2013 (9) TMI 748 - HC - Income Tax

Addition on account of share application money Undisclosed income to the company in case of money received from bogus shareholders Held that - Reliance is placed on the decision on Hon ble Supreme Court of India reported in 2008 (1) TMI 575 - SUPREME COURT OF INDIA in case of Commissioner of Income Tax Vs. Lovely Exports Pvt. ltd., in which Hon ble Supreme Court has held that if the share application money is received by assessee company from alleged bogus share holders, whose names are given to the AO then the department is free to proceed to re-open there individual assessments in accordance with law but it can t regarded as undisclosed income of the assessee company Decided against the Revenue.

Summary

Issues:
1. Deletion of addition of share money by share holders
2. Justification for deleting the addition based on a previous judgment

Issue 1: Deletion of addition of share money by share holders

The appeal in question arose from a judgment passed by the Income Tax Appellate Tribunal regarding the addition of Rs.28,25,480/- as share application money by the Assessing Officer. The CIT (A) accepted the explanation provided by the assessee, which clarified that the total share application money subscribed by all share holders during the relevant financial year was Rs.21,00,000/-. The share capital was increased to Rs.49,20,000/- in the subsequent financial year. The CIT (A) observed that the share capital of the assessee had been duly reflected in the balance sheet since the assessment year 1996-97. The explanation submitted by the assessee was considered, and it was noted that there was no addition of share capital of Rs.28,20,000/- in the relevant year. The ITAT upheld the CIT (A)'s decision, confirming that the appeal was misconceived as the questions of law framed by the revenue did not actually arise for consideration.

Issue 2: Justification for deleting the addition based on a previous judgment

The revenue contended that the deletion of the addition of Rs.28,25,480/- was erroneous as the genuineness of the transactions was not proven. They argued that the ITAT was not justified in deleting the addition, especially considering a judgment of the jurisdictional High Court. However, the CIT (A) and subsequently the ITAT found merit in the assessee's explanation and upheld that the share capital had been appropriately reflected in the balance sheet. The ITAT confirmed the CIT (A)'s order, emphasizing that the questions of law framed by the revenue were based on non-existing facts. Ultimately, the High Court dismissed the income tax appeal, supporting the decision of the lower authorities.

This judgment highlights the importance of providing clear explanations and maintaining accurate financial records to support claims made during income tax assessments. The decision underscores the significance of factual accuracy and adherence to legal procedures in tax-related matters.