2010 (9) TMI 163 - HC - Income Tax

Share application money - received by the assessee company from alleged bogus shareholders - Non-filing of bank statement by the share applicant Held that - Bank statement is a document in the possession of the share applicant and not in the possession of the assessee - no reason to sustain the addition made by the Assessing Officer - share application money cannot be regarded as undisclosed income of the assessee under Section 68 of the Act, 1961 - appeal, being bereft of merit, is dismissed.

Summary

Issues:
Challenge to order under Section 260A of the Income Tax Act, 1961 regarding addition of Rs. 7,14,000 under Section 68 of the Act for Assessment Year 2005-06.

Analysis:
The appeal was filed challenging the order passed by the Income Tax Appellate Tribunal (Tribunal) in ITA No. 01/Del/2009 for the Assessment Year 2005-06 under Section 260A of the Income Tax Act, 1961. The Revenue contended that the Tribunal erred in law by deleting the addition of Rs. 7,14,000 made by the Assessing Officer under Section 68 of the Act, 1961. However, it was observed that both the Commissioner of Income Tax (Appeals) and the Tribunal had deleted the said addition on the grounds that the identity of the shareholders was not in doubt. The Tribunal emphasized that there was no provision restricting acceptance of share application money ranging between Rs. 12,000 to Rs. 19,000 in cash, and all shareholders confirmed their applications with PA Numbers and filed income tax returns to establish their identities. Despite the assessee's assurance of producing the shareholders if required, the Assessing Officer did not insist on their production. The Tribunal cited the case of Lovely Exports (P) Ltd. where the Supreme Court held that if share application money is received from alleged bogus shareholders, the Department can proceed to reopen their individual assessments, but such money cannot be treated as undisclosed income of the assessee under Section 68 of the Act.

The judgment further referenced the mandate of law in Commissioner of Income Tax Vs. Lovely Exports (P) Ltd., 216 CTR 195 (SC) and the consistent factual findings of the authorities below to conclude that the share application money in question cannot be considered as undisclosed income under Section 68 of the Act, 1961. Consequently, the appeal was dismissed for lacking merit.