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2017 (1) TMI 775 - HC - Income TaxUnexplained creditors - Refusal of the Settlement Commission to make any additions on the basis of the entries in the Cash Flow Statement CFS of the alleged advances taken by the assessee - Held that - The manner in which additions have been refused to be made, is without any reasoning especially when the Commissioner of Income Tax had specifically, in his report, stated that the details of the creditors were not furnished and there was no manner in which the credit-worthiness of the said persons could be verified. The loans if not proved have to be computed as total income and additions made in a normal assessment, which principle regulates the Settlement Commission too. On the above reasoning, it has to be held that the Settlement Commission had not properly considered the issue of addition or the genuineness of claim of advances from others. To that extent, Exhibit P1 order would stand set aside and the matter is remanded to the Settlement Commission for consideration of the particular aspect which this Court has interfered with.
Issues:
Challenge to Settlement Commission order by Commissioner of Income Tax under Chapter XIXA of the Income Tax Act, 1961. Analysis: 1. The main issue in this case is the challenge by the Commissioner of Income Tax against the order of the Settlement Commission under Chapter XIXA of the Income Tax Act, 1961. The Commissioner raised objections regarding the Settlement Commission's refusal to make additions based on entries in the Cash Flow Statement (CFS) regarding alleged advances taken by the assessee. The Settlement Commission's computation of income was significantly lower than the amount of advances claimed by the assessee. 2. The assessee raised a preliminary objection based on the scheme of Chapter XIXA, citing the judgment in Mohtesham Mohd. Ismail v. Spl. Director, Enforcement Directorate. The argument was that only the Government of India, not authorities under the Act like the Commissioner, could challenge the Settlement Commission's order. Reference was made to the conclusive nature of orders by the Settlement Commission as specified in Section 245-I, supported by the case of Dhampur Sugar (Kashipur) Ltd. v. State of Uttaranchal. 3. The Department argued that the facts of this case differed from Mohtesham Mohd. Ismail and that the jurisdiction of the High Court under Article 226 was not restricted by Dhampur Sugar. Reference was made to Jyotendrasinhji v. S.I.Tripathi to support this argument. 4. The judgment in Mohtesham Mohd. Ismail was discussed to highlight the distinction between the powers of the adjudicating authority and the specific authorization required to challenge orders. The case emphasized the need for proper authorization to file a writ petition against Settlement Commission orders. 5. The detailed analysis of the Settlement Commission's powers and procedures under Chapter XIXA was provided, emphasizing the distinction between assessment by settlement and regular assessment under the Act. The Settlement Commission's authority to pass orders of assessment was highlighted. 6. The Court referred to the decision in Brij Lal v. CIT to explain that assessment by settlement under Chapter XIXA must comply with the provisions of the Income Tax Act. The Settlement Commission is bound by the Act's provisions in making assessments through settlement. 7. Sections 245D(1) to (4) were discussed to outline the procedure followed by the Settlement Commission in deciding on applications and conducting inquiries. The role of the Commissioner in providing reports and the Settlement Commission's authority to pass orders were explained. 8. The Court clarified that the Settlement Commission, not the Commissioner, had adjudicatory power under Chapter XIXA. The Commissioner's role was more adversarial, and the Settlement Commission was empowered to pass orders in accordance with the Act. 9. The argument regarding the conclusiveness of Settlement Commission orders was addressed, emphasizing that statutory finality did not bar the High Court's jurisdiction under Articles 226/227. Reference was made to Jyotendrasinhji to support the contention that finality of orders did not restrict judicial review. 10. The issue of advances claimed by the assessee was analyzed, with reference to the revised amounts in the CFS and the lack of details provided by the assessee regarding the creditors. The Court cited the case of CIT v. Om Prakash Mittal to highlight the importance of proper documentation and verification of loan transactions. 11. The Settlement Commission's decision regarding the claim of advances was scrutinized, pointing out the lack of reasoning for refusing to make additions despite the Commissioner's report highlighting the absence of creditor details. The Court emphasized the need for proper assessment and additions in cases where loans are not adequately proven. 12. The Court concluded that the Settlement Commission had not properly considered the issue of additions related to advances from others. The order was set aside, and the matter was remanded to the Settlement Commission for further consideration. 13. The writ petition filed by the Commissioner was allowed, with no costs awarded in the case.
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