Court affirms deletion of unexplained share capital addition under Section 68

The Court upheld the deletion of the addition under Section 68 of the Income Tax Act related to unexplained share capital. The Commissioner of Income Tax (Appeals) ruled that if transactions were through banking channels and shareholder existence was proven, the burden shifted to the revenue to prove the source of investment. The Tribunal found no reason to interfere with the deletion of the addition, as the issue under Section 263 was related to share capital introduction. The Court dismissed the revenue's appeal, affirming the deletion of the addition under Section 68.

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Issues:
Appeal against deletion of addition under Section 68 of the Income Tax Act on account of unexplained share capital.

Analysis:
The appeal by the revenue was directed against the order of the Income Tax Appellate Tribunal related to the assessment year 1997-1998. The Assessing Officer had ordered an addition under Section 68 of the Act, treating an amount of Rs.58.40 lakhs as unexplained share capital due to the lack of confirmation from the allottees/shareholders. The Commissioner of Income Tax (Appeals) referred to relevant case law and held that if transactions were made through the banking channel and the existence of shareholders was shown, the burden shifted to the revenue to prove the source of investment. The CIT(A) deleted the additions made under Section 68 in the hands of the assessee company.

The Tribunal noted that action was taken under Section 263 of the Act by the Commissioner of Income Tax, which was later cancelled. The Tribunal declined to interfere as the subject matter of the order under Section 263 was the same as the share capital introduction issue. The respondent's counsel argued that even in cases of doubt about subscribers to increased share capital, it cannot be treated as undisclosed income of the company. Citing relevant case law, it was emphasized that even if subscribers were not genuine, the share capital cannot be assessed in the hands of the company itself.

The Court upheld the respondent's objection that the question raised did not apply in this case, as the share application amount could not be attributed to the assessee company. Therefore, the addition under Section 68 was correctly deleted by the CIT(A), and the Tribunal's decision to uphold this was justified. Consequently, the appeal by the revenue was dismissed.

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