2013 (4) TMI 290 - HC - Income Tax

Assessment of share capital in the hands of assessee - Whether share holders being existing natural persons, their investment to the share capital of the appellant could be added to the income of the appellant - Held that - There appears to be some confusion with regard to the figure whether it is Rs. 3,80,000/- or Rs. 3,08,000/-. In different orders, different figures have been mentioned. Relying on Commissioner Of Income Tax Versus Steller Investment Ltd. 2000 (7) TMI 76 - SUPREME COURT the aforesaid amount represents the share application money and the investors are known persons, there was no justification for making an addition of Rs. 3,08,000/- in the hands of the assessee as unexplained investment. The order of the Tribunal is faulty. The same is hereby set aside and it is held that the addition of Rs. 3,08,000/- made in the hands of the appellant could not have been added. It is deleted - in favour of assessee.

Summary

Issues:
1. Assessment of share capital at the hands of the appellant.
2. Addition of share capital investment to the income of the appellant.

Analysis:
The appeal was filed under section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal for the assessment year 1998-99. The appeal was admitted based on two substantial questions of law. The assessee had filed its return of income showing a loss, which was not accepted by the Assessing Officer. The CIT(A) partially allowed the appeal, but the Tribunal dismissed it, adding the share capital in the income of the assessee. The contention was that the money was contributed by applicants for share allotment, but the economic condition of the applicants was questioned, leading to the addition of share capital.

The controversy was settled against the Department by a judgment of the Apex Court in a similar case. The Apex Court held that even if subscribers to the share capital were not genuine, the amount cannot be considered as undisclosed income of the assessee. The Court emphasized that if the persons who advanced the money were to be assessed, it would make sense, but assessing the share capital in the hands of the company itself was not justified. The High Court consistently followed this judgment.

There was some confusion regarding the amount in question, whether it was Rs. 3,80,000 or Rs. 3,08,000. However, as the amount represented share application money from known investors, the addition of Rs. 3,08,000 in the hands of the appellant as unexplained investment was deemed unjustified. The High Court disagreed with the Tribunal's order, finding it faulty, and set it aside. The addition of Rs. 3,08,000 was deleted, and the appeal was allowed.