2016 (6) TMI 702 - HC - Income Tax

Settlement on account of non-compliance with the provisions of Section 245D(2D) - undeposited tax of the assessee in terms of the amended provisions of Section 245B - Held that - The department was not correct in raising shortfall of ₹ 48,086/- in case of the assessee. The assessee, way back in the year 1994, had surrendered the entire amount of ₹ 1,60,000/- unconditionally and had also authorized the department to adjust the same against any of his tax dues. The contention of the counsel for the Revenue, that the order passed by the Assistant Commissioner under Section 132(5) of the Act does not partake character of assessment though the assessee was willing to surrender the amount, would not change the position insofar as the petitioner s liability to deposit tax is concerned. We are referring to the said order only for the purpose of recording the Assistant Commissioner s views on the declaration made by the assessee concerning such amount. Declaration itself made by the assessee in his letter dated 10.01.1994. The contention that since no final assessment was framed, there was no question of adjustment of the amount towards any assessed income tax liability of the assessee also would not change the position. The question of depositing the tax in the context of the settlement proceedings arose by virtue of amended Section 245D of the Act. The amount of ₹ 1,60,000/- lying with the department had to be adjusted towards such liability.

Summary

Issues:
Challenge to order terminating settlement application due to non-compliance with tax provisions.

Analysis:
1. The petitioner challenged the termination of their settlement application by the Income Tax Settlement Commission due to non-compliance with Section 245D(2D) of the Income Tax Act, 1961. The petitioner had disclosed a total of ?1,60,000 seized during a search operation and requested its adjustment against tax liabilities. The Assistant Commissioner treated ?10,000 as unexplained income and ?1,50,000 as undisclosed income from the neighbour's premises. The petitioner applied for settlement in 1995, but a tax shortfall of ?48,086 was raised later. The Settlement Commission terminated the application as the tax deposit was made after the deadline, disregarding the petitioner's ownership and request to adjust the seized amount against tax liabilities.

2. The petitioner pointed out in 2012 that the ?1,60,000 seized amount was not credited, but the Settlement Commission did not address this issue. The court noted the petitioner's immediate ownership of the seized cash, the department's acceptance of the disclosure, and the lack of explanation for the source of the cash. The Assistant Commissioner treated the seized cash as undisclosed income. The petitioner's ownership and request for adjustment against tax liabilities were acknowledged, and the neighbour did not claim the seized cash.

3. The court found that the department was incorrect in raising the tax shortfall as the petitioner had unconditionally surrendered the ?1,60,000 in 1994 for tax adjustment. The court emphasized the fundamental fact of the petitioner's declaration in 1994 and the necessity to adjust the seized amount against tax liabilities under the amended Section 245D. The court quashed the termination order and directed the Settlement Commission to proceed with the settlement offer made by the petitioner, considering the ownership and request for adjustment of the seized amount against tax liabilities.