2010 (11) TMI 57 - HC - Income Tax

Share capital - Income from undisclosed sources (under Section 68 of the Income Tax Act, 1961) - Assessing Officer made addition to the declared income of the assessee - Held that - in the case of Lovely Exports (supra), the addition and enhancement made in the hands of the assessee on account of lack of creditworthiness ofshare applicants, cannot be made - assessee had succeeded in the rectification proceedings - Appeal is dismissed

Summary

Issues:
1. Appeal under Section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal.
2. Rectification application filed before the CIT(A) based on the judgment of the Hon'ble Supreme Court.
3. Tribunal's decision on rectification application and subsequent appeal.

Analysis:

Issue 1:
The appeal was filed under Section 260-A of the Income Tax Act against the order of the Income Tax Appellate Tribunal. The substantial questions of law raised included the legality of the Tribunal's decision in reversing the CIT(A)'s order under Section 154 of the Act. The Tribunal's decision was challenged based on the judgment in the case of CIT vs. Lovely Exports P. Ltd. and the consistency of judicial decisions.

Issue 2:
During the assessment, the Assessing Officer added the amount representing share capital as undisclosed income of the assessee. The CIT(A) affirmed this finding, but the assessee filed a rectification application before the CIT(A) based on the Supreme Court's judgment in the Lovely Exports case. The CIT(A) allowed the rectification, but the Tribunal disagreed, stating that the identity and genuineness of the transaction were not established, and rectification under Section 154 could not reverse a considered decision unless wrong facts were found subsequently.

Issue 3:
The High Court, after hearing both parties, noted the Tribunal's finding that was not shown to be perverse. As no substantial question of law arose from this finding, the appeal was disposed of accordingly. However, the court clarified that this order would not affect the assessee's remedy in appealing against the CIT(A)'s earlier order. The Tribunal had previously dismissed the appeal on the ground of successful rectification proceedings, but the assessee was granted liberty to revive the appeal if the revenue's appeal against the rectification order succeeded.

In conclusion, the High Court upheld the Tribunal's decision on the rectification application, emphasizing the importance of establishing identity and genuineness in transactions. The court's ruling was based on the lack of perversity in the Tribunal's findings, leading to the dismissal of the appeal while preserving the assessee's right to appeal against the CIT(A)'s earlier order.