Double Taxation Of Share Application Money Impermissible: ITAT Kolkata

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) on 6 March, held that taxing share application money already taxed in the hands of investor companies amounts to impermissible double addition.

The Bench comprising Accountant Member Rajesh Kumar and Judicial Member Pradip Kumar Choubey dismissed the Revenue's appeal against Littlestar Securities Pvt. Ltd. for Assessment Year 2012-13 and upheld the deletion of Rs. 27.63 crore added as unexplained cash credit.

The Tribunal observed:

"The source of share application money… has already been brought to tax by the department… and therefore again adding the same in the hands of the Appellant… would tantamount to double addition… which is not permissible."

The case arose from a demand raised on Littlestar Securities. The Department contended that share capital received at premium from eight corporate investors represented unexplained cash credit under Section 68 of the Income-tax Act.

The Commissioner (Appeals) had undertaken a detailed examination of the identity, creditworthiness, and genuineness of the investors across four categories and found the additions unsustainable.

Littlestar Securities furnished documentary evidence, including PAN details, audited financial statements, bank records, confirmations, and responses to notices issued under Section 133(6) of the Income-tax Act, which empowers the tax authority to call for information from third parties to verify transactions.

The Tribunal noted that several investor companies had undergone scrutiny assessments, where their capital or reserves were examined and, in some cases, additions were made or accepted.

Relying on precedents of the Calcutta High Court, the Tribunal clarified that once a taxpayer establishes the identity of investors, their financial capacity, and the genuineness of transactions, the initial burden under Section 68 stands discharged, and the onus shifts to the Revenue.

The Bench held that no infirmity existed in the appellate order deleting the addition, stating that the Commissioner (Appeals) had passed a “very speaking and well reasoned order.”

Accordingly, the Tribunal dismissed the Revenue's appeal.