DELHI HIGH COURT - BHAV SHAKTI STEEL MINES VS COMMISSIONER OF INCOME TAX
ITA 1174/2007
16TH DECEMBER, 2008

Core Fact of the Case:….. It is seen that it is a case of private limited company and the money has been received in cash. Therefore, a heavy duty is cast to establish not on the identity of share applicant but also the creditworthiness of the share applicants and the genuineness of transaction. It is further seen that the assessee has only established the identity of the share applicants by producing PAN Card No., etc. There has been no investigation either by the Assessing Officer or by CIT(A) who has co- terminus power with the Assessing Officer to find out the credit worthiness of these persons. The assessee has filed the bank statement of some of the persons, however, there is no finding by CIT(A) that there existed the equivalent or more amount in the bank account of these persons which was withdrawn and the same was deposited in cash with the share application form with the assessee company………

When we went through the order of the Commissioner of Income Tax (A) we find that he has examined the question of identity, credit worthiness and genuineness of each of the share holders. The said examination appears in sub-paras (i) to (xx) in paragraph 2.4, which run from pages 48 to 57 of the appeal papers. We find that the CIT(A) had considered in detail the case of each of the share holders and came to a conclusion of fact that the identity and credit worthiness of the share holders and the genuineness of the transactions stood established. Therefore, the finding returned by the Tribunal to the contrary cannot be accepted as it is contrary to the record. In any event we also note that the Supreme Court in the case of CIT vs. Lovely Exports Pvt Ltd (2008) 216 CTR 195 considered the question as to whether the share application money can be regarded as undisclosed income under Section 68 of the Income Tax Act, 1961. The Supreme Court dismissing the SLP observed that if the share money is received by the assessee company from alleged bogus share holders whose names are given to the Assessing Officer, then the Department is free to proceed to assess them individually, in accordance with law.

Summarised Judgment: …………..Since the Commissioner of Income Tax (A) has not only found that the identity of each of the share holders stood established, but has also examined the fact that each of them were income tax assessees and had disclosed the share application money in their accounts which were duly reflected in their income tax return as well as in their balance sheets. In these circumstances we see merit in what the learned counsel for the appellant has submitted and we feel that the Tribunal was unjustified in coming to the conclusion that the CIT(A) had not considered the matter in the right perspective. Consequently we decide the question in favour of the assessee and set aside the order passed by the Tribunal.

Analysis: This judgment is based on the fact that, “ Since the Commissioner of Income Tax (A) has not only found that the identity of each of the share holders stood established, but has also examined the fact that each of them were income tax assessees and had disclosed the share application money in their accounts which were duly reflected in their income tax return as well as in their balance sheets”. In the case of JSM also all the assessee are companies and filing income tax returns alongwith audited Balance Sheets and Profit & Loss Accounts.