2025 (3) TMI 1376 - AT - Income Tax

Rectification of mistake u/s 154 - additions to the assessee s income based solely on the admissions made in an application to the Settlement Commission - HELD THAT - ACIT did not refer to any incriminating material for the purpose of passing of the said orders. In the cited decision by the Coordinate Bench of ITAT Jaipur Bench 2019 (8) TMI 990 - ITAT JAIPUR reliance was placed on decision in the case of Anantanadh Construction Farms Pvt. Ltd. 2017 (5) TMI 1692 - ITAT MUMBAI wherein it was held that confidential information submitted before the Settlement Commission cannot be the basis of addition in the assessment proceedings in absence of any incriminating material found during the course of search and seizure action. Admittedly the application submitted before Settlement Commission was not adjudicated on merits and rather the same was found to be not maintainable as the same did not fulfill conditions laid down u/s 245C(1) of the Act. In the given facts and circumstances of the case we are in agreement with the contention raised by Ld. AR for the appellant that the ACIT erred in making addition simply on the basis of admission made by the assessee in her application submitted before Settlement Commission without referring or taking into consideration or discussing any incriminating material therein. The impugned orders passed by the Learned CIT(A) and the impugned orders u/s 154 of the Act passed by the ACIT deserve to be set aside.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

1. Whether the Assessing Officer (AO) was justified in making additions to the assessee's income based solely on the admissions made in an application to the Settlement Commission, without any supporting incriminating material.

2. Whether the orders passed under Section 154 of the Income Tax Act, 1961, by the AO and sustained by the Commissioner of Income Tax (Appeals) [CIT(A)] were valid when based on the assessee's application to the Settlement Commission that was not adjudicated on merits.

ISSUE-WISE DETAILED ANALYSIS

1. Justification of Additions Based on Settlement Commission Application

- Relevant Legal Framework and Precedents: The legal framework involves the provisions of the Income Tax Act, particularly Sections 154, 132(1), 153A, 245C(1), and 245HA. The precedent set by the Coordinate Bench of ITAT, Jaipur, in ITA Nos. 837/JP/2018 and 708 & 709/JP/2018, and the decision in Anantanadh Construction & Farms Pvt. Ltd. vs. DCIT, 166 ITD 83, are pertinent. These precedents establish that admissions made in applications to the Settlement Commission, without supporting incriminating material, cannot be the sole basis for income additions.

- Court's Interpretation and Reasoning: The Tribunal emphasized that the AO's reliance on the assessee's application to the Settlement Commission was misplaced as the application was not adjudicated on merits and lacked supporting incriminating material. The Tribunal noted that the mere disclosure of income in the application does not constitute evidence for additions.

- Key Evidence and Findings: The Tribunal found that the AO failed to refer to any incriminating material while making the additions. The application to the Settlement Commission was rejected due to lack of material support, and thus, could not be used as a basis for additions.

- Application of Law to Facts: The Tribunal applied the legal principle that admissions without supporting evidence cannot justify additions. It concluded that the AO erred in making additions based solely on the application to the Settlement Commission.

- Treatment of Competing Arguments: The Tribunal considered the Department's argument that the admissions were binding. However, it upheld the assessee's contention, supported by precedent, that without incriminating material, such admissions are insufficient for additions.

- Conclusions: The Tribunal concluded that the AO's additions were unjustified as they were based solely on the Settlement Commission application without incriminating evidence.

2. Validity of Orders Under Section 154

- Relevant Legal Framework and Precedents: Section 154 of the Income Tax Act allows for rectification of mistakes apparent from the record. The Tribunal referenced the precedent that such rectifications cannot be based on admissions without supporting evidence.

- Court's Interpretation and Reasoning: The Tribunal reasoned that the orders under Section 154 were invalid as they relied on the Settlement Commission application, which was not adjudicated on merits and lacked supporting material.

- Key Evidence and Findings: The Tribunal noted the absence of incriminating material in the AO's orders and the rejection of the Settlement Commission application as not maintainable.

- Application of Law to Facts: The Tribunal applied the principle that rectification under Section 154 requires clear mistakes apparent from the record, which were absent in this case.

- Treatment of Competing Arguments: The Tribunal dismissed the Department's reliance on the CIT(A)'s findings and upheld the assessee's argument that the orders were invalid without supporting evidence.

- Conclusions: The Tribunal concluded that the orders under Section 154 were invalid due to reliance on unsupported admissions.

SIGNIFICANT HOLDINGS

- The Tribunal held that "in the absence of any material much less incriminating material, no addition could be made only on the basis of income offered in the application u/s 245C(1) of the Act, when the application was rejected by the Settlement Commission."

- The Tribunal established the principle that admissions in applications to the Settlement Commission cannot justify additions without supporting incriminating evidence.

- The final determination was to set aside the impugned orders passed by the CIT(A) and the AO under Section 154, allowing the appeals in favor of the assessee.