Undisclosed Income Taxed In The Hands Of Flagship Company Can’t Be Again Subjected To Tax In The Hands Of Assessee Companies: Delhi High Court

The Delhi High Court has held that undisclosed income taxed in the hands of flagship companies cannot be again subjected to tax in the hands of assessee companies.

The bench of Justice Rajiv Shakdher and Justice Girish Kathpalia has observed that since the undisclosed income, which is the 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 or assessee companies in the form of application of the income as their share capital.

The respondent/assessee are companies that form part of the M/s Priya Gold Group of Companies. A search and seizure proceeding under Section 132 of the Income Tax Act was conducted in the case of Priya Gold Group of Companies, during which the statement of Shekhar Aggarwal, Director of Surya Food & Agro Limited (the flagship company of the group), was recorded under Section 132(4). Mr Aggarwal admitted that the group of companies had earned unaccounted income, which was routed as bogus share capital.

The entire undisclosed income of the group was surrendered in the respective assessment years by the flagship company, Surya Food & Agro Ltd., through proceedings before the Settlement Commission.

The Assessing Officer, while relying on the statement of Shekhar Aggarwal concluded that the investment, which was in the form of share capital in various companies of Priya Gold Group, was nothing but an accommodation entry and was liable to be assessed to tax in the hands of the assessees.

The Assessing Officer noted that the assessees had concealed the income and made additions under Section 68 both with respect to the amount and commission. It also triggered penalty proceedings under Section 271(1)(c) against the assessees.

The appeals filed on behalf of the assessees against the assessment orders were dismissed by the Commissioner, of Income Tax (Appeals). The CIT (A) upheld the assessment orders.

However, the assessees attained success in the second appeal, in which the Income Tax Appellate Tribunal set aside the orders. The ITAT held that since the income in question had already been taxed in the hands of Surya Food & Agro Limited, it could not be taxed again on account of the application of the income in the form of the share capital of the respondents/assessees.

The department contended that the assessees were not parties to the settlement proceedings, and the Settlement Commission did not deliver any findings concerning the assessees. Consequently, the assessee cannot take any advantage of the proceedings before the Settlement Commission.

The assessee contended that unless otherwise expressly provided, income cannot be taxed twice. It is not open to the Income Tax Officer if income has accrued to the assessee and is liable to be included in the total income of a particular year, to ignore the accrual and thereafter tax it as an income of another year on the basis of receipt.

The court held that once the Settlement Commission had completed proceedings, its order was conclusive under Section 245I and reopening any proceeding in respect of matters covered in the order would be barred.

Case Title: PCIT Versus Surya Agrotech Infrastructure Limited

Citation: 2023 LiveLaw (Del) 808

Date: 06.09.2023

Counsel For Petitioner: Aseem Chawla

Counsel For Respondent: Ved Jain

Click Here To Read The Order