Case Law Details
PCIT Vs Khyathi Steel industries Pvt. Ltd (Karnataka High Court)
Introduction: The Karnataka High Court recently addressed an appeal by the Revenue, focusing on undisclosed income attributed to investments in shell companies. The Income Tax Appellate Tribunal (ITAT) had previously ruled in favor of the assessee, leading to this legal challenge.
Detailed Analysis: For the 2012-2013 Assessment Year, the assessee filed an income tax return reflecting a profit of Rs. 5,00,92,859. Subsequently, the return was selected for scrutiny, and the Assessing Officer (AO) issued notices to the assessee. The AO observed that nineteen companies had invested money with the assessee company, totaling Rs. 8,64,30,300. The AO considered these companies as “shell” companies and issued notices to them, requiring their appearance before the Assistant Director Income Tax in Kolkata. These companies responded to the notices, providing their respective replies.
Following a review of the companies’ responses, the AO added the entire amount of Rs. 8,64,30,300 as undisclosed income in the hands of the assessee. On appeal to the Commissioner of Income Tax (Appeals), the tax liability was increased by an additional Rs. 35,21,000. However, the Income Tax Appellate Tribunal (ITAT) allowed the assessee’s appeal and deleted the additions made by the AO and CIT(A).
The Revenue then challenged the ITAT’s decision in the Karnataka High Court.
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