2012 (6) TMI 89 - HC - Income Tax

Immunity - Settlement commission - Third person - While granting immunity from prosecution settlement commission has observed as, No immunity is granted in respect of income contained in the seized papers on the basis of which computation of income has been made in the settlement application and which has been held not to belong to the applicant company by us. The department will be free to initiate penalty and prosecution proceedings in respect of these papers in appropriate hands as per law. - Petitioner sought to deleted this observation. Held that - The Settlement Commission has accepted the full and true disclosure made by the petitioner, though there is dispute about the manner in which the undisclosed income was earned. - The petitioner cannot insist and claim that their application should have been dismissed as they had failed to make disclosure on the manner in which the said income was earned. - The Settlement Commission has taken on record the reasoning given by the petitioner for earning the said income and expressed dissatisfaction. Even before us the petitioner insists that it had made fully and true disclosure and also stated the manner in which the said income was earned. The petitioner cannot challenge and question the order of the Settlement Commission being the beneficiary of the order. - Decided against the petitioner with cost.

Issues Involved:
1. Legitimacy of the undisclosed income declared by the petitioner.
2. Validity of the Settlement Commission's order regarding the undisclosed income.
3. Petitioner's grievance against the Settlement Commission's observations and findings.
4. Immunity from penalty and prosecution for the petitioner.
5. Use of seized documents against third parties.

Detailed Analysis:

1. Legitimacy of the Undisclosed Income Declared by the Petitioner:
The petitioner, Gupta Perfumers (P) Ltd., declared an undisclosed taxable income of Rs. 1,36,08,897/-. The Settlement Commission partially accepted this declaration and granted immunity from penalty and prosecution. However, the Commission scrutinized the legitimacy of the declared income, especially given the petitioner's claim of resuming manufacturing activities after a 14-year hiatus.

2. Validity of the Settlement Commission's Order:
The Settlement Commission, in its order dated 28th May 2010, computed the petitioner's income for various assessment years. The petitioner contested specific observations in the order, arguing that these observations were contrary to the spirit of settlement provisions under Sections 245D(4) and 245-I of the Income Tax Act. The petitioner sought to have these observations struck down while retaining the rest of the order.

3. Petitioner's Grievance Against the Settlement Commission's Observations and Findings:
The petitioner argued that the Settlement Commission's observations, which allowed the department to initiate penalty and prosecution proceedings based on seized documents, were destructive of the settlement's purpose. The petitioner contended that if full and true disclosure was not made, the Settlement Commission should have dismissed the application rather than partially accepting it.

4. Immunity from Penalty and Prosecution for the Petitioner:
The Settlement Commission granted immunity from penalty and prosecution for the declared income for the assessment years 2005-06, 2007-08 to 2009-10. However, it clarified that no immunity was granted for income contained in seized papers that did not belong to the petitioner. This allowed the department to take appropriate action against third parties if the seized documents indicated their undisclosed income.

5. Use of Seized Documents Against Third Parties:
The Settlement Commission held that the seized papers, which were the basis for the petitioner's computation of income, did not belong to the petitioner. The department was free to use these documents against appropriate third parties. The court upheld this view, stating that the Settlement Commission's order was conclusive for the petitioner but did not preclude the use of seized documents against third parties.

Conclusion:
The court dismissed the petitioner's writ petition, emphasizing that the Settlement Commission's order was complete and conclusive concerning the petitioner. The petitioner could not claim immunity on behalf of third parties, and the department was entitled to use seized documents against third parties. The court also imposed costs of Rs. 20,000/- on the petitioner.

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