Unexplained income under section 68: demand stayed where share capital against leasehold rights was disputed as prima facie unsustainable.

A demand raised under an income-tax assessment was challenged on the basis that share capital issued against transfer of leasehold rights was wrongly treated as unexplained income under section 68. The assessee contended that the transaction of acquiring leasehold rights and issuing shares was not disputed, and that no unexplained cash credit had been found. The High Court noted that the assessment order and demand appeared prima facie unsustainable on the record before it and that the assessee's objection to the assessment being ex facie erroneous had not been properly addressed. The demand was stayed until the next hearing.

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Issues: Whether the demand arising from the assessment order deserved to be stayed pending appeal, and whether the assessment order was prima facie unsustainable in treating the share capital received against transfer of leasehold rights as unexplained income under section 68.

Analysis: The petition challenged the demand raised under the assessment order passed under sections 143(3) and 144B of the Income-tax Act, 1961. The material on record showed that the assessee had acquired leasehold rights in property and had issued shares against that consideration. The Assessing Officer did not dispute the transaction itself, but treated the valuation and corresponding share capital as unexplained income under section 68, although no unexplained cash credit was shown to have been found. The order staying demand was also noticed to have ignored the assessee's contention that the assessment order was ex facie erroneous.

Outcome: The demand was stayed till the next date of hearing.

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