Facts of the Case

The present appeals were filed by the Revenue challenging the order of the Income Tax Appellate Tribunal (ITAT) concerning Assessment Years 2006-07 and 2007-08.

The dispute arose from additions made under Section 69 of the Income Tax Act, 1961 on account of peak credit in a foreign bank account (HSBC Geneva).

The assessee had already declared undisclosed income amounting to ₹2,23,68,000 in Assessment Year 2007-08 and paid taxes accordingly. The Revenue, however, sought to bifurcate the same income across two assessment years, thereby making additional additions for Assessment Year 2006-07.

The ITAT deleted the additions holding that such bifurcation would lead to double taxation, which was challenged before the Delhi High Court.

Issues Involved

  1. Whether undisclosed income already declared and taxed in one assessment year can be taxed again in another year.
  2. Whether bifurcation of income across different assessment years is permissible when tax rates are identical and no revenue loss occurs.
  3. Whether addition under Section 69 is justified despite the assessee having already offered the income to tax.

Petitioner’s Arguments (Revenue)

  • The ITAT erred in deleting additions made under Section 69 relating to peak credit in foreign bank accounts.
  • Income must be taxed in the year in which it accrues or is received, irrespective of tax neutrality.
  • Reliance was placed on the Supreme Court judgment in CIT vs British Paints India Ltd., asserting that profits cannot be shifted across years.
  • The Tribunal wrongly held that bifurcation is unnecessary merely because tax rates were the same.

Respondent’s Arguments (Assessee)

  • The addition was primarily based on statement recorded under Section 132(4) and unauthenticated foreign data.
  • The assessee had already offered the entire undisclosed income in AY 2007-08 and paid due taxes, which was accepted by the Revenue.
  • The prosecution case itself failed due to lack of evidence linking the assessee to the foreign account, as noted by the Magistrate.
  • Any further addition would amount to taxing the same income twice, which is impermissible.

Court’s Findings / Order

  • The Court held that the assessee had honoured his disclosure and paid taxes in AY 2007-08, which was not disputed by the Revenue.
  • The peak credit was calculated by tax authorities themselves, and the assessee offered the income accordingly.
  • Since tax rates were identical in both years, bifurcation would result in double taxation.
  • The Court relied on precedent stating that the same income cannot be taxed twice in different assessment years.
  • The judgment in British Paints India Ltd. was held to be inapplicable, as the present case did not involve distortion of profits but only the year of taxation.
  • No substantial question of law arose; hence, appeals were dismissed.

Important Clarification

  • Even if income pertains to a different year, once it has been voluntarily declared and taxed, the Revenue cannot re-tax the same amount in another assessment year.
  • Double taxation is impermissible, especially where:
    • The income is undisputed
    • Taxes have already been paid
    • There is no loss to revenue

Sections Involved

  • Section 69 – Unexplained Investments
  • Section 132(4) – Statement during search
  • Sections 276C & 277 – Prosecution provisions

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:3802-DB/MMH21092022ITA2292022_185149.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.