Delhi H.C : if the share application money was received by the assessee company from alleged bogus shareholders,amount cannot be regarded as undisclosed income of the recipient assessee company

High Court Of Delhi

CIT Vs. K.C. Fibres Ltd.

Section : 68

A.K. Sikri And Valmiki J. Mehta, JJ.

IT Appeal No. 701 Of 2009

July  8, 2009

ORDER

1. One M/s. Diamond Protein Ltd. subscribed to the share capital of the assessee-company. For this purpose, share application money, on three different dates, totalling a sum of Rs. 39 lakhs was given by M/s. Diamond Protein Ltd. to the assessee-company. The Assessing Officer after making enquiries of the assessee-company concluded that a sum of Rs. 25 lakhs subscribed by M/s. Diamond Protein Ltd. on 10-10-2002 with the assessee remained unexplained under section 68 of the Act and added it to the income tax of the assessee. Against this order of assessment, assessee preferred appeal before the CIT (Appeals) which was allowed by the CIT (Appeals) thereby deleting the addition made by the Assessing Officer. This order has been affirmed by the ITAT in appeal preferred by the Income-tax Officer. It was argued before the ITAT that 111 deposits of Rs. 19,000 each in cash were made in the bank account of M/s. Diamond Protein Ltd. and were converted in drafts by M/s. Diamond Protein Ltd. and in this manner, M/s. Diamond Protein Ltd. subscribed to the share capital of the assessee.

2. It is strange that when the Assessing Officer is questioning the bona fides of M/s. Diamond Protein Ltd. for collecting money to subscribe to the share to the capital of the assessee, but it is the assessee who is fastened with the liability. The Assessing Officer did not question M/s. Diamond Protein Ltd. in this behalf. Insofar as Assessing Company is concerned, it is not disputed that money was paid to it towards the aforesaid share application money, by means of cheques. It is not for the Assessing Company to probe as to the source from where M/s. Diamond Protein Ltd. collected the aforesaid money. It was for the Assessing Officer, in these circumstances to inquire into the affairs of M/s. Diamond Protein Ltd. which is an independent company inasmuch as no finding is arrived at by the Assessing Officer that the two companies are umbrella companies or have any relationship with each other. In these circumstances, we agree with the following analysis made by ITAT in its impugned order :

“2.3 Before us, the learned DR relied on the order of the Assessing Officer. As mentioned earlier, there was no representation made by the assessee. Having considered these facts, it is clear that there is no dispute about the existence of M/s. Diamond Proteins Ltd. There is no dispute that this company had subscribed a sum of Rs. 25 lakhs for allotment of shares. In respect thereof, a confirmation was furnished along with PAN, assessment particulars, bank statement and balance sheet. Thus, there is no denial by M/s. Diamond Proteins Ltd. about the transaction. In these circumstances, the attention of the learned DR was drawn towards the decision of Hon’ble Supreme Court in the case of CIT v. Lovely Exports (P.) Ltd.[2008] 216 CTR 195 . The question before the Hon’ble Court was, can the amount of share application money be regarded as undisclosed income under section 68 of the Income-tax Act, 1961? It was pointed out that the court did not find any merit in the Special leave Petition for the simple reason that if the share application money was received by the assessee company from alleged bogus shareholders, whose names was given to the Assessing Officer, then, the department was free to proceed to reopen their individual assessments in accordance with law. Thus, the conclusion was that the amount cannot be regarded as undisclosed income of the recipient assessee company. He was not able to distinguish the facts of that case. Respectively following this judgment, it is held that the learned CIT(Appeals) was right in deleting this addition.”

3. No substantial question of law arises in this appeal.

4. Dismissed.

[Citation : 332 ITR 481]

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