2019 (4) TMI 956 - HC - Income Tax

Order of settlement u/s 245D(1) by settlement Commission - full and true disclosure in application filed under 245C (1) - offer of additional income - retraction of statement offering additional income recorded under oath u/s 132(4) - HELD THAT - This Court is of the opinion that the approach of the ITSC was flawed throughout. Apart from brushing aside the fact that the retraction took place close to two years after the statement was made, the commission overlooked that nowhere did the assessees complain that the statement of the first respondent was recorded under coercion. His explanation for retraction was that the disclosures were not feasible, because he did not have the benefit of the records. But that is the point if indeed someone is involved in clandestine activities, but is aware of its monetary magnitude and indeed discloses it voluntarily, he is in the best position to say if it is supported by evidence. At the stage of voluntary disclosure there was candour on the part of the first statement, that he could not support the out of book transactions with evidence. Later too, the position did not alter. Furthermore, the other important fact is that the assessee made no attempt to support the claim that the loan credit and other credits were genuine; the parties concerned, their creditworthiness and the reason for the credit was not substantiated in any manner. The second and equally important reason for this Court to hold that the ITSC gravely erred in its approach is an utter disregard to the condition that the assessee always has the duty to come clean and make full disclosure. After noting and brushing aside the Revenue s objections with regard to the complete lack of explanation by the assessee with respect to credits claimed, the ITSC proceeded to compute the amounts offered and observed that the difference in the net asset and the income declared was ₹ 5.55 crores. Jakhotia accepted the difference as their undisclosed income computed in the manner given (in the order) and in the spirit of settlement agreed to offer additional income of ₹ 5.55 crores. The decision of the ITSC was untenable in law. Once the assessee approached it with a certain amount, representing that it constituted full and true disclosure (and had maintained that to be the correct amount till the date of hearing) the question of offering another higher amount as a full disclosure is impermissible. Ajmera Housing 2010 (8) TMI 35 - SUPREME COURT OF INDIA clearly held that there is no stipulation for revision of an application filed under 245C (1) of the Act and thus the natural corollary is that determination of income by the Settlement Commission has necessarily to be with reference to the income disclosed in the application filed under the said Section in the prescribed form. The amount offered in this case, clearly could not have been considered or accepted. The ITSC, in this regard, fell into error as there was no full and true disclosure by the assessees. Consequently, the impugned order is hereby set aside and quashed.

Issues Involved:

1. Validity of the order by the Income Tax Settlement Commission (ITSC) dated 26.11.2014.
2. The genuineness of the loan credits and their disclosure by the assessee.
3. The retraction of the statement made by the assessee under Section 132(4) of the Income Tax Act.
4. The assessment of the additional income disclosed by the assessees.
5. Compliance with the requirement for full and true disclosure under Section 245C(1) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the ITSC Order:
The Revenue challenged the ITSC's order dated 26.11.2014, which accepted the application made by the respondent assessees and issued consequential directions. The High Court found that the ITSC's approach was flawed, particularly in disregarding the significant delay in the retraction of the statement made by the assessee and failing to ensure that the disclosure was full and true as mandated by Section 245C(1) of the Income Tax Act. Consequently, the High Court set aside and quashed the ITSC's order, directing the Assessing Officer (AO) to proceed with the block assessments in accordance with the law.

2. Genuineness of Loan Credits:
The Revenue contended that the assessees did not provide sufficient evidence to prove the genuineness of the loan credits reflected in their ledger. The ITSC noted that the loans were arranged through brokers who only provided the names of the creditors without their addresses. Despite opportunities, the assessees failed to provide the names or addresses of the creditors or their PAN details, leading to doubts about the genuineness of the loan transactions. The High Court emphasized that the onus of proving the genuineness of the transaction lay upon the assessee, which they failed to discharge.

3. Retraction of Statement:
The first respondent retracted his statement made under oath on 20.01.2012, citing that the surrender was made without referring to the seized documents and entirely on an ad hoc basis without professional help. The Revenue argued that the retraction, made nearly two years after the statement, was an afterthought and should not be accepted. The High Court agreed with the Revenue, noting that the retraction lacked credibility and that the statement made during the search had probative and evidentiary value.

4. Assessment of Additional Income:
The ITSC accepted the additional income disclosed by the assessees during the proceedings, which was higher than the initial disclosure. The High Court found this approach to be legally untenable, as it allowed the assessees to revise their disclosure, which is not permitted under Section 245C(1) of the Income Tax Act. The High Court held that the determination of income by the Settlement Commission must be with reference to the income disclosed in the initial application.

5. Compliance with Full and True Disclosure Requirement:
The High Court emphasized the mandatory nature of the duty to fully disclose all income, as required by Section 245C(1) of the Income Tax Act. The ITSC's acceptance of the revised disclosure was found to be in violation of this requirement. The High Court cited the Supreme Court's decision in Ajmera Housing Corporation v Commissioner of Income Tax, which underscored that full and true disclosure of income is a prerequisite for a valid application under Section 245C(1). The High Court concluded that the assessees did not make a full and true disclosure, rendering the ITSC's order unsustainable.

Conclusion:
The High Court allowed the writ petition, set aside the ITSC's order, and directed the AO to complete the block assessments in accordance with the law, ignoring the time during which the ITSC's order was in force for the purpose of limitation.

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