2010 (9) TMI 182 - HC - Income Tax

Undisclosed share application money - received by the assessee company from alleged bogus shareholders - None appeared on behalf of the assessee - required particulars of the share applicants including their I.T. details & PAN wise provided to the Assessing Officer except for giving notice to the concerned persons under section 131 Held that - share application money, in the present case, cannot be regarded as undisclosed income of the assessee under Section 68 of the Act, 1961 Appeal bereft of merit, is dismissed.

Summary

Issues:
Challenge to deletion of addition under Section 68 of the Income Tax Act, 1961 for Assessment Year 2004-05.

Analysis:
The appeal challenged the Income Tax Appellate Tribunal's order deleting the addition of Rs.17,50,000 made under Section 68 of the Income Tax Act, 1961. The Revenue contended that the Tribunal erred in law in deleting the addition. However, both the Commissioner of Income Tax (Appeals) and the Tribunal had deleted the addition based on the grounds that the identity of the shareholders was not in doubt. The CIT(A) noted that the assessee had provided a list of all shareholders with full details of payments made by cheque, confirmations from shareholders, bank statements, and other relevant documents. The CIT(A) found that the assessee had discharged its burden of proving the identity of the shareholders as per the law. The Tribunal also observed that the necessary particulars of the share applicants were provided to the Assessing Officer, and no adverse inference could be drawn as the creditors did not appear in response to summons issued under section 131. Referring to legal precedents, the Tribunal concluded that if share application money is received from alleged bogus shareholders, the Department can proceed to reopen individual assessments but cannot treat it as undisclosed income of the assessee.

The Court, after considering the findings of fact by the lower authorities and the legal mandate, upheld the decision to delete the addition under Section 68 of the Act. It was concluded that the share application money in this case could not be considered as undisclosed income of the assessee. The appeal was dismissed for lacking merit. The judgment emphasized the importance of the assessee discharging its burden of proving the identity of shareholders and the legal implications of the Department in cases involving alleged bogus shareholders.