2017 (6) TMI 786 - HC - Income Tax

Validity of order passed by the Settlement Commission u/s 245D - additional disclosure of income - Held that - It is true that before the Settlement Commission the assessees indicated that the additional disclosure of 50 lakhs each may be accounted for the assessment year 2014-15. However we cannot lose sight of the fact that such disclosures were as noted above in the spirit of settlement and to put an end to the controversy. The assessees therefore cannot be pinned down to the effect of such disclosures in the year 2014-15 alone. We cannot fragment a larger picture and telescope the additional disclosures for a particular year and taking into account the comparable figures for that year decide whether such disclosures would shake the initial disclosures as to apply the ratio laid down by the Supreme Court in case of Ajmera Housing (2010 (8) TMI 35 - SUPREME COURT OF INDIA ) and to hold that the initial disclosures themselves were untrue projecting the additional disclosures for all years the assessees had sought settlement we find the Commission committed no error in accepting them and in proceeding to pass final order on such settlement applications.

Issues Involved:
1. Validity of the Settlement Commission's order under section 245D of the Income Tax Act, 1961.
2. True and full disclosure of income by the assessees.
3. Reasonableness of the profit rate accepted by the Settlement Commission.
4. Adequacy of inquiries conducted by the Settlement Commission.
5. Impact of further disclosures made during settlement proceedings.

Detailed Analysis:

1. Validity of the Settlement Commission's Order:
The petitions challenged the order dated 21.01.2016 by the Settlement Commission under section 245D of the Income Tax Act, 1961, which accepted the offer of settlement made by the respondents and granted immunity from prosecution and penalty. The High Court noted that the Settlement Commission had accepted the assessees' disclosures and granted immunity after a detailed examination of the materials on record.

2. True and Full Disclosure of Income:
The Revenue contended that the assessees failed to make true and full disclosures of their income, a fundamental requirement under section 245C(1) of the Act. The Revenue argued that the assessees made substantial further disclosures during the proceedings, indicating that their initial disclosures were not true and full. The High Court referred to the Supreme Court's judgment in Ajmera Housing Corporation and Another v. Commissioner of Income Tax, which emphasized the necessity of "full and true" disclosure for a valid settlement application.

3. Reasonableness of the Profit Rate:
The Revenue argued that the 15% profit rate on turnover accepted by the Settlement Commission was on the lower side compared to similar businesses where the rate of return was higher. The Settlement Commission found the 15% profit rate reasonable and noted that the Revenue had not provided contrary material to dispute the turnover disclosed by the assessees.

4. Adequacy of Inquiries Conducted by the Settlement Commission:
The Revenue questioned the Settlement Commission's approach, arguing that further inquiries were necessary. The High Court observed that the Settlement Commission had conducted a detailed examination of the materials on record and found no error in the Commission's acceptance of the disclosures and the profit rate.

5. Impact of Further Disclosures:
The assessees made additional disclosures of ?50 lakhs each during the settlement proceedings for the assessment year 2014-15. The Revenue argued that these further disclosures indicated that the initial disclosures were not true and full. The High Court considered the further disclosures in the context of the overall disclosures made by the assessees for all assessment years. It noted that the additional disclosures were made in the spirit of settlement and were not substantial compared to the original disclosures. The High Court distinguished the facts of the present case from those in Ajmera Housing, where the further disclosures were manifold and substantial.

Conclusion:
The High Court concluded that the Settlement Commission committed no error in accepting the disclosures and passing the final order on the settlement applications. The petitions were dismissed, upholding the Settlement Commission's order granting immunity to the assessees from prosecution and penalties.

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