Share application money addition fails where identity and genuineness of subscribers are proved, even if their bank deposits appear unexplained.

Where an assessee produced shareholders' bank accounts, incorporation certificates and income-tax returns, and thereby established the identity and genuineness of the share subscribers, addition on account of share application money was not justified merely because cash had been deposited in the subscribers' bank accounts before cheques were issued. The unexplained cash deposits, if any, were a matter for action against the subscribing companies and not a basis for addition in the assessee's hands. Applying the principle in Lovely Exports, no substantial question of law arose on the revenue's challenge, and the addition was held unsustainable.

---

---

Issues: Whether addition on account of share application money was justified when the assessee produced the shareholders' bank accounts, incorporation certificates and income-tax returns, and whether any substantial question of law arose in the revenue's appeal.

Analysis: The assessee furnished material establishing the identity and genuineness of the subscribing companies. The only basis for addition was that cash had been deposited in their bank accounts before cheques were issued to the assessee. On these facts, the assessee had discharged its burden. If the subscribing companies had received cash and deposited it in their accounts, it was for the tax department to proceed against those companies. In light of the principle applied in Lovely Exports, no substantial question of law arose.

Conclusion: The addition was not sustainable and the revenue's appeal failed.

Final Conclusion: The decision affirms that once the assessee establishes the identity and genuineness of share subscribers, the mere source of deposits in their bank accounts does not justify addition against the assessee.

Ratio Decidendi: Where the assessee proves the identity and genuineness of share subscribers, any unexplained cash deposit in the subscribers' bank accounts is a matter for action against those subscribers and not a basis for addition in the assessee's hands.

---