If the department doubts my shareholders, can it add the money to my income?
Reported as holding that where the share applicants are identified, the department's remedy is to proceed against them individually rather than add the amount in the company's hands.
Decided by the Supreme Court (S.H. Kapadia J and B. Sudershan Reddy J) on 2008-01-11, reported as (2008) 216 CTR 195 (SC); Application No. 11993 of 2007. It bears on section 68 of the Income Tax Act 1961, in Cash Credits & Unexplained Money matters.
Long the leading taxpayer authority on share capital additions. Read with NRA Iron & Steel, which is reported as tightening the position considerably.
Binding on every court and authority in India.
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The order records no facts. It does not describe the assessee, the assessment year, the amount of share application money, or the High Court judgment against which special leave was sought, and it names no citation for that judgment. All that appears is the question the Court framed for itself — whether share money can be regarded as undisclosed income under section 68 — and the disposal.
The Court dismissed the special leave petition, holding there was no merit in it because, if share application money is received by the assessee company from alleged bogus shareholders whose names are given to the Assessing Officer, the Department is free to proceed to reopen their individual assessments in accordance with law. On that footing the Court found no infirmity in the impugned judgment (order, para 2). The proposition usually quoted alongside this — that the share money cannot be regarded as the company's undisclosed income under section 68 — does not appear in the text of the order as reported at (2008) 216 CTR 195; it is drawn from the report's catchline, not from the Court's words. What the order decides is that the remedy lies against the shareholders.
There is no reasoning beyond a single sentence. The Court asked whether share money can be regarded as undisclosed income under section 68, said it found no merit in the petition 'for the simple reason' that where the names of the alleged bogus shareholders have been given to the Assessing Officer the Department can reopen those shareholders' assessments, and concluded that there was no infirmity in the judgment under challenge (order, para 2). The petition was dismissed subject to that observation (order, para 3). The order contains no discussion of the burden under section 68, of what a company must prove, or of the facts of any case.
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
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Handle my notice → Ask a CA on WhatsAppReported as holding that where the share applicants are identified, the department's remedy is to proceed against them individually rather than add the amount in the company's hands. This was decided by the Supreme Court (S.H. Kapadia J and B. Sudershan Reddy J) and bears on section 68 of the Income Tax Act 1961. It is reported as (2008) 216 CTR 195 (SC); Application No. 11993 of 2007. Long the leading taxpayer authority on share capital additions. Read with NRA Iron & Steel, which is reported as tightening the position considerably. If it applies to you, the first step is this: Establish the identity of every applicant with documentary proof.
The order records no facts. It does not describe the assessee, the assessment year, the amount of share application money, or the High Court judgment against which special leave was sought, and it names no citation for that judgment. All that appears is the question the Court framed for itself — whether share money can be regarded as undisclosed income under section 68 — and the disposal. The matter was decided on 2008-01-11 by the Supreme Court (S.H. Kapadia J and B. Sudershan Reddy J). On those facts the Supreme Court held as follows. The Court dismissed the special leave petition, holding there was no merit in it because, if share application money is received by the assessee company from alleged bogus shareholders whose names are given to the Assessing Officer, the Department is free to proceed to reopen their individual assessments in accordance with law. On that footing the Court found no infirmity in the impugned judgment (order, para 2). The proposition usually quoted alongside this — that the share money cannot be regarded as the company's undisclosed income under section 68 — does not appear in the text of the order as reported at (2008) 216 CTR 195; it is drawn from the report's catchline, not from the Court's words. What the order decides is that the remedy lies against the shareholders.
There is no reasoning beyond a single sentence. The Court asked whether share money can be regarded as undisclosed income under section 68, said it found no merit in the petition 'for the simple reason' that where the names of the alleged bogus shareholders have been given to the Assessing Officer the Department can reopen those shareholders' assessments, and concluded that there was no infirmity in the judgment under challenge (order, para 2). The petition was dismissed subject to that observation (order, para 3). The order contains no discussion of the burden under section 68, of what a company must prove, or of the facts of any case. In the words reproduced by the source cited on this page: "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"
It was decided by the Supreme Court on 2008-01-11 and is reported as (2008) 216 CTR 195 (SC); Application No. 11993 of 2007. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 68, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The Court dismissed the special leave petition, holding there was no merit in it because, if share application money is received by the assessee company from alleged bogus shareholders whose names are given to the Assessing Officer, the Department is free to proceed to reopen their individual assessments in accordance with law. On that footing the Court found no infirmity in the impugned judgment (order, para 2). The proposition usually quoted alongside this — that the share money cannot be regarded as the company's undisclosed income under section 68 — does not appear in the text of the order as reported at (2008) 216 CTR 195; it is drawn from the report's catchline, not from the Court's words. What the order decides is that the remedy lies against the shareholders. It arises in Cash Credits & Unexplained Money matters, on section 68 of the Income Tax Act 1961, and was decided by S.H. Kapadia J and B. Sudershan Reddy J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Be aware the department will cite NRA Iron & Steel in reply — prepare creditworthiness evidence too.
Superseded by amendment. The proviso to s.68 inserted by the Finance Act 2012 reverses the burden this case allocated: a company in which the public is not substantially interested must now also have the resident share applicant explain the nature and source of the sum credited, to the AO's satisfaction. Judicially it was further narrowed by PCIT v NRA Iron & Steel (2019) 412 ITR 161 (SC), on which commentary is that the Lovely Exports ratio 'would no longer apply to private placement of shares'. Section 68 is now s.102 of the Income-tax Act 2025 from 1 April 2026. That finding was checked against a published source, which is linked on this page, on 2026-08-25. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This is a three-paragraph dismissal of a special leave petition, not a reasoned judgment, and it should be cited as such. Two cautions follow from reading the order itself. First, it records no facts and does not identify the High Court judgment it leaves undisturbed, so it cannot be read as approving any particular set of findings. Second, the sentence commonly attributed to the Court in argument has two halves, and only the first — that the Department is free to reopen the shareholders' individual assessments — is in the order; the words about the share money not being the company's undisclosed income under section 68 come from the report's catchline. Commentary takes the view that the ratio no longer applies to private placement of shares after NRA Iron & Steel; that is commentary, not a holding, but check it before relying on this alone. The order gives no facts, no assessment year and no citation for the High Court judgment it leaves undisturbed, and no ITR citation for the order itself appeared on the report line. The Supreme Court's own record of this order could not be retrieved: it is not on Indian Kanoon and the Supreme Court's site could not be searched for it, so the text of the order, its date and its bench rest on law-report reproductions rather than on the Court's record. One item in the evidence list is not this order and must not be read as a copy of it. The PDF at https://www.lawyersclubindia.com/experts/files/52_cit_vs_lovely_export.pdf has been opened and read in full: it is the Delhi High Court judgment below, CIT v. Divine Leasing and Finance Ltd., General Exports and Credits Ltd. and Lovely Exports (P) Ltd., Vikramajit Sen and S. Muralidhar JJ, decided 16 November 2006, in which the Lovely Exports appeal was ITA No. 953 of 2006, reported at (2007) 207 CTR (Del) 38 and [2008] 299 ITR 268 (Del). It is kept because it is the only copy of the decision below in the evidence list, and the primary record of that judgment (https://indiankanoon.org/doc/848237/) has been added beside it; neither is evidence of what the Supreme Court's order says. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Court dismissed the special leave petition, holding there was no merit in it because, if share application money is received by the assessee company from alleged bogus shareholders whose names are given to the Assessing Officer, the Department is free to proceed to reopen their individual assessments in accordance with law. On that footing the Court found no infirmity in the impugned judgment (order, para 2). The proposition usually quoted alongside this — that the share money cannot be regarded as the company's undisclosed income under section 68 — does not appear in the text of the order as reported at (2008) 216 CTR 195; it is drawn from the report's catchline, not from the Court's words. What the order decides is that the remedy lies against the shareholders.
TaxSphere, “CIT v Lovely Exports P Ltd”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-lovely-exports/ (validity last checked 2026-08-25)
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