2019 (2) TMI 818 - HC - Income Tax

Addition u/s 68 - Addition being amount of share application money received by the assessee during the year - Held that - We note that the finding of the Tribunal is essentially a finding of fact which has been rendered after making reference in detail to the documents on record which establish the identity, capacity and genuineness of STSPL to make the investment. In this case, the respondent has gone beyond the requirement of the law as existing in the subject assessment year 2008-09 by having explained the source in terms of Section 68. Besides, the reliance by the CIT (A) on the decision of McDowell (1985 (4) TMI 64 - SUPREME COURT) is not applicable to the facts of the present case. The Apex Court in decisions in the cases of Union of India & Anr. Vs. Azadi Bachao Andolan & Anr (2003 (10) TMI 5 - SUPREME COURT) and Vodafone International Holdings B.V. Vs. Union of INdia & Anr. (2012 (1) TMI 52 - SUPREME COURT OF INDIA) also held that principles laid down in the case of McDowell (supra) is not applicable across the board to discard an act which is valid in law upon some hypothetical assessment of the real motive of the assessee . Thus, imputing a plan on the part of the respondent assessee and STSPL to evade tax without any supporting evidence in the face of the detailed facts recorded by the impugned order of the Tribunal, is not justified. - Decided against the revenue.

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding addition of share application money to income for Assessment Year 2008-09.

Analysis:
1. The respondent received share application money of ?2.20 crore during the assessment year, which was added to their income by the Assessing Officer. The respondent provided documents to substantiate the source of the funds, including a board resolution and a letter from the source company. However, the Assessing Officer deemed the transaction as an attempt to evade tax, as the source company had sufficient funds available but did not pay the balance amount within the specified time frame.

2. The Commissioner of Income Tax (Appeals) upheld the Assessing Officer's decision, relying on the McDowell & Co Ltd case, dismissing the respondent's appeal. The Tribunal, in its order, noted that the share application money was received through proper banking channels and extended the time for payment at the source company's request. When the source company failed to pay, the respondent forfeited the amount in the subsequent assessment year.

3. The Tribunal found the evidence established the identity, capacity, and genuineness of the share application money received. The funds were received through proper banking channels, supported by ledger accounts, bank statements, and audited annual accounts of the source company. Additionally, a Chartered Accountant's valuation report confirmed the share price and the source company's payment through selling its own investments.

4. The High Court noted that the Tribunal's finding was based on detailed examination of the evidence, establishing the legitimacy of the transaction. The respondent had complied with the requirements of Section 68 of the Income Tax Act by explaining the source of funds. The Court emphasized that the McDowell case was not applicable in this scenario, as there was no evidence to support tax evasion motives. The Court cited other cases to support the view that imputing tax evasion plans without evidence is unjustified.

5. Ultimately, the High Court dismissed the appeal, stating that the Tribunal's decision was a factual finding supported by evidence and not perverse. The appeal did not raise any substantial question of law, leading to its dismissal without costs.