2010 (9) TMI 171 - HC - Income Tax

Unexplained share application money According to AO assessee had failed to prove the identity and creditworthiness of the share applicants and genuineness of the transaction - assessee had filed the Permanent Account Number audited balance sheet and bank statements of the share applicants and had further furnished evidence of purchase of plant and machinery as well as its usage Held that - share application money cannot be regarded as undisclosed income of assessee under Section 68 of Act - appeal being bereft of merit is dismissed.

Summary

Issues:
Appeal challenging ITAT order on unexplained share application money and depreciation deduction.

Analysis:
1. The appeal challenged the ITAT order regarding the addition made by the AO on unexplained share application money. The counsel for the Revenue argued that the assessee failed to prove the identity and creditworthiness of share applicants and the genuineness of the transaction.

2. The Tribunal had allowed the deduction of depreciation on plant and machinery, which was contested by the Revenue. However, it was found that the CIT(A) and Tribunal accepted the evidence provided by the assessee, including PAN, audited balance sheets, and bank statements of share applicants, as well as proof of purchase and usage of plant and machinery.

3. The CIT(A) confirmed the purchase of plant and machinery on a loan, its delivery to a group company office, and subsequent transportation to the work site. The Tribunal upheld this finding, emphasizing the evidence of purchase and usage, thereby rejecting the Revenue's challenge to the depreciation deduction.

4. Regarding share application money, the CIT(A) verified the identity and creditworthiness of the share applicants through PAN, audited balance sheets, and bank statements. The Tribunal concurred, stating that the onus was discharged by the assessee, and the mere absence of investment breakup in assessment files of the companies did not warrant addition for unexplained cash credits.

5. The approach taken by the CIT(A) and Tribunal was deemed consistent with the Supreme Court decision in Commissioner of Income Tax Vs. Lovely Exports (P) Ltd., emphasizing that if share application money is received from alleged bogus shareholders, individual assessments can be reopened. As per the law and the factual findings of the lower authorities, the share application money could not be treated as undisclosed income under Section 68 of the Act.

6. Consequently, the appeal was dismissed as lacking merit, based on the legal mandate and the factual conclusions reached by the lower authorities.