Share Application Income can’t be Taxed Once its Genuineness is proved: Bombay HC [Read Judgment]

In the case of M/s. Ami Industries (India) P Ltd, the High Court of Bombay has ruled that there shall be no addition of share application money by the Assessing Officer to the income of the assessee under section 68 of Income Tax Act.

In the assessment proceedings of the above case, Assessing Officer noted that assessee had disclosed funds from three Kolkata based companies as share application money. Assessing Officer issued notice to the assessee on the ground that whereabouts of the above companies were doubtful and their identity could not be authenticated. Thus, the genuineness of the companies became questionable. Assessing Officer accordingly proposed to treat the share application money as unexplained cash credit in the hands of the assessee under Section 68 of the Act and issued notice to the assessee. After considering the reply submitted by the assessee, Assessing Officer treated the amount of Rs. 34 crores as money from unexplained sources and added the same to the income of the assessee as unexplained cash credit under Section 68 of the Act.

Aggrieved by the order, assessee preferred appeal before the Commissioner of Income Tax, Mumbai i.e the first appellate authority. In the appeal proceedings, the assessee sought leave of the first appellate authority to produce additional evidence which was granted by the first appellate authority. After hearing the matter, the first appellate authority held that assessee had discharged its burden under Section 68 of the Act by proving the identity of the creditors; the genuineness of the transactions; and creditworthiness of the creditors. Consequently, the first appellate authority set aside the addition made by the Assessing Officer.

Further on an appeal to the High Court, the learned counsel for Revenue Department contended that the assessee was also required to prove the source of the source. However, the bench consisting of Ujjal Bhuyan and Milind N Jadhav quashed the appeal stating that there was no need for it as the assessee had already proven the genuineness and creditworthiness of the creditors by submitting relevant documents and upheld the view affirmed by the Tribunal.