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Issues Involved:
1. Whether the Tribunal was right in holding that a part of share capital is the income of the appellant on the alleged ground that the shareholders are not genuine. 2. Whether the Tribunal was right in holding that the share capital can be termed as "unexplained investment" by the appellant. 3. Whether the Tribunal was right in treating the share capital as income of the appellant even though no business was commenced by the appellant. Summary: Issue 1: Genuine Shareholders The Tribunal held that a part of the share capital is the income of the appellant on the ground that the shareholders are not genuine. The assessment was a block assessment for the period 24-2-1988 to 24-2-1998. During a search by the Enforcement Directorate, certain books and documents were seized and handed over to the Department, leading to a notice u/s 158BC. The assessee filed a nil return, claiming no business commencement and no undisclosed income. The company had acquired property worth Rs. 2.5 crores, mainly funded by share capital from local and NRI/OCB sources. Enquiries revealed that many shareholders were not genuine, leading to the conclusion that the share capital was unexplained income u/s 68. The Tribunal upheld this view, noting that the surrounding circumstances indicated non-genuine transactions. Issue 2: Unexplained InvestmentThe Tribunal's decision to term the share capital as "unexplained investment" was based on detailed enquiries. Summons issued u/s 131 revealed that many shareholders denied applying for shares, and some were found to be benami investments. The officer added amounts from various locations (Jaipur, Bangalore, Thanjavur, Coimbatore, and Chennai) as undisclosed income. The CIT(A) initially agreed with the assessee, referencing the Delhi High Court's decision in CIT v. Steller Investment Ltd., but the Tribunal reversed this, emphasizing that section 68 permits treating unexplained share capital as income if the shareholders are not genuine. Issue 3: Commencement of BusinessThe Tribunal treated the share capital as income despite the appellant not commencing business. The assessee argued that without business commencement, section 68 should not apply. However, the Tribunal found that the assessee failed to substantiate the genuineness of the share applicants. The Tribunal noted that the assessee did not file any objection to the proposed addition, leading to the treatment of the amount as unexplained income. The High Court partly allowed the appeal, granting relief for certain amounts but upheld the Tribunal's decision for the rest, emphasizing that unexplained entries were rightly treated as income. Conclusion:The High Court partly allowed the appeal, providing relief for specific amounts related to Chennai and Thanjavur and subject to verification for Jaipur. The unexplained entries were otherwise rightly treated as unexplained income of the assessee, and the Department was permitted to assess individuals like Pannalal based on verified records.
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