Unexplained share capital cannot be treated as undisclosed income solely because subscriber genuineness is questioned.

Unexplained share capital received in block assessment proceedings under Chapter XIV-B could not, by that circumstance alone, be treated as the company's undisclosed income under Section 68 of the Income-tax Act, 1961. The Karnataka HC applied the principle from Steller Investments Ltd. and the related authority relied on before it, holding that even if the share subscriber's genuineness was questioned, the addition was not sustainable solely on that basis. The subscriber's letter to the Assessing Officer and the Tribunal's reliance on the Settlement Commission's order supported deletion of the addition, and the revenue challenge failed.

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Issues: Whether unexplained share capital contribution could be treated as undisclosed income under Section 68 of the Income-tax Act, 1961 in block assessment proceedings.

Analysis: The addition arose from search-based block assessment proceedings under Chapter XIV-B. The material on record showed that the alleged subscriber had addressed a letter to the Assessing Officer stating that it had contributed towards the share capital. The Court followed the principle laid down in Steller Investments Ltd. and the later decision relied upon before it, that even if the share subscriber is not found to be genuine, the amount cannot, by that circumstance alone, be assessed as the company's undisclosed income under Section 68. The Tribunal had also taken note of the Settlement Commission's order and the acceptance of the subscriber's letter.

Conclusion: The addition of the share capital amount as undisclosed income was not sustainable, and the finding of the Tribunal confirming deletion of the addition was upheld.

Final Conclusion: The revenue's challenge failed, and the assessment addition was set aside in favour of the assessee.

Ratio Decidendi: Unexplained or allegedly non-genuine share capital contribution, by itself, cannot be treated as the company's undisclosed income under Section 68 of the Income-tax Act, 1961 merely because the subscriber's genuineness is questioned.

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