SETCOM Proceedings Are Conclusive U/s 245-I Of IT Act, Reopening Them U/s. 68 Would Be Barred: Delhi HC Cautions On Double Taxation
While upholding the deletion of income under Section 68 of Income Tax Act which was added by the AO in the hands of Priya Gold Group companies, which was surrendered to tax by the flagship company and settled by the order of Income-tax Settlement Commission, the Delhi High Court reiterated that it is open to the assessee to explain that the suppressed profits had been brought in as cash credits and one has to be telescoped into the other resulting in only one addition.
The Division Bench comprising of Justice Rajiv Shakdher and Justice Girish Kathpalia observed that “since the undisclosed income 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 assessee companies in the form of application of the said income as their share capital”.
While stating that same money cannot be taxed twice, the Bench clarified that “once Settlement Commission had completed proceedings, its order is conclusive vide Section 245I and reopening any proceeding in respect of matters covered in the said order would be barred, except to the extent that the revenue can seek remedy under Section 245D(6) read with Section 245D(7)”.
Advocate Ved Jain appeared for the Assessees while the Revenue was represented by Advocate Sunil Agarwal.
Briefly, the Assessees were subjected to search operations, wherein the director of flagship company admitted that the group of companies earned unaccounted income which was routed as bogus share capital in AY 2013-14 and AY 2014-15. This undisclosed income of the group amounting to Rs.49 Crore was surrendered by the flagship company before the ITSC with specific pleadings that the profit made outside the books was utilized for making investments in the share capital of the group companies. Thereafter, the ITSC settled the income at Rs.56 Crore which was accepted by both sides.
Later, the AO based on the statement of the director, held investment in the form of share capital in various companies of Priya Gold Group as accommodation entry taxable under Section 68 and also considered commission at the rate of 2.5% on the same.
On appeal, the ITAT held that since the income had already been taxed in the hands of flagship company, the same could not be taxed again on account of application of the said income in the form of share capital of the Assessees.
After considering the submission, the Bench reiterated that when cash credits were treated as income from undisclosed sources, it can alternatively be contented that the cash credits were out of the undisclosed income taxed in earlier years.
The Bench further observed that same income cannot be taxed twice in different years, after finding that the flagship company had already offered undisclosed income of Rs.49 Crore to tax before ITSC, which was enhanced to Rs.56 Crore and the final order of ITSC not challenged by either side attained finality.
The Bench noted that the flagship company specifically declared that the undisclosed income offered before ITSC had been applied by way of share capital to the group entities and there is no other undisclosed asset found or application of funds by the group.
Accordingly, the Bench concluded that the same undisclosed income cannot be taxed twice at the time of its application.
Cause Title: PCIT vs. Surya Agrotech Infrastructure Limited [Neutral Citation: 2023: DHC: 6480-DB]
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