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AMICUS AI
Citation Codes
Neutral Citations
2010 DHC 3979-DB
Equivalent Citations
citation codes
Case Number
Advocates
  • Ms. Prem Lata Bansal, Advocate
  • None
Judges
  • Manmohan, J.
Acts
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Cites
Cited by
Citation Codes
Neutral Citations
2010 DHC 3979-DB
Equivalent Citations
citation codes
Case Number
Advocates
  • Ms. Prem Lata Bansal, Advocate
  • None
Judges
  • Manmohan, J.
Acts
See more information ...
Smart Summary

Summary of Judicial Opinion

Factual and Procedural Background

This appeal was filed under Section 260A of the Income Tax Act, 1961 challenging the order dated 23rd June, 2009 passed by the Income Tax Appellate Tribunal ("ITAT") in ITA No. 3103.Del/2009 for the Assessment Year 2002-2003. The Revenue, represented by Ms. Prem Lata Bansal, challenged the deletion by the Assessing Officer of an addition of Rs. 22,00,000 made under Section 68 of the Income Tax Act, 1961 on account of unexplained share application money. The CIT(A) and the ITAT had deleted the addition after finding that the four share applicants were corporate entities that had filed documents confirming their source of investment and furnished PAN numbers; confirmations of existence by the respective ITOs were also noted. The tribunal and the CIT(A) relied on the decision in Commissioner Of Income Tax v. Lovely Exports Private Limited. The High Court (Manmohan, J., Chief Justice) heard the appeal and issued its order on August 12, 2010.

Legal Issues Presented

  1. Whether the share application money of Rs. 22,00,000 can be treated as undisclosed income of the assessee under Section 68 of the Income Tax Act, 1961.
  2. Whether the respondent-assessee had discharged the primary onus regarding the identity, creditworthiness and genuineness of the shareholders from whom the share application money was received.

Arguments of the Parties

Appellant's (Revenue) Arguments

  • The ITAT erred in deleting the addition of Rs. 22,00,000 made by the Assessing Officer under Section 68.
  • The deletion was improper because, according to the Revenue, the primary onus had not been discharged by the respondent-assessee with regard to the identity, creditworthiness and genuineness of the transaction.

Respondent's (Assessee) Position and Supporting Findings

  • The share application money was received by cheques and duly credited to the assessee's bank account.
  • Four subscribing companies filed confirmations confirming their investment, furnished PAN numbers and the source of investment.
  • Existence of the subscribing companies was confirmed by their respective ITOs; the assessee also produced share application forms and a copy of Form No. 2 filed with the Registrar of Companies (ROC).
  • The CIT(A) and ITAT relied on the Supreme Court decision in Commissioner Of Income Tax v. Lovely Exports Private Limited to conclude that the amount could not be treated as the assessee's income under Section 68.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Commissioner Of Income Tax v. Lovely Exports Private Limited., 216 CTR 195 (SC) The principle that share application money received from alleged bogus shareholders cannot automatically be treated as undisclosed income under Section 68; if shareholders' identities are known, the Department may proceed to reopen their individual assessments instead. The Court followed this precedent to uphold the deletion of the Rs. 22,00,000 addition under Section 68, finding no material difference in facts and confirming the orders of the CIT(A) and ITAT.

Court's Reasoning and Analysis

The High Court examined the record and the orders below. The CIT(A) and the ITAT had deleted the addition of Rs. 22,00,000 on the basis that the four subscribing companies had produced documentary evidence: share application cheques credited to the assessee's bank account; confirmations of investment; PAN numbers; written confirmations of existence by the respective ITOs; share application forms; and a copy of Form No. 2 filed with the ROC. The CIT(A) applied the Supreme Court decision in Commissioner Of Income Tax v. Lovely Exports Private Limited and concluded that, on those facts, the amount could not be treated as the assessee's income under Section 68.

The Revenue could not demonstrate any difference in facts warranting interference. Relying on the stated mandate in Lovely Exports (that the Department is free to reopen assessments of individual alleged bogus shareholders rather than treat the amount as the assessee's undisclosed income), the High Court found the approach of the CIT(A) and ITAT to be in consonance with the Supreme Court and accordingly declined to interfere with their orders.

Holding and Implications

Holding: Present appeal dismissed in limine.

Implications:

  • The addition of Rs. 22,00,000 made by the Assessing Officer under Section 68 was confirmed as rightly deleted by the CIT(A) and ITAT; the amount cannot be regarded as undisclosed income of the assessee under Section 68 of the Income Tax Act, 1961, on the facts before the Court.
  • Direct effect: the assessee obtains relief of Rs. 22,00,000 and the Revenue's ground challenging deletion is rejected.
  • The decision follows existing Supreme Court precedent (Commissioner Of Income Tax v. Lovely Exports Private Limited) and does not purport to lay down a new precedent beyond applying that authority.

Judge: MANMOHAN, J — CHIEF JUSTICE. Date of Order: AUGUST 12, 2010.

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    Commissioner Of Income Tax v. Ultratech Finance & Investment Ltd.

    MANMOHAN, J

    1. The present appeal has been filed under Section 260A of Income Tax Act, 1961 (for brevity “Act, 1961” challenging the order dated 23rd June, 2009 passed by the Income Tax Appellate Tribunal (in short “ITAT” in ITA No. 3103.Del/2009, for the Assessment Year 2002-2003.

    2. Ms. Prem Lata Bansal, learned counsel for the Revenue submitted that ITAT had erred in law in deleting the addition of rupees twenty two lacs made by the Assessing Officer (in short ‘AO’) on account of unexplained share application money under Section 68 of Act, 1961. She further submitted that ITAT had deleted the said addition even though the primary onus had not been discharged by the respondent-assessee with regard to the identity, creditworthiness and genuineness of the transaction.

    3. However, upon a perusal of the file, we find that the said addition was deleted by the Commissioner of Income Tax (Appeals) [in short “CIT (A)” and ITAT on the ground that the four share applicants were corporate entities who had filed documents confirming their source of investment and had furnished even their PAN number. In fact, ITAT in its order has observed as under:-

    “4. We have heard the rival submissions and perused the material available on record and have gone through the orders of the authorities below. We find that in the present case, the dispute is regarding receipt of share application money of Rs. 22,00,000/- from four different companies. The Assessing Officer has made addition of the same under Section 68 of the Act which has been deleted by Ld. CIT(A) by following the judgment of Hon'ble Apex Court rendered in the case of Commissioner Of Income Tax v. Lovely Exports Private Limited. (supra) by the Ld. DR of the revenue could not show us any difference in facts. In the present case also, the assessee company is a private limited company as in the case of M/s Lovely Exports Pvt. Ltd. (supra). In the present case, it is noted by the Ld. CIT(A) that the parties are in existence in view of confirmation of the respective ITOs of these parties. The relevant para of Ld. CIT(A)'s order is para No. 3.5 which is reproduced below:-

    3.5 I have gone through the arguments of the appellant and also the remand reports of the Assessing Officer the various documents and decisions cited by the appellant's counsel. It is an admitted fact that the appellant had received share application money from the above said four parties by cheques which has duly been credited in its bank account and also had filed the confirmation confirming their investment, PAN No., and source of investment. The parties are in existence is confirmed by the respective ITOs of these parties. The appellant had also furnished the share application form submitted by these parties and copy of Form No. 2 filed with ROC which all lead to the conclusion that the above said companies had subscribed to the share capital of the appellant. The issue is clinched by the decision of the Apex Court in the case of Commissioner Of Income Tax v. Lovely Exports Private Limited. (Supra) and the territorial High Court i.e Delhi High Court and other High Courts and therefore, the amount of Rs. 22,00,000/- cannot be treated as the income of the appellant. Under such circumstances and keeping in view the ratio of the Hon'ble Supreme Court and Hon'ble jurisdictional High Court, I have no alternative but to allow the appeal of the appellant on this count. Appellant gets relief of Rs. 22,00,000/-”

    5. Since Ld. CIT(A) has decided this issue by following the judgment of Hon'ble Apex Court rendered in the case of Lovely Exports Pvt. Ltd. (supra) and no difference in facts could be shown by the Ld. DR of the revenue, we find no reason to interfere in the order of Ld. CIT(A) on this issue. We, therefore, confirm the same. This ground of the revenue is rejected.”

    4. In our considered opinion, the approach adopted by CIT(A) and ITAT is in consonance with the decision of Supreme Court in Commissioner Of Income Tax v. Lovely Exports Private Limited., 216 CTR 195 (SC) wherein it has been held as under :-

    “2. Can the amount of share money be regarded as undisclosed income under s. 68 of IT Act, 1961? We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment……”

    5. Keeping in view the aforesaid mandate of law, the share application money of rupees twenty two lacs cannot be regarded as undisclosed income of assessee under Section 68 of Act, 1961.

    Accordingly, present appeal is dismissed in limine.

    MANMOHAN, J

    CHIEF JUSTICE

    AUGUST 12, 2010 rn

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    Comments

    Commissioner Of Income Tax v. Ultratech Finance & Investment Ltd.
    (Aug 12, 2010)