2013 (3) TMI 174 - HC - Income Tax

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 ... Unexplained share capital - ITAT upheld the order of the CIT(A) in deleting the addition - Held that:- As decided in Shree Barkha Synthetics Pvt. Ltd case [2005 (8) TMI 67 - RAJASTHAN HIGH COURT] if the transactions were made through banking channel and existence of persons in whose names shares had been issued was shown, the assessee-company could not be held responsible to prove as to whether the person himself invested the money or some other person did so and the burden shifted on the revenue to establish that the investment came from the assessee company itself. It was also observed that if at all the investment made by the shareholders is to be added, the assessment has to be carried out in their case and not in the hands of the appellant company. Thus the question as formulated does not even arise in this case because it remains settled with the consistent decisions of the Courts that even in case of doubt about subscribers to the increased share capital, the amount of share capital cannot be regarded as undisclosed income of the company - in favour of assessee. 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.