2021 (8) TMI 929 - HC - Income Tax

Settlement Commission order u/s 245D(4) - whether no additional income was offered by the 2nd respondent for the assessment year 2012- 13 over and above the income disclosed in the returns filed under Section 139/142 (1) - whether the 1st respondent was justified in allowing the application filed by the 2nd respondent assessee to be proceeded particularly in the light of damning conclusions arrived by it in the course of proceedings before passing the impugned order settling the case of the 2nd respondent? - HELD THAT - As attempt of the 2nd respondent was not bona fide and there was no true and full disclosure in the application filed under Section 245C (1) of the Income Tax Act, 1961. On this limited score itself, the 1st respondent Settlement Commission ought to have dismissed the application. The 1st respondent Settlement Commission failed to note that it is not obliged to settle every case which comes up for being settled before it, if on facts, it finds that the attempt of and income tax, assessee-applicant was not bona fide before it and there was no true and full disclosure in the application filed under section 245C (1) of the Income Tax Act, 1961. The olive branch extended to an assessee under the provisions of Chapter XIXA of the Income Tax Act, 1961 is intended to give a one-time chance to such defaulters who show remorse and make amendments by filing an application to settle the case with bona fides and sincerity by making a true and full disclosure of additional income which was not disclosed in the returns filed under section 139 of the Income Tax Act, 1961. In this case, the 2nd respondent has been ill advised to not to make true and full disclosure and to take a chance considering the fact that the scope of enquiry before the 1st respondent Settlement Commission is a summary proceeding and proceeds on the principle of trust and assumption that an applicant has made a bona fide disclosure for settling the case. The 1st respondent merely relies on the inputs given by the departments to verify the claim of an income tax assessee. Also noticed that even for the search year no additional amount of income was offered over and above the amount disclosed in the returns filed under section 139 of theIncome Tax Act, 1961. On this score also, the application was liable to be rejected for the aforesaid search assessment year. Therefore do not find any reasons to sustain the impugned order of the 1st respondent Settlement Commission as the 2nd respondent had not made true and full disclosure as was required under the provisions of the Income Tax Act, 1961. The 2nd respondent had a golden opportunity to settle the case under Chapter XIX A of the Income Tax Act, 1961 which was squandered by the 2nd respondent. Though, the 2nd respondent has eventually accepted the additional amounts determined by the 1st respondent Settlement Commission, the 1st respondent Settlement Commission ought to have dismissed the application filed by the 2nd respondent assessee, as the 2nd respondent took a calculated risk by not offering the correct amount as additional income which was not disclosed in the regular returns for the respective assessment years. The fact that the provisions of the Income Tax Act, 1961, pertaining to the settling a cases have been scrapped with effect from 1.4.2 2021 is of no consequence. Even if the provisions of the Income Tax Act, 1961 pertaining to settling of the case under Chapter XIXA were in the statute book, it would have made no difference. The impugned order is set aside. The case is remitted back to the jurisdictional assessing officer to complete the assessments for the respective assessment years preferably within a period of three months from date of receipt of this order

Issues Involved:
1. Validity of the Settlement Commission's order under Section 245D(4) of the Income Tax Act, 1961.
2. Full and true disclosure of income by the assessee.
3. Deduction of expenses claimed by the assessee.
4. Suppression of pharmacy sales.
5. Taxability of unaccounted jewellery.
6. Waiver of interest and immunity from penalty and prosecution.

Detailed Analysis:

1. Validity of the Settlement Commission's Order:
The Commissioner of Income Tax filed a writ petition to quash the order dated 5.8.2013 passed by the Settlement Commission under Section 245D(4) of the Income Tax Act, 1961. The Settlement Commission allowed the application filed by the assessee, adding a further sum of ?11,44,97,620/- to the additional income of ?15,88,70,598/- offered by the assessee for the assessment years 2006-07 to 2011-12. For the assessment year 2012-13, the Commission added ?5,20,92,283/- though no additional amount was offered over the declared taxable income.

2. Full and True Disclosure of Income:
The court emphasized that the essential requirement under Section 245C is the full and true disclosure of income not disclosed before the assessing officer. The search revealed suppression of income amounting to ?35,30,63,554/- for the assessment years 2006-07 to 2011-12 and improper maintenance of accounts during the search year. The assessee offered tax on 44% of the undisclosed gross receipt, claiming a 56% deduction towards expenses. The Settlement Commission restricted the deduction to 7%, enhancing the additional income to ?27,33,76,219/- for the assessment years 2006-07 to 2011-12. The court found that the assessee did not make a true and full disclosure, which is a mandatory requirement under Section 245C.

3. Deduction of Expenses Claimed by the Assessee:
The assessee claimed a 56% deduction towards expenses, which was reduced to 7% by the Settlement Commission. The court noted that even in normal assessment, such a high deduction would not have been allowed. The court found that the attempt to claim such a high deduction was not bona fide, indicating a lack of true and full disclosure.

4. Suppression of Pharmacy Sales:
The Settlement Commission found no under-disclosure of pharmacy sales, attributing the confusion to the inclusion of medicines and surgical items under the 'package scheme' as direct sales to customers. The court did not find any substantial error in this finding.

5. Taxability of Unaccounted Jewellery:
Unaccounted jewellery valued at ?12,07,40,183/- was found during the search. The Settlement Commission did not require a separate disclosure for this, considering it covered by the additional income already disclosed. The court found this approach reasonable and based on the powers of settlement.

6. Waiver of Interest and Immunity from Penalty and Prosecution:
The Settlement Commission did not grant a waiver of interest but granted immunity from penalty and prosecution, noting that the assessee had satisfied the conditions under Section 245H. The court did not interfere with this aspect.

Conclusion:
The court set aside the impugned order of the Settlement Commission, finding that the assessee did not make a true and full disclosure of income. The case was remitted back to the jurisdictional assessing officer to complete the assessments within three months, complying with the principles of natural justice. The writ petition was allowed, and no costs were awarded.

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