2010 (10) TMI 102 - HC - Income Tax

Court upholds Tribunal's decision on share application money under Income Tax Act

The High Court upheld the Tribunal's decision to delete the addition of unexplained share application money under Section 68 of the Income Tax Act, 1961. ... Unexplained share application money - Held that: - all the persons who were summoned by the Assessing Officer to make the enquiry from them has presented themselves and confirmed the subscription made by them - share application money cannot be regarded as undisclosed income of the assessee under Section 68 of the Act - Appeal is dismissed Issues:Challenge to order under Section 260A of Income Tax Act, 1961 regarding addition of unexplained share application money.Analysis:The appeal was filed challenging the order passed by the Income Tax Appellate Tribunal regarding the addition of ' 31,37,000/- under Section 68 of the Income Tax Act, 1961. The Tribunal deleted this addition, stating that the identity of the shareholders was not in doubt, following judgments by the jurisdictional Delhi High Court and the Supreme Court. The Commissioner of Income Tax (Appeals) also observed that once the identity of the shareholder is established, no addition can be made in the company's hands, even if the shareholder is found to be bogus. The Tribunal confirmed the order of the CIT(A) based on the judgments of the Delhi High Court and the Apex Court, emphasizing that no addition can be made in the hands of the company receiving share application money, even from alleged bogus shareholders. The Tribunal noted that the identity of the shareholder was established, and hence, the addition was deleted.The High Court upheld the Tribunal's decision, citing the mandate of law in Commissioner of Income Tax Vs. Lovely Exports (P) Ltd. and the concurrent findings of fact by the authorities below. It was concluded that the share application money cannot be considered as undisclosed income of the assessee under Section 68 of the Act. Consequently, the appeal was dismissed for lacking merit.In summary, the judgment revolved around the interpretation of Section 68 of the Income Tax Act, 1961 concerning the addition of share application money. The courts emphasized the importance of establishing the identity of shareholders and cited relevant precedents to support the decision to delete the addition. The consistent findings by the authorities below and the application of legal principles from previous judgments led to the dismissal of the appeal.