The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has deleted a ₹190 crore addition arising from circular share capital transactions, holding that the same income could not be subjected to repeated taxation in the hands of different companies involved in the same transaction chain.
The company had filed its income tax return for Assessment Year 2010–11 declaring a loss of ₹2,214. Its case was subsequently selected for scrutiny.
During the relevant financial year, the company issued 19 lakh equity shares with a face value of ₹10 each and a premium of ₹990 per share. The total consideration of ₹190 crore comprised ₹1.90 crore in share capital and ₹188.10 crore in share premium.
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The subscriptions were attributed to three companies: Blessings Commercial Pvt. Ltd., Stephens Financial Services Pvt. Ltd. and Sayaji Marketing Pvt. Ltd. The assessee also recorded investments of corresponding amounts in these companies, creating cross-holdings.
The Assessing Officer questioned the arrangement after finding that three crossed cheques, aggregating ₹190 crore, had circulated among the four companies through successive endorsements and eventually returned to their respective issuers.
According to the factual account recorded in the order, the transactions involved three cheques of ₹65 crore, ₹60 crore and ₹65 crore.
Each cheque was endorsed from one company to another until it returned to the company that had issued it. The companies recorded the endorsements as payments towards share applications and receipts of share application money.
The cheques were not deposited for clearance, and the corresponding transactions did not appear in the bank statements. The arrangement therefore created share capital and investment entries without an underlying movement of funds through the banking system.
The Assessing Officer treated the chain of transactions as sham and added ₹190 crore to the assessee’s income as unexplained cash credits under Section 68 of the Income Tax Act, 1961.
The Commissioner of Income Tax (Appeals), however, deleted the addition, prompting the Revenue to approach the Tribunal.
The appeal had initially been decided against the assessee through an ex parte Tribunal order dated January 18, 2023. That order restored the Assessing Officer’s addition.
The assessee challenged the decision before the Delhi High Court. On November 3, 2023, the High Court set aside the Tribunal’s order and remanded the matter for a fresh hearing.
The proceedings that culminated in the September 2025 order consequently represented the second round of adjudication before the Tribunal.
The assessee argued that the transactions represented contractual inter-company settlements through cheque endorsements and the allotment of shares for consideration other than cash.
It maintained that no cash or banking transfer was involved and contended that the transactions were permissible under the Companies Act, 1956 and the Negotiable Instruments Act, 1881.
A central argument was that the same disputed ₹190 crore had also been added in the hands of the other companies participating in the arrangement. The assessee submitted that sustaining another addition in its own assessment would result in repeated taxation of the same income.
The Revenue relied on the Assessing Officer’s findings and orders of the Kolkata Bench of the Tribunal sustaining additions in the cases of Blessings Commercial Pvt. Ltd. and Sayaji Marketing Pvt. Ltd.
Judicial Member Favoured Deletion on Double Taxation Ground
Judicial Member Madhumita Roy accepted the assessee’s objection to the repeated addition.
She noted that the same three cheques aggregating ₹190 crore had circulated among the four companies and that additions relating to the disputed amount had already been sustained in the cases of other participating companies.
On that factual basis, she concluded that adding the same income again in the hands of the company was unsustainable.
Her reasoning referred to the Calcutta High Court’s decisions in PCIT v. Narsingh Ispat Ltd. and PCIT v. Lal Baba Seamless Tubes Pvt. Ltd., as well as the Supreme Court’s decision in ITO v. Bachu Lal Kapoor.
Accountant Member Sought Examination on Merits
Accountant Member Brajesh Kumar Singh disagreed with deleting the addition solely on the double taxation ground.
He observed that the Calcutta High Court decisions relied upon findings concerning the identity and creditworthiness of investors and the genuineness of transactions. In his view, those decisions could not be read as resting exclusively on the existence of additions in the hands of subscribing companies.
He further noted that appeals concerning Blessings Commercial and Sayaji Marketing remained pending before the Calcutta High Court. He also pointed to the absence, at that stage, of information about the assessment status of Stephens Financial Services.
The Accountant Member proposed that the appeal be fixed for a fresh hearing on the merits of the Section 68 addition.
The disagreement led to a reference under Section 255(4) of the Income Tax Act.
Third Member Agreed That Same Income Could Not Be Taxed Twice
Vice President Mahavir Singh, nominated as Third Member, agreed with the Judicial Member.
He considered the Supreme Court’s ruling in Bachu Lal Kapoor and the Delhi High Court’s decision in Surya Agrotech Infrastructure Ltd. while examining the principle against taxing the same income twice.
The Third Member noted that the disputed income had already been assessed in the cases of Blessings Commercial and Sayaji Marketing, with the additions affirmed at the Tribunal level. Although further appeals were pending, those additions continued to stand.
He held that another addition of the same income in the assessee’s hands would amount to double addition in the facts and circumstances of the case.
As the preliminary issue was decided in favour of the assessee, the second referred question concerning further adjudication on merits became academic.
However, the Third Member directed the regular Bench to verify the position concerning Stephens Financial Services, for which the relevant assessment information had not been available before him.
Regular Bench Verified Addition in Third Company’s Hands
When the matter returned to the regular Bench, the Tribunal called for the assessment and first appellate orders concerning Stephens Financial Services.
The Bench recorded that the Assessing Officer had added the entire disputed ₹190 crore in that company’s assessment and that the Commissioner of Income Tax (Appeals) had upheld the addition.
It was also informed that Stephens Financial Services’ appeal, numbered ITA No. 683/Kol/2018 for Assessment Year 2010–11, was pending before the Kolkata Bench of the Tribunal. The addition therefore continued to survive at the time of the final order.
Following this verification, the regular Bench held that the majority’s reasoning on double addition also applied to the position concerning Stephens Financial Services.
The order additionally recorded that assessee company had merged with Kanti Commercials Pvt. Ltd.
Revenue’s Appeal Dismissed
Giving effect to the Third Member’s opinion and the resulting majority view, the Tribunal deleted the ₹190 crore addition and dismissed the Revenue’s appeal.
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