2023 (9) TMI 391 - HC - Income Tax

Addition u/s 68 - undisclosed income of Priya Gold Group of Companies was routed in the form of share capital of the respondents/assessee companies by way of accommodation entries from Kolkata based entry provider companies and such share capital is liable to be taxed as income in the hands of the respondents/assessee companies - HELD THAT - Since the undisclosed income which is subject matter of the present dispute had already been taxed in the hands of the flagship company Surya Food Agro Ltd., it cannot be again subjected to tax in the hands of the respondents/assessee companies in the form of application of the said income as their share capital. Accordingly, the question as framed above is answered against the revenue and in favour of the assessee.

Summary

Issues Involved:
1. Double Taxation of Unaccounted Income
2. Validity of Additions u/s 68 and Penalty Proceedings u/s 271(1)(c)
3. Reliance on Settlement Commission's Finality

Summary:

Double Taxation of Unaccounted Income: The respondents/assessees, part of Priya Gold Group, were subjected to search and seizure proceedings u/s 132, where it was admitted that unaccounted income was routed as bogus share capital. This income was surrendered and taxed in the hands of Surya Food & Agro Ltd. through the Settlement Commission, which settled the income at Rs. 55,77,22,000/-. The respondents argued that further addition as unexplained share capital would result in double taxation. The Tribunal agreed, noting that the income had already been taxed and could not be taxed again in the hands of the respondents/assessees.

Validity of Additions u/s 68 and Penalty Proceedings u/s 271(1)(c): The Assessing Officer added Rs. 46,91,00,000/- as unexplained share capital and initiated penalty proceedings u/s 271(1)(c). The Commissioner of Income Tax (Appeals) upheld these additions. However, the Tribunal set aside these orders, stating that the income was already taxed in the hands of Surya Food & Agro Ltd. and could not be taxed again as share capital of the respondents/assessees. The Tribunal also deleted the addition related to the 2.5% commission for acquiring accommodation entries.

Reliance on Settlement Commission's Finality: The High Court examined various judicial precedents and concluded that income cannot be taxed twice unless expressly provided. It was noted that the Settlement Commission's final order, which taxed the undisclosed income in the hands of Surya Food & Agro Ltd., was not challenged and thus attained finality. The court reiterated that the same income could not be taxed again in the hands of the respondents/assessees. The appeals by the revenue were dismissed, and the Tribunal's decision was upheld.

Conclusion: The court held that since the undisclosed income was already taxed in the hands of Surya Food & Agro Ltd., it could not be taxed again in the hands of the respondents/assessees. The question of law was answered against the appellant/revenue and in favor of the respondents/assessees. The appeals were disposed of accordingly.