasized that the share application money cannot be considered undisclosed income of the assessee under Section 68 of the Act based on the evidences provided and the legal principles established in relevant judicial pronouncements.

In conclusion, the appeal was dismissed based on the concurrent findings of fact by the Commissioner of Income Tax (Appeals) and the Tribunal, which were in line with the legal principles outlined in the decisions of the Supreme Court. The judgment underscored the importance of following legal procedures, providing evidence, and adhering to judicial pronouncements in determining the treatment of share application money under Section 68 of the Income Tax Act, 1961.