2016 (7) TMI 960 - HC - Income Tax

Income Tax Settlement order challenged - assessee has been offered immunity from penalty and prosecution - Held that - The applicants had initially offered on money rotation of ₹ 25 lakhs, ₹ 21 lakhs and ₹ 30 lakhs respectively and income at the rate of 12.5 per cent thereof by way of interest earned which during the course of assessment proceedings was revised to ₹ 50 lakhs, ₹ 50 lakhs and ₹ 75 lakhs respectively with rate of return at 15 per cent. With respect to revised rate of return, even counsel for the Revenue would not be in a position to argue that the same would form part of declaration of two incomes since whether rate of return should be estimated to 12.5 per cent or 15 per cent would be would be substantially in the realm of estimation of not profit. He would however, strenuously contend that revised declaration of on money should be enough to establish that initial disclosures made by the assessees were not full or true disclosures of such income. In this context, we had called for the letter written by the applicants making such revised offers. Copies of such letters dated 6.2.2014 written by the partners of the firm are produced on record. In such letters, it was conveyed that the applicants had filed a petition for settlement in which offered a sum of ₹ 7,75,000/- at the rate of 12 per cent on peak balance of funds deployed in money lending activity. It was further stated that the applicant during the course of hearing under section 245D(4), in the spirit of settlement, agreed to further additional income of ₹ 39,12,667/- Similar declarations were made in the case of other applicants as well. It can thus be seen 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

Issues Involved:
1. Validity of the Income Tax Settlement Commission's order.
2. Scope of judicial review by the High Court under Article 226 of the Constitution of India.
3. True and full disclosure of income by the assessee.
4. Permissibility of revising offers of settlement.

Issue-wise Detailed Analysis:

1. Validity of the Income Tax Settlement Commission's Order:
The Department of Income Tax challenged the order of the Income Tax Settlement Commissioner dated 13.2.2014, which accepted the settlement offer from the respondent-assessee for the years 2011-12 to 2013-14. The department argued that the Settlement Commission did not record proper reasons for accepting the settlement and allowed the assessees to revise their offers, indicating that initial disclosures were not full and true. The department cited the Supreme Court case of Ajmera Housing Corporation vs. Commissioner of Income Tax, which held that the Settlement Commission should not permit the revision of offers.

2. Scope of Judicial Review by the High Court under Article 226 of the Constitution of India:
The respondent-assessee argued that the High Court has limited jurisdiction to interfere with the orders of the Settlement Commission. The High Court's scope of inquiry is restricted to checking whether the order is contrary to any provisions of the Income Tax Act. The court referred to the Supreme Court's decision in Jyotendrasinhji vs. S.I. Tripathi, which stated that the High Court's review is limited to ensuring that the Settlement Commission acts in accordance with the provisions of the Act and does not involve bias or malice.

3. True and Full Disclosure of Income by the Assessee:
The department contended that the assessees' initial disclosures were not full and true, as evidenced by their subsequent revisions. The Supreme Court in Ajmera Housing Corporation emphasized that a "full and true" disclosure is a pre-condition for a valid application under Section 245C(1) of the Income Tax Act. The court noted that revising the disclosure essentially amounts to making a fresh application, which is not permissible.

4. Permissibility of Revising Offers of Settlement:
The court examined the facts of the case and found that the Settlement Commission had considered the material on record and the declarations made by the applicants. The assessees initially offered certain sums and later revised them in the spirit of settlement. The court distinguished this case from Ajmera Housing Corporation, stating that the revised offers were marginal adjustments made in the spirit of settlement and did not indicate that the initial disclosures were untrue. The court concluded that the Settlement Commission did not breach any provisions of the Act and that the revised offers were not a basis for invalidating the initial disclosures.

Conclusion:
The court dismissed the petitions, holding that the Settlement Commission had acted within its jurisdiction and that the revised offers by the assessees were made in the spirit of settlement, not as an admission of false initial disclosures. The High Court recognized its limited scope of judicial review and found no justifiable grounds for interference with the Settlement Commission's order.

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