2017 (5) TMI 1692 - AT - Income Tax

Reopening of assessment u/s 147 - income was declared as additional income before Settlement Commission - HELD THAT - AO had sufficient information regarding reopening the order and moreover assessee s writ petition before the High Court was also dismissed and the department was free to initiate the proceedings under section 147 of the Act. Therefore, we are of the view that Revenue is justified in reopening the assessment order. The ground No.1 is dismissed. Addition on account of brokerage and disallowance u/s 35D - assessee has declared additional brokerage income before Settlement Commission under section 245D - search in the case of Lodha Group was conducted by investigation wing of department and the key person of Lodha made a declaration of additional income in the hands of various entities - HELD THAT - We find that section 245HA(1) of the income Tax Act lists several circumstances in which the case before the Settlement Commission would abate; whereas in section 32L(1) non - cooperation of the petitioner is the only ground. The Central Excise Officer derives its power its power to assess such abated proceeding vide section 32L(2) of the Central Excise Act. This is identical to powers vested with an AO under section 245HA(2) and 245HA(3) under the Income Tax Act. It is therefore very clear that the provisions of Central Excise Settlement Commission and that for Income Tax settlement Commission are identical. Therefore, the judgment of Hon ble Gujarat High Court in the case of Maruti Fabrics although pertaining to Central Excise should be applied to cases abated under section 245HA of the Income Tax Act also. Therefore, we are of the view that the judgment of MARUTI FABRICS 2014 (7) TMI 926 - GUJARAT HIGH COURT is applicable to the facts of the assessee s case. We find that Hon ble Gujarat High Court has held that if the petition filed before the Settlement Commission wherein assessee has made declaration but proves that assessee has neither earned such income nor any incriminating material was found during the search relating to undisclosed income then no addition can be made. Simply relying upon the declaration made before the Settlement Commission no addition can be made. In this group case, the search was conducted in the business premises of Lodha Group and subsequent to search action assessee company along with other companies of Lodha Group filed a petition under section 245C(1) of the Act before Settlement Commission. The assessee has offered additional income of ₹ 5 lakhs towards the land brokerage income. This offer was made for maintainability of petition before Settlement Commission as stated in clause (i) and clause (ia) of section 245C(1) of the Act. We are of the view that after reopening of the assessment order no addition can be made on the basis of income offered by the assessee before Settlement Commission. We find that no incriminating material was found during the course of search action substantiating that assessee has actually earned undisclosed income. Therefore, just because assessee has offered additional income before Settlement Commission, no addition can be made without basis . - Decided in favour of assessee.

Summary

Issues Involved:
1. Reopening of assessment under Section 147 of the Income Tax Act.
2. Addition of income based on the disclosure made before the Settlement Commission.

Detailed Analysis:

Issue 1: Reopening of Assessment under Section 147
The assessee filed the return of income for A.Y. 2008-09 declaring a loss. A notice under Section 148 was issued to the assessee based on the additional income disclosed before the Settlement Commission, which was not included in the original return. The Settlement Commission did not allow the application to proceed, leading the Assessing Officer (AO) to believe that income had escaped assessment. The assessee’s writ petition against this was dismissed by the High Court, and the proceedings under Section 147 were reinitiated. The CIT(A) upheld the reopening of the assessment. The Tribunal found that the AO had precise and definite information regarding the escapement of income, justifying the reopening of the assessment. Thus, the Tribunal dismissed the assessee's objection regarding the reopening of the assessment.

Issue 2: Addition of Income Based on Disclosure Before Settlement Commission
The AO made an addition of ?5,01,049 based on the disclosure made by the assessee before the Settlement Commission, which included brokerage income and disallowance under Section 35D. The assessee contended that this income was offered only to meet the threshold limit for maintainability of the petition before the Settlement Commission and that no actual income was earned. The CIT(A) upheld the AO’s decision. The Tribunal, however, found that the AO did not bring any new material or conduct any inquiry to substantiate the addition apart from relying on the disclosure made before the Settlement Commission.

The Tribunal referred to the Gujarat High Court's decision in Maruti Fabrics, which held that admissions made before the Settlement Commission are not binding if the application is rejected, and such disclosures cannot be used as evidence against the assessee. The Tribunal also cited the ITAT Mumbai decision in Dolat Investment, which stated that confidential information disclosed in the settlement application cannot be used by the AO to make additions if the application is not admitted for settlement.

The Tribunal concluded that the AO could not make any addition based solely on the disclosure made before the Settlement Commission without any corroborative evidence. Since no incriminating material was found during the search to substantiate the undisclosed income, the addition made by the AO and upheld by the CIT(A) was deleted.

Conclusion:
The Tribunal allowed the appeals of the assessee, ruling that the reopening of the assessment was justified, but the addition of income based on the disclosure before the Settlement Commission was not valid without corroborative evidence.