2016 (7) TMI 1311 - HC - Income Tax

Settlement Commission order accepted the offer of settlement of the applicants and granted immunity from penalty and prosecution - Department has challenged this order as committed a serious error in estimating profit of the assessee at the rate of 15 per cent of the own money received in the course of business of construction and initial offer of settlement was not containing true and full disclosure of previously under declared income - Held that - As in COMMISSIONER OF INCOME TAX - I Versus INCOME TAX SETTLEMENT COMMISSION AND 1 2016 (7) TMI 960 - GUJARAT HIGH COURT held that these revised offers of tax was in the nature of spirit of settlement and cannot be seen in strict sense of abandoning initial disclosures and replacing the same by fresh disclosures on the basis of such revised offers. What in essence the assessee did was to raise their offers marginally to put an end to the entire dispute through settlement or in the spirit of settlement as is referred to in the said letter. This cannot be seen as accepting that original or initial declaration was not true and full disclosure thereby paving way for the application of judgment in the case of Ajmera Housing Corporation (2010 (8) TMI 35 - SUPREME COURT OF INDIA ). - Decided against revenue

Summary

Issues:
1. Challenge to Settlement Commission's order by Income Tax Department
2. Estimation of profit and disclosure of under-declared income

Issue 1: Challenge to Settlement Commission's order
The Income Tax Department challenged the Settlement Commission's order, arguing that the Commission erred in estimating the profit of the assessee at 15% of the own money received in the construction business. The Department contended that the entire own money receipts belonged to the assessee, while the Commission accepted the assessee's claim that a substantial portion, around 85%, would go towards expenditure. Additionally, the Department raised concerns about the assessee's revised offer during settlement proceedings, where an additional sum of ?50 lakhs was admitted, suggesting that the initial offer did not provide a true and full disclosure of previously under-declared income.

Issue 2: Estimation of profit and disclosure of under-declared income
The Court referred to a previous case where the Settlement Commission had examined material and concluded that the assessees' offers for settlement, based on a 15% return on revised figures, needed to be accepted. The Court highlighted the importance of true and full disclosure under section 245-C of the Act, emphasizing that an applicant must disclose income not previously revealed to the Assessing Officer. The Supreme Court's ruling in a related case emphasized the significance of initial true disclosures, stating that large-scale revisions indicate the initial disclosures were not genuine. However, in the present case, the Court noted that the revised offers were made in the spirit of settlement, not to replace initial disclosures entirely. The revised offers were seen as marginally adjusting the settlement to resolve the dispute, rather than admitting the initial disclosures were inadequate. Consequently, the Court dismissed the petitions, emphasizing the importance of true and full disclosure at the initial stage.

In conclusion, the High Court dismissed the petitions challenging the Settlement Commission's order, emphasizing the significance of true and full disclosure at the initial stage of settlement proceedings and distinguishing between genuine revisions made in the spirit of settlement and attempts to replace initial disclosures. The judgment underlined the importance of transparency and accuracy in disclosing income to ensure fair and lawful settlement processes.