2013 (8) TMI 702 - HC - Income Tax

Rectification or order - Revision of order by Tribunal - Block assessment proceedings - Assesse through settlement commission paid excess tax - Settlement commission accepted only partial amount - A.O. and ITAT disallowed rectification of order - Held that - settlement commission has also given its reasons as to why it is accepting only a part of the amount offered. The settlement commission has also positively declined to give a direction to exclude the assessment of a sum of Rs.20.00 lakhs each in the case of the respondents/assesses on the premise that the applicant M/s MSL was making an offer of Rs.4,84,88,500/- as its undisclosed income for the reason that it cannot issue such directions in respect of persons not before the Commission and insofar as limiting the offer to a sum of Rs.2,65,04,626/- the settlement commission noticed that such alone could have been the undisclosed income of the assesses in the earlier period and it had no income generated beyond this. It is not as contended by Mr Parthasarthy that because the commission was satisfied the other part of the investment in M/s MSIL had been explained, the offer made by M/s MSL before seeking settlement before the commission was accepted only to the extent of unexplained investment in the other company. On the other hand, that was not considered by the settlement commission but the settlement commission only examined the capacity and ability of the applicant before it for generating the income which was not disclosed and later making an offer before a commission for the settlement. For this purpose the settlement commission had examined the past conduct and transactions of the applicant M/s MSL. In the absence of any such discussion regarding the source of investment in M/s MSIL, only offer being made by M/s MSL - a remand for such purpose will be in our considered opinion a futile exercise and more over such an exercise if at all could have been in the case of very company M/s MSIL and not by either the present respondents/assesses or M/s MSL - an applicant and declarant before the settlement commission - Decided in favour of Revenue.

Issues Involved:
1. Validity of the rectification applications under Section 154 of the Income Tax Act, 1961.
2. Whether the income of Rs.20.00 lakhs offered by each assessee was already taxed in the hands of M/s Mulberry Silks Limited (MSL).
3. Whether the Income Tax Appellate Tribunal's (ITAT) decision to allow the rectification applications was based on erroneous assumptions.

Detailed Analysis:

1. Validity of the Rectification Applications under Section 154 of the Income Tax Act, 1961:
The revenue contended that the rectification applications filed by the assesses under Section 154 were not valid as they did not pertain to apparent mistakes on the face of the record. The CIT (Appeals) supported this view, stating that the assessing officer had simply acted upon the returns filed by the assesses, which declared Rs.20.00 lakhs as undisclosed income. Therefore, there was no apparent error warranting rectification. The High Court upheld this stance, indicating that the applications for rectification were not within the scope of Section 154 as they essentially sought to amend the returns rather than correct an error in the assessment orders.

2. Whether the Income of Rs.20.00 Lakhs Offered by Each Assessee Was Already Taxed in the Hands of M/s Mulberry Silks Limited (MSL):
The assesses argued that the amount of Rs.20.00 lakhs each, initially offered as their undisclosed income, was part of the total amount of Rs.4,84,88,500/- which had been offered and taxed in the hands of M/s MSL. However, the revenue contended that the settlement commission had only accepted Rs.2,65,04,626/- as the undisclosed income of M/s MSL. The High Court found that the settlement commission's order did not support the claim that the entire amount of Rs.4,84,88,500/- was taxed as M/s MSL's undisclosed income. The court noted that the settlement commission had explicitly declined to issue directions regarding the assessment of Rs.20.00 lakhs in the hands of the assesses, indicating that this amount was not included in M/s MSL's taxable income.

3. Whether the Income Tax Appellate Tribunal's (ITAT) Decision to Allow the Rectification Applications Was Based on Erroneous Assumptions:
The ITAT had allowed the rectification applications on the premise that the entire amount of Rs.4,84,88,500/- had been offered and taxed in the hands of M/s MSL, and thus should not be taxed again in the hands of the individual assesses. The High Court found this assumption to be erroneous, as the settlement commission had only accepted Rs.2,65,04,626/- as the undisclosed income of M/s MSL. The High Court emphasized that the tribunal's decision was based on a mistaken belief that the entire amount had been taxed in the hands of M/s MSL, which was not supported by the settlement commission's order. Consequently, the High Court set aside the ITAT's order and restored the assessment orders passed by the assessing officer and affirmed by the CIT (Appeals).

Conclusion:
The High Court allowed the revenue's appeals, setting aside the ITAT's order that had allowed the rectification applications of the assesses. The court concluded that the applications under Section 154 were not valid as they sought to amend the returns rather than correct an apparent error. Additionally, the court found that the ITAT's decision was based on an erroneous assumption that the entire amount of Rs.4,84,88,500/- was taxed in the hands of M/s MSL, which was not the case as per the settlement commission's order. The assessment orders passed by the assessing officer and affirmed by the CIT (Appeals) were restored.

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