2023 (8) TMI 775 - SCH - Income Tax

Validity of Settlement Commission Order - determination of the undisclosed income or not? - Department objected to the offer of settlement being offered as additional income and contended that there was no full disclosure of the material particulars. The Department sought for closure and dismissal of the settlement application - HC concluded that the Settlement Commission had not passed a just and proper order; that this was not a case which was acceptable for settlement at all and, therefore, set aside the order of the Settlement Commission - HELD THAT - It is noted that initially only Rs.34 lacs was offered as the disclosed income spread over a period of three Assessment years. But, pursuant to the conduct of survey and recovery of incriminating documents during the course of settlement proceedings, ultimately, the authorised representative of the appellant/Assessee offered Rs.56 lacs as additional income for the purpose of taxation. We find substance in the argument of learned ASG appearing for the respondent/Department to the effect that there is no real determination of the undisclosed income. However, the High Court while setting aside the order of the Settlement Commission could have remanded the matter to the Settlement Commission for re-determination of undisclosed income and granted the benefit of any of the settlement to the appellant/Assessee, if it could have been so granted. That has not been done so in the impugned order of the High Court. The order of the Settlement Commission has been set aside and no further orders have been passed thereon. It is in the above context that the Department has moved forward to make re-assessment and further demand notices have been issued to the Assessee. We find that there is a real object and purpose of setting up of the Settlement Commission as an Assessee, who is given an opportunity to disclose the undisclosed income in order to seek benefit in the form of immunity from penalty and prosecution. Therefore, when the High Court set aside the order of the Settlement Commission, the matter had to be remanded to the Settlement Commission for re-consideration and re-determination of the undisclosed income, after giving an opportunity to both sides. Consequentially, we set aside the order of the High Court as well as the order of the Settlement Commission and remand the matter to the Settlement Commission, which is now substituted by Interim Board for Settlement-V (IBS-V), Mumbai or Interim Board for Settlement VI (IBS-VI), Mumbai, as the case may be, vide Office Order dated 31.01.2022, issued by the Ministry of Finance, Department of Revenue, Central Board of Direct Taxes, Government of India. In view of the remand being made to the said Interim Board, the subsequent re-assessment and demand made by the Department to the Assessee shall be kept in abeyance and subject to the order to be made by the Interim Board for settlement. The concerned Interim Board shall issue notice to the Assessee/Appellant, preferably within a period of four weeks, to appear before it and dispose of the application filed by the Assessee seeking settlement, in accordance with law and after giving an opportunity to both sides.

Summary

Issues involved:
The judgment involves the High Court setting aside the order of the Settlement Commission due to discrepancies in disclosed income, leading to subsequent re-assessment and demand notices being issued to the Assessee.

Details of the Judgment:

Settlement Proceedings and Initial Disclosure:
The appellant, a partnership firm in the real estate business, underwent a survey by the Department which revealed undisclosed income. The appellant then applied to the Settlement Commission estimating additional income for various assessment years. Initially, Rs.34 lacs were offered for taxation, but during proceedings, the amount was increased to Rs.56 lacs. The Settlement Commission accepted the revised amount and passed an order.

High Court's Decision and Discrepancies:
The High Court, in its judgment, noted that the Settlement Commission failed to consider the substantial revised disclosures made by the Assessee. The Court found flaws in the Commission's order due to the difficulty in accurately determining the undisclosed income based on impounded documents. Consequently, the High Court set aside the Settlement Commission's order.

Appellate Court's Analysis and Remand:
Upon appeal, the Supreme Court observed that while the Assessee's revised disclosure exceeded the initial amount, there was no clear determination of the undisclosed income. The Court acknowledged the purpose of the Settlement Commission and remanded the matter back to the Commission for re-determination of undisclosed income. The subsequent re-assessment and demand notices were put on hold pending the Settlement Commission's decision.

Conclusion:
The Supreme Court allowed the Civil Appeal, setting aside the High Court's order and remanding the case to the Settlement Commission for re-consideration. The Assessee was directed to appear before the Interim Board for Settlement and all contentions from both sides were kept open. Pending applications were disposed of accordingly.