2021 (9) TMI 164 - HC - Income Tax

Validity of order passed by the Income Tax Settlement Commission ITSC u/s 245D(4) - proof of procedural error committed by the ITSC or any error with regard to the decision making process - full and true disclosure - Whether assessees having satisfied the requisite conditions provided under Section 245H and having cooperated with the proceedings before the ITSC and made full and true disclosure of their income, they were granted immunity from penalty and prosecution under the Act? - whether the filing of applications by the assessees for settling the cases is a genuine attempt of the assessees wherein the assessees fully and truly disclosed all material particulars bearing in mind that it is they who approached the ITSC to settle the dispute? - HELD THAT - The proper method of reading the common order passed by the ITSC is to read the order in its entirety - proper books of accounts were not maintained in all the three cases and the assessees do not, at any point of time, state that they have maintained books of accounts. This is precisely the reason for which the matter has gone before the ITSC and the assessees made full and true disclosure and also offered additional income to tax and regarding valuation of the properties, etc., additions have been made. So far as the method of valuation is concerned, unless and until the Department had prima facie material to show that there was gross undervaluation, the valuation adopted by the assessees, based on the guideline value issued by the Government, cannot be faulted. ITSC was right in finding that the Revenue could not offer any evidence in their defence with regard to valuation of the properties. Even while examining the issue regarding cost of construction of the building, the ITSC took note of certain seized documents, which showed the cost of construction of two buildings at ₹ 1.90 Crores and the said shortfall should be added. We need not labour much on the other issues, as the ITSC examined each of the issues and wherever required, it has added the shortfall. Therefore, by referring to one sentence in paragraph 7.1.2 of the common order passed by the ITSC, it cannot be stated that there was no full and true disclosure. The findings in paragraph 7 have to be read in its entirety, which had several sub-paragraphs and which considered the case of the assessees on various heads culminating in paragraph 7.7, which deals with withdrawals or drawals of the assessees from bank accounts. The ITSC found that the drawals were inadequate and therefore, ordered ₹ 5 lakhs to be added in the hands of both the individual assessees for the relevant assessment years. Therefore, we find that there is no perversity in the approach of the ITSC and bearing in mind the conduct of the assessees that they approached the ITSC with true spirit of settlement, the ITSC granted relief. Learned Single Judge ought not to have set aside the common order passed by the ITSC and remanded the matter to the Assessing Officer to follow the consequential assessment procedure without recording any finding as to whether there was any procedural error committed by the ITSC or any error with regard to the decision making process. Single Judge, in the impugned order, has not recorded any finding that the ITSC contravened the provisions of the Act nor there is any finding recorded duly supported by material that the common order passed by the ITSC suffers from patent illegality. In such circumstances, we are of the clear view that the common order passed by the ITSC ought not to have been interfered with.

Issues Involved:

1. Delay and laches in filing the writ petition.
2. Legitimacy of the ITSC's order under Section 245D(4) of the Income Tax Act.
3. Method of income computation by the ITSC.
4. Full and true disclosure of income by the assessees.
5. Procedural correctness and jurisdiction of the ITSC.

Detailed Analysis:

1. Delay and Laches in Filing the Writ Petition:

The court questioned whether a writ petition could be entertained nearly eight months after the ITSC's common order was passed and after it was given effect to, with the tax fully paid by the assessees. The court noted that the affidavits filed in support of the writ petitions provided no explanation for the delay and laches. The Revenue's argument that the procedure of giving effect to the ITSC's order by the Assessing Officer does not preclude challenging the order was acknowledged. However, the court emphasized that the ITSC's order is distinct from a regular assessment order and involves a separate procedure for settlement of cases.

2. Legitimacy of the ITSC's Order under Section 245D(4):

The ITSC's order dated 23.1.2014 settled the case by holding that the assessees satisfied the requisite conditions under Section 245H of the Act, made full and true disclosure of their income, and cooperated with the proceedings, thus granting them immunity from penalty and prosecution. The court highlighted that the grounds raised by the Revenue in the writ petitions were the same as those raised in the report filed under Rule 9 of the Income Tax Settlement Commission (Procedure) Rules, 1997, which the ITSC had already considered in a detailed speaking order.

3. Method of Income Computation by the ITSC:

The Revenue faulted the ITSC for adopting the 'net accretion method' for computing income, arguing it was incorrect and without basis. The ITSC noted that the assessees had not kept proper books of accounts and that the Revenue's computation based on cash found during a two-day search was insufficient. The ITSC found the net asset method appropriate in the absence of proper books of accounts and sustained its computation of suppressed income based on available material. The court found no perversity in the ITSC's approach.

4. Full and True Disclosure of Income by the Assessees:

The learned Single Judge's observation that the ITSC did not render a clear finding on the assessees' full and true disclosure of income was deemed factually incorrect. The ITSC had explicitly recorded that the applications filed by the assessees contained full and true disclosure. The court emphasized that the ITSC's order should be read in its entirety, noting that the assessees made full and true disclosure and offered additional income to tax. The court found no evidence of gross undervaluation in the valuation of properties by the assessees.

5. Procedural Correctness and Jurisdiction of the ITSC:

The court found no procedural errors or jurisdictional issues with the ITSC's order. The ITSC examined each issue and made necessary additions wherever required. The Revenue did not allege any procedural faults or lack of opportunity to present materials before the ITSC. The court highlighted that the ITSC's decision-making process was thorough and that the assessees approached the ITSC in the true spirit of settlement.

Conclusion:

The court concluded that the learned Single Judge should not have set aside the ITSC's common order and remanded the matter to the Assessing Officer without finding any procedural error or error in the decision-making process. The court restored the ITSC's order dated 23.1.2014, allowing the writ appeals and setting aside the impugned common order dated 30.4.2021. The court emphasized that the ITSC's decision was supported by the facts and circumstances of the case and did not suffer from any patent illegality.

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