Court rules share capital not undisclosed income even if subscribers not genuine. Reframed question referred for consistency.

The court upheld the Tribunal's decision, ruling in favor of the assessee that the share capital amount could not be treated as undisclosed income, even if subscribers were not genuine. The court directed the Tribunal to refer a reframed question based on a Full Bench decision, emphasizing consistency with precedent. The Revenue's challenge through a reference application was rejected, and the petition was disposed of without costs.

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Issues involved: Petition under section 256(2) of the Income-tax Act, 1961 regarding assessment year 1985-86, questioning the correctness of the Income-tax Appellate Tribunal's decision to set aside the Commissioner of Income-tax's order under section 263 of the Act.

Assessee's Share Capital: The assessee, a public limited company, incorporated in 1983, floated share capital of Rs. 20 lakhs during the relevant assessment year, with alleged subscriptions of Rs. 1,84,05,250. The Income-tax Officer initially accepted the return of loss under section 143(1) of the Act. However, the Commissioner of Income-tax, Delhi-II, upon review, found the Assessing Officer's actions to be prejudicial to revenue interests and erroneous in law due to lack of proper investigation. Consequently, the Commissioner set aside the assessment for a fresh determination.

Tribunal's Decision: The assessee appealed the Commissioner's decision before the Tribunal, which, based on precedent, held that even if the subscribers to the share capital were not genuine, the amount of share capital could not be treated as undisclosed income of the assessee. Relying on the decision in CIT v. Stellar Investment Ltd., the Tribunal overturned the Commissioner's order under section 263 of the Act and ruled in favor of the assessee.

Reference Application: The Revenue sought to challenge the Tribunal's decision by filing a reference application under section 256(1) of the Act. However, the Tribunal rejected the application, citing a previous dismissal of a special leave petition by the Revenue in another case, CIT v. Kwick Travels.

Court's Decision: In the absence of representation from the assessee, the court directed the Tribunal to refer a reframed question based on the Full Bench decision in CIT v. Sophia Finance Ltd. The court upheld the Tribunal's decision, emphasizing that even if the subscribers to the share capital were not genuine, the amount of share capital could not be considered undisclosed income of the assessee. The petition was disposed of without costs.

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