2024 (8) TMI 762 - HC - Income Tax

Validity of Settlement Commission order passed - accepted additional income offered was reasonable and fair, immunity from penalty and prosecution was also ordered, however interest u/s 234A, 234B and 234C was to be levied - additional income offered which it is asserted to be an amount constituting cash gifts received from the relatives HELD THAT - It must be noticed that the Settlement Commission while dealing with the contention that genuineness of the declaration of gifts cannot be accepted as the assessee had not shown the cash gifts as closing cash balance in the wealth tax return, has recorded a finding that the question of making such declaration did not arise as, if such declaration was made earlier, the question of disclosure seeking settlement would not have arisen. In fact, the petitioner has filed an affidavit under Rule 8 explaining the receipt of gifts from friends and relatives. Such declaration has not been rebutted by the revenue by placing any additional facts to the contrary. In light of the same, conclusion of the Settlement Commission by accepting the explanation in the spirit of settlement cannot be faulted calling for interference in exercise of the limited jurisdiction. Insofar as the allied contention that the additional income disclosed is to be treated as income under the head referred to in Section 68 or 69 of the Act, the Settlement Commission has once again referred to the affidavit filed under Rule 8 and observed that the report under Rule 9 does not place any contra material. It is observed that the PCIT has not shown how the conditions prescribed under Section 115 BBE are met. In the present case, the conclusion arrived at by the Settlement Commission while accepting the contents of the affidavit filed under Rule 8 in the spirit of the settlement and refusing to accept the contention of having recourse to Section 115BBE cannot be permitted to be interfered with. As regards the declaration with respect to cash gifts, alleged non-disclosure of the same in the wealth tax returns of the previous years, the Settlement Commission has dealt with the said contention held as no incriminating material was found during search, declaration being made in the Settlement Commission is supported by affidavit under Rule 8 in support of an assertion of fact that is not borne out by record, no contra material is produced by the Department to conclude that the assessee has not received gift by way of cash. Such conclusion also is well reasoned which would constitute plausible reason and a finding recorded on a satisfaction of the authority in keeping with the spirit of settlement does not warrant interference. Thus the order of the Settlement Commission with elaborate reasoning which has a nexus with the objective of settlement as regards the statutory provisions in Chapter XIX-A of the Act, the order does not call for interference and the petition is rejected.

Issues Involved:

1. Validity of the Settlement Commission's Order.
2. Procedural Compliance by the Settlement Commission.
3. Acceptance of Cash Gifts as Additional Income.
4. Applicability of Sections 68, 69, and 115BBE of the Income Tax Act.
5. Scope of Judicial Review under Article 226.

Detailed Analysis:

1. Validity of the Settlement Commission's Order:

The Revenue filed a petition challenging the Settlement Commission's order dated 11.03.2020, which accepted the petitioner's application for settlement under Section 245C of the Income Tax Act for the Assessment Years 2012-2013 to 2019-2020. The Commission deemed the additional income offered of Rs. 2,20,00,000/- as fair and reasonable, granted immunity from penalty and prosecution, but levied interest under Sections 234A, 234B, and 234C.

2. Procedural Compliance by the Settlement Commission:

The Settlement Commission followed the procedure under Section 245D (1) of the Act, allowing the application to proceed. The Commission addressed the objections raised by the Principal Commissioner of Income Tax (PCIT), including the valuation of jewelry and the acceptance of cash gifts. The Commission found no material evidence from the Department to support the claim that the petitioner made cash payments above the consideration shown in the invoices.

3. Acceptance of Cash Gifts as Additional Income:

The petitioner declared that the additional income constituted cash gifts from relatives and well-wishers for the Assessment Years 2012-2013 to 2016-2017. The Settlement Commission accepted this assertion, noting that if the cash gifts had been declared in the wealth tax returns, there would have been no need for the settlement application. The Commission ruled that the declaration under Rule 8 of the Income Tax Settlement Commission (Procedure) Rules was sufficient and not rebutted by the Revenue.

4. Applicability of Sections 68, 69, and 115BBE of the Income Tax Act:

The Revenue contended that the additional income should be treated under Sections 68 or 69 of the Act, invoking Section 115BBE for a higher tax rate. However, the Settlement Commission noted that the PCIT did not specify which provision would apply, and no contra material was provided. The Commission referred to the Supreme Court's judgment in Commissioner of Income Tax v. Smt. P.K. Noorjahan, emphasizing the discretionary nature of treating unexplained income under Section 69.

5. Scope of Judicial Review under Article 226:

The High Court emphasized the limited scope of interference in Settlement Commission orders under Article 226. The Court cited precedents, including the Delhi High Court's judgment in Agson Global Pvt. Ltd. v. ITSC and the Supreme Court's judgment in Brij Lal and Others v. Commissioner of Income Tax. The Court reiterated that judicial review focuses on the decision-making process and procedural compliance, not the merits of the decision itself.

The High Court concluded that the Settlement Commission acted within its powers and followed the statutory provisions. The Commission's acceptance of the petitioner's explanation "in the spirit of settlement" was deemed reasonable. The Court found no procedural defects or violations of natural justice and upheld the Settlement Commission's order.

Conclusion:

The petition challenging the Settlement Commission's order was rejected. The Settlement Commission's decision was found to be in accordance with the provisions of the Income Tax Act, and the High Court determined that there was no basis for interference under Article 226.

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