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Issues Involved:
1. Whether the amounts aggregating to Rs. 14,34,200 introduced by the assessee company as share capital and share application money represent unexplained cash credits assessable under section 68 of the IT Act. 2. Whether the contributions to the capital of the assessee company were genuine or sham. 3. Whether the initial capital contributions can be treated as income of the assessee company under section 68 of the IT Act. Analysis of the Judgment: Issue 1: Unexplained Cash Credits under Section 68 of the IT Act The Revenue appealed on the grounds that the CIT(A) erred in holding that the amounts aggregating to Rs. 14,34,200 introduced by the assessee company as share capital and share application money did not represent unexplained cash credits assessable under section 68 of the IT Act. The Assessing Officer (AO) scrutinized the application forms and found that many applicants made payments in cash and denied applying for shares. Letters issued to verify the genuineness of cash receipts were often returned unserved or denied by the applicants. The AO concluded that the funds collected were income of the assessee company introduced under various names as share capital. Issue 2: Genuineness of Contributions to Capital The AO's detailed examination revealed that several individuals who allegedly contributed to the share capital either denied making such investments or admitted that they acted as name-lenders. Statements recorded under section 131 of the IT Act from various individuals, such as Shri Shankarlal Agarwal, Shri Rajkumar Agarwal, and others, indicated that they received cash from the directors of the assessee company and issued cheques in return. This pattern suggested that the contributions were made by the directors, not the individuals shown as shareholders. Issue 3: Treatment of Initial Capital Contributions as Income The Tribunal analyzed whether the initial capital contributions could be treated as income of the assessee company under section 68 of the IT Act. Section 68 states that if any sum is found credited in the books of an assessee and the explanation provided is not satisfactory, the sum may be charged to income-tax as the income of the assessee. However, the Tribunal noted that section 68 postulates a rebuttable presumption and does not mandate that all unexplained credits be treated as income. The Tribunal emphasized that the assessee company was a public limited company, and the contributions were claimed as initial capital through a public issue. The AO's findings suggested that the contributions were made by the directors in benami names, but there was no categorical finding that the amounts were the income of the assessee company. The Tribunal concluded that while the assessee failed to satisfactorily prove the entries, the receipts could not be classified as income under section 68. The action could be taken against the individuals who made the contributions in benami names, but not against the public limited company. Therefore, the Tribunal upheld the CIT(A)'s order and dismissed the Revenue's appeal.
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