Income Already Taxed in Share Applicant Companies: ITAT Deletes ₹190 Crore Share Capital Addition citing Double Taxation [Read Order]
Observing that the same income had already been added to the income of two other related share applicant companies, the Tribunal ruled the addition of ₹190 Crore in the assessee's hands was unsustainable due to the settled doctrine against double taxation.
Double-taxation-Taxscan
Double-taxation-Taxscan
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT), in a third-member reference, deleted an addition of ₹190 Crore made under Section 68 of the Income Tax Act, 1961, holding that once the disputed amount had already been added in the hands of the share applicant companies, the same income cannot be taxed again in the hands of the assessee company.
Double Plus Software Pvt. Ltd. (assessee) had increased its paid-up capital by ₹190 Crore through the issuance of 19 lakh equity shares at a premium. The Assessing Officer (AO) observed that the funds were received from three companies Blessings Commercial Pvt Ltd, Stephens Financial Services Pvt Ltd, and Sayaji Financial Services Pvt Ltd.
The assessee had invested an identical amount in the shares of these same three companies. The AO found that three specific cheques, totaling ₹190 Crore, were issued and subsequently endorsed repeatedly between the four entities until they returned to the original issuer.
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Based on this circular flow of cheques without a clear banking channel transaction, the AO concluded the entire chain of transactions was a "sham" and added the entire ₹190 Crore as unexplained cash credit under Section 68 of the Act.
Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)] had initially deleted the addition. Aggrieved by the CIT(A)’s order, the Revenue filed an appeal before the ITAT.
The Tribunal's original bench comprising Madhumita Roy (Judicial Member) and Brajesh Kumar Singh (Accountant Member), facing a difference of opinion whereas the judicial member upheld the CIT(A)’s order while the accountant member differed with the view of revenue’s appeal dismissal. The matter was referred to a Third Member- Mahavir Singh (Vice President).
The assessee's counsel contended that the additions had already been confirmed by the ITAT in the cases of Blessings Commercial Pvt. Ltd. and Sayaji Marketing Pvt. Ltd., and also later established to have been confirmed in the case of Stephen Financial Services Pvt. Ltd. The core argument was that taxing the amount in the assessee's hands would lead to double taxation of the same income.
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Mahavir Singh (Vice President) concurred with the view of the Judicial Member. Therefore the tribunal by Majority view heard the matters and passed the order accordingly.
The tribunal relied on the Supreme Court's judgement in ITO vs. Bachu Lal Kapoor and the Delhi High Court's decision in Surya Agrotech Infrastructure Limited, which established that the Act does not envisage taxing the same income twice over.
The Tribunal noted that since the addition of ₹190 Crore had been made and confirmed in the hands of the share applicant companies, the addition in the hands of the assessee company could not be sustained.
Respectfully adhering to the judicial precedents on the doctrine of double taxation, the Tribunal set aside the AO’s order and directed the deletion of the ₹190 Crore addition. The Revenue’s appeal was dismissed.
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