2010 (9) TMI 122 - HC - Income Tax

Unexplained share application money under Section 68 of the Act - Assessee has received share application money from its Director - Held that - department has not been able to point out any material or evidence - share application money cannot be regarded as undisclosed income of assessee under Section 68 of Act, 1961 Appeal is dismissed.

Summary

Issues:
Challenge to deletion of addition on account of unexplained share application money under Section 68 of the Income Tax Act, 1961 for Assessment Year 2006-2007.

Detailed Analysis:

Issue 1: Addition of Share Application Money
The appeal was filed challenging the Tribunal's order deleting the addition of unexplained share application money under Section 68 of the Income Tax Act, 1961. The Revenue argued that the genuineness of the transaction, creditworthiness, and identity of the creditor were not proven by the respondent-assessee.

Analysis: The Commissioner of Income Tax (Appeals) and the Tribunal both deleted the addition based on the grounds that the identity of the share applicant was not in doubt. The share applicant was identified as an income tax assessee with a valid PAN number. The CIT(A) emphasized the genuine intention of the appellant by attempting to produce the share applicant for examination. The Tribunal also noted that the share applicant, a director of the company, had confirmed the investment and provided necessary documents like PAN card and bank account details. The CIT(A) and Tribunal relied on the Supreme Court decision in the case of Lovely Exports to justify the deletion of the addition.

Issue 2: Legal Precedent and Application
The judgment cited the decision of the Supreme Court in Commissioner of Income Tax Vs. Lovely Exports (P) Ltd., emphasizing that if share application money is received from alleged bogus shareholders, the Department can proceed to reopen their individual assessments. The judgment upheld the CIT(A) and Tribunal's decision based on this legal precedent.

Analysis: The judgment highlighted that the approach taken by the CIT(A) and Tribunal was in line with the Supreme Court decision in Lovely Exports. It reiterated that the share application money cannot be treated as undisclosed income under Section 68 of the Act if the identity of the shareholder is established. The judgment dismissed the appeal, affirming the deletion of the addition of share application money.

In conclusion, the judgment upheld the decisions of the lower authorities based on the established identity of the share applicant and compliance with legal precedents, ultimately dismissing the appeal challenging the deletion of the addition of share application money under Section 68 of the Income Tax Act, 1961 for the Assessment Year 2006-2007.