2015 (9) TMI 75 - HC - Income Tax

Judicial review in respect of final orders passed by the Commission under Section 245D(4) - Held that - In the present case, the additional income was offered by the Respondent No.2 Assessee, only after the Petitioner had filed its Rule 9 report and it was only during the course of hearing under Section 245D(4) of the Act that the additional income of ₹ 59.11 Crores and ₹ 3 Crores were offered. This also on accepting the view of the Petitioner and without prejudice to their primary contention that the same cannot be added. This acceptance of the further offer only with a view to expeditiously settle the dispute, according to us, in the peculiar facts of the case, cannot be held against the Petitioner. It is clear that disclosure of full and true particulars of undisclosed income and the manner in which such income had been derived are the prerequisites for a valid application under Section 245C(1) of the Act. Additionally, the amount of incometax payable on such undisclosed income is to be computed and mentioned in the application. It needs little emphasis that section 245C(1) of the Act mandates full and true disclosure of the particulars of undisclosed income and the manner in which such income was derived and, therefore, unless the Settlement Commission records its satisfaction on this aspect, it will not have the jurisdiction to pass any order on the manner covered by the application. Case of Ajmera Housing (2010 (8) TMI 35 - SUPREME COURT OF INDIA) differentiated. Consequently, the same in the peculiar facts of the present case, cannot be applied. Therefore we do not agree with the submission of the Petitioner that there has been a failure to disclose truly and fully undisclosed income in the settlement application in the peculiar facts of the Petitioner s case. So far as the other objection is concerned viz failure to disclose the manner in which this income has been derived, we find that the application for settlement sufficiently explains the source of the income being declared. The application mentions how the additional income which is being disclosed as been derived i.e. on application of the ALP in respect of exports made to its Associated Enterprise viz holding company. We do not see any merit in the above submission on behalf of the petitioner. Whether the income has really accrued or arisen must be judged in the light of the reality of the situation. It is on application of the above principle that the Commission has come to the conclusion that unbilled revenue was only a book entry and no real income accrued or arose. This view of the Commission in the impugned order cannot be said to be perverse in the least. It is a possible view. Therefore no reason to interfere with the merits of the decision in the present facts.Therefore, keeping in view the self imposed limitations as set out in Jyotinderesinghji (1993 (4) TMI 1 - SUPREME Court) we see no reason to interfere with the merits of the decision in the present facts.

Issues Involved:
1. Jurisdiction of the Settlement Commission to entertain the application.
2. Full and true disclosure of income by the Respondent-Assessee.
3. Grant of immunity from penalty and prosecution under Section 245H of the Act.
4. Merits of the impugned order.

Detailed Analysis:

1. Jurisdiction of the Settlement Commission to entertain the application:

The primary challenge by the petitioner was that the Settlement Commission lacked jurisdiction to entertain the application for settlement made by the Respondent-Assessee. The petitioner argued that the Respondent-Assessee did not satisfy the two independent conditions precedent under Section 245C(1) of the Act: making full and true disclosure of its income and the manner in which this income was derived. The petitioner cited the decision of the Apex Court in Ajmera Housing Corporation v. CIT 320 ITR 642, asserting that the failure to make full and true disclosure was evident from the Respondent-Assessee revising/increasing the income offered for settlement.

2. Full and true disclosure of income by the Respondent-Assessee:

The Court analyzed the facts of the case in the light of the decision in Ajmera Housing. The Court noted that in Ajmera Housing, the revision of income was suomotu and after the hearing had concluded, which was prima facie evidence of the original application not declaring the full income. However, the Court distinguished the present case, stating that the correct determination of income dependent upon the application of the appropriate Transfer Pricing Rule, which is subjective. The additional income was declared during the course of the hearing, and it was not a deliberate failure to disclose fully and truly the income. The Court emphasized that the Commission must consider whether the original application contained a bona fide true and full disclosure of the Applicant's income based on the facts before it.

3. Grant of immunity from penalty and prosecution under Section 245H of the Act:

The petitioner contended that the impugned order granting immunity from penalty and prosecution was not justified as the Respondent-Assessee had not made a full and true disclosure. The Court found that the application for settlement sufficiently explained the source of the income being declared and mentioned how the additional income was derived. The Court noted that the Commission's satisfaction of the jurisdictional requirements for granting immunity was not shown to be perverse.

4. Merits of the impugned order:

The petitioner argued that the concepts like real income invoked by the Commission had no application, citing decisions of the Apex Court in State Bank of Travancore v. CIT 158 ITR 102 and CIT v. Shiv Prakash Janak Raj & Co. 222 ITR 583. The Court observed that the decision in State Bank of Travancore was reversed in UCO Bank v. CIT 237 ITR 889. The Court held that the view on real income taken by the Commission was in line with the principles set out by the Apex Court, and the Commission's conclusion that unbilled revenue was only a book entry and no real income accrued or arose was a possible view. The Court found no reason to interfere with the merits of the decision.

Conclusion:

The Court dismissed the petition, finding no reason to interfere with the impugned order of the Commission. The Court emphasized the self-imposed limitations on judicial review and noted that the impugned order was accepted by the Revenue, with no timely challenge or explanation for the delay in filing the petition.

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