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TMI Blog2021 (8) TMI 929X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-applicant was not bona fide before it and there was no true and full disclosure in the application filed under section 245C (1) of the Income Tax Act, 1961. The olive branch extended to an assessee under the provisions of Chapter XIXA of the Income Tax Act, 1961 is intended to give a one-time chance to such defaulters who show remorse and make amendments by filing an application to settle the case with bona fides and sincerity by making a true and full disclosure of additional income which was not disclosed in the returns filed under section 139 of the Income Tax Act, 1961. In this case, the 2nd respondent has been ill advised to not to make true and full disclosure and to take a chance considering the fact that the scope of enquiry before the 1st respondent Settlement Commission is a summary proceeding and proceeds on the principle of trust and assumption that an applicant has made a bona fide disclosure for settling the case. The 1st respondent merely relies on the inputs given by the departments to verify the claim of an income tax assessee. Also noticed that even for the search year no additional amount of income was offered over and above the amount disclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d respondent income taxes assessee for the assessment years 2006-07 to 2011-12 for settling the dispute under Chapter XIX A of the Income Tax Act, 1961. 3. For the assessment year 2012-13, the 1strespondent has added a further sum of ₹ 5,20,92,283/- though no additional amount was offered over and the amount declared as the taxable income in the return filed by the 2nd respondent. It is submitted that the 2nd respondent failed to make true and full declaration for the assessment years 2006-07 to 2011-12 and had not offered any amount for the assessment year 2012-13. It is therefore submitted that the 1st respondent ought to have dismissed the application filed by the 2nd respondent assessee before it under Chapter XIX A of the Income Tax Act, 1961. 4. The operative portion of the impugned order reads as:- 7.2 We find that it is true that no evidence was found during the search to indicate that the applicant had incurred any expenditure over and above what was recorded in the books. The applicant has stated that, in the books, only that expenditure is reflected which has been incurred for the day to day running of the Hospital. Since she is the sole proprie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Additional Income to be disclosed (Rs.) 2006-07 11,70,49,144 8,16,84,035 3,53,65,109 81,93,440 27,171,669 2007-08 14,46,58,217 9,90,25,981 4,56,32,236 1,01,26,075 3,55,06,161 2008-09 11,83,80,570 10,20,69,017 1,63,11,553 82,86,640 80,24,913 2009-10 22,65,58,005 14,09,46,233 8,56,11,772 1,58,59,060 6,97,52,712 2010-11 24,95,94,640 16,29,51,020 8,66,43,620 1,74,71,625 6,97,52,712 2011-12 28,21,49,930 19,86,50,666 8,34,99,264 1,97,50,495 6,37,48,769 Total 113,83,90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the jewellery should have also been offered in the Settlement Application. We are unable to agree with this contention. The Applicant has offered ₹ 15.88 crores in the Settlement Application as additional income. We have ordered a further disclosure of ₹ 11.44 crores. The value of the unaccounted jewellery would stand covered by such disclosure. Hence we are of the considered opinion that no separate disclosure in this respect is warranted. Regarding Miscellaneous Petition : 1. The Applicant has filed a petition for release of jewellery seized by the department against bank guarantee. The CIT may consider her request keeping in view of the provisions of Section 132 B of the Act. The miscellaneous petition filed in this respect by the Applicant before the Settlement Commission is treated as disposed. 9. ORDER OF SETTLEMENT 0.1 : In the SOF, the Applicant has made the following prayers:- a) Determination and qualification of the additional income for A.Ys 2006-07 to 2012-13. b) To grant waiver of interest under the I.T.Act. c) To grant immunity from penalty and prosecution under the I.T.Act. 0.2. As regards the prayer listed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re us. She also made full true disclosure of income. We find that the Applicant has also disclosed the manner in which such income was derived. Accordingly, we allow the prayer of the Applicant for immunity from penalty and prosecution under the Income Tax Act only so far as the same relate to issues dealt with in this order of settlement. Payment of Taxes: 9.5.1. : The Assessing Officer is directed to compute the tax and interest as per law giving effect to this order. 9.5.2.: During the hearing, the learned A.R.made a prayer for granting of instalment for payment of taxes and interest arising out of this order. The final liability of tax, surcharge and interest payable by the applicant will be paid in three equal quarterly instalments i.e. 31st September 2013 31st December 2013 and the last instalment on or before 15th of March, 2014. Interest u/s.245D (6A) will also be paid before 15th of March 2014. Others: 9.5: The operative part of this order was pronounced in the Court on 31.07.2013. 9.7. The order shall be void if it is subsequently found that it has been obtained by fraud or mis-representation of facts. 5. Before proceeding with co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the 1st respondent, the 2nd respondent had offered tax on 44% of the aforesaid undisclosed gross receipt of ₹ 35,30,63,554/- as additional income and thus agreed to pay tax and interest on ₹ 15,88,78,599/- for settling the case under Chapter XIX A of the Income Tax Act, 1961. 13. By the impugned order, the 1st respondent Settlement Commission has restricted the deduction on expenses to a mere 7% of ₹ 35,30,63,554/- and thereby added a sum of ₹ 11,44,97,620/- to the additional income offered by the 2nd respondent. By the impugned order, the 1st respondent , has determined the total additional income as ₹ 27,33,76,219/- (₹ 11,44,97,620/- + ₹ 15,88,78,599/-) for the Assessment Year 2006-07 to 2011-1. In other words, the additional income on which tax was payable was enhanced to 72% from mere 44% offered before the 1st respondent Settlement Commission for the Assessment Year 2006-07 to 2011-12 by the 2nd respondent assessee. For the Assessment year, a sum of ₹ 5,20,92,283/- was added to additional income. 14. The impugned order of the 1st respondent Settlement Commission is assailed primarily on the ground that no ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lement Commission was well reasoned and requires no interference under article 226 of the Constitution of India. 20. Learned counsel for the 2nd respondent income tax assesseesubmits that the 1st respondentSettlement Commission is the ultimate fact-finding authority and therefore, the order passed under Section 245D(4) of the Income Tax Act, 1961 attains finality under Section 245 I of theIncome Tax Act, 1961. 21. It is submitted that unless the petitioner was able to demonstrate any material irregularity in the procedure followed by the 1st respondent Settlement Commissionwhile passing the impugned order, or that the order was vitiated on account of fraud or arbitrariness, there is no scope for interference. 22. It is submitted that an application for settlement in Form No.34B can be filed incorporating the pending assessments initiated in consequence of search under section 132 of the Income Tax Act, 1961. 23. It is submitted that as per the scheme of the Act, the assessments proceedings can be initiated by the Jurisdictional Assessing Officer for six assessment years immediately prior to the search assessment year and therefore the Jurisdictional Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the settlement application filed covering seven assessment years on the validity of the proceedings initiated before the 1stRespondent on the ground of non inclusion of income including the suppressed income pertaining to the assessment year 2012-13 for settlement cannot be countenanced. The submission that the 2nd Respondent violated the primary condition of the requirement to disclose full and true income is untrue. 32. The learned counsel for the 2nd respondent assessee submitted that the 2nd respondent was entitled to disclose additional income before the 1st Respondent, Settlement Commission for grant of waiver of penalty and immunity from prosecution for the pending search assessment proceedings covering seven assessment years which was based on the search results. 33. The learned counsel for the 2nd respondent assessee submitted that the 2nd respondent assessee was expected to disclose the full and true income based on the analysis of the search materials which was made. In this regard, the disclosure of income was made fully and truly and need not necessarily be for all the seven assessment years. It is submitted that the surrender of the income for any particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance four months in the assessment year 2012-13 after the date of search generated actual receipts ₹ 11,15,82,665/- inasmuch as the 2nd Respondent Income Tax Assessee prepared the books after search based on the actual receipts, thereby showing the total gross receipts at ₹ 30,10,11,338/- and incorporated the receipts which were considered as not accounted at the time of search. 40. It is submitted that the entire receipts were duly accounted in the revised regular books itself and the Income tax return for the said assessment year was filed after the date of search accordingly, there is no question of suppression of Income at all by the 2nd respondent Income Tax Assessee. 41. The breakup of the actual receipts as per the Income Tax Department is as follows:- Actual Receipts till date of Search - as per Search Materials 18,84,47,118 Accounted Receipts at the time of Search 13,14,63,096 Accounted Receipts as at 01/09/2011 excluded -2,50,00,000 Accounted Recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search and remaining receipts for the balance four months was considered as full and true disclosure of income for the purpose of settlement by the 1st Respondent, thereby fortifying the stand of 2nd Respondent s income tax assessee for non inclusion of additional income for the assessment year 2012-13 in the settlement application filed before the 1stRespondent. 46. It is submitted that while filing the return of income for the assessment year 2012-13, the 2nd Respondent Income Tax Assessee had paid the taxes on the income computed from the gross receipts reported at ₹ 30,10,11,338/-. 47. It is therefore submitted that there was no reason for the Income Tax Department to question the factual aspect in the present writ petition in view ofsection 245 I of the Act. 48. As far as the second objection raised of the petitioner Income Tax Department that there was no full and true disclosure of income for availing the settlement mechanism provided in the Act as the gross receipts as per the seized materials amounted to ₹ 113,83,90,506/- for the six assessment years and ₹ 18,84,47,147/- for the first eight months/up to the date of search for the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11,44,97,619 6 Balance allowed towards expenses @ 7% of the Total Gross Receipts in the final order 7,96,87,335 7 Expenses Claimed by the 2nd Respondent in the settlement application 19,41,84,955 53. It is therefore submitted that the argument of the writ petitioner on the failure to disclosefully and truly is not correct and after admitting the actual receipts the 2nd Respondent assessee proceeded to compute the taxable income for all the assessment years covered. As per charging provisions of the Act the net income would alone get taxed and not the gross receipts. Hence the stand of the writ petitioner may be rejected as factual and not sustainable in law. 54. Regarding the claim of expenses for earning additional income and according to the writ petitioner, there was no need for the 1st Respondent to consider deduction of expenses for earning such income especially in view of accounting of all the expenses in the regular books of accounts maintained and further in the absence of search materials indicating incurring of expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fees to the doctors and para medical staff incash/not recorded in the regular books of accounts and accordingly estimated conservatively at 7% of the total receipts as acceptable outflow for the purpose of settling the dispute between theparties upon rejecting the claim for 55% of expenses for earning such income. 61. The claim of 55% of expenses for earning additional income disclosed before the 1st Respondent in the settlement application is based on the sworn statement recorded by the search team and according to the Writ Petitioner/Income Tax Department, the sworn statement recorded u/s 132(4)of the Act should be reckoned as valid piece of evidence 62. In the answer to Question No.15 forming part of the sworn statement recorded on the date of search 24.11.2011, the 2nd Respondent stated as follows:- out of the total consultancy receipts and charges for various treatment, I would say after expending about 75% for electricity, gas, oxygen, nitrateoxide, inhalation anesthesia, medication, consultant fees, equipment, annual maintenance, sterilization of theatres, staff salary, purchase of equipment etc. The remaining 30% approximately will be left in my hand. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned order. 68. It is submitted that two types of patients are treated namely in-patients and the out-patients. While the out-patients invariably purchase medicines as prescribed for which there is absolutely no dispute in so far as the bills raised/reflected in thebooks of accounts, in so far as the in-patients, opting for the package for treatment, the package charges would admittedly include the cost of medicines for which the bills are generated inasmuch as the said portion of the bills generated for the medicines consumed for the packaged patients is erroneously considered as suppressed pharmacy sales. 69. The above aspect was in fact considered in the proceedings for settlement and incorporated in para 6.1 of the impugned order and the said fact was accepted after thorough verification of voluminous records in relation thereto. 70. The verification process was conducted by the 1st Respondent in the presence of the CIT and the Writ Petitioner/Assessing Officer. Therefore it is too late inthe day for them to question the accepted factual position in arguing the suppression of pharmacy sales. 71. The bills raised by the pharmacy division are only for reducing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g irrelevant consideration and grounds. 77. The manner and method of the settlement could not be challenged in the present writ proceedings unless there was complete omission of referring to seized materials and other documents which formed part of the search records indicating/proving suppression of additional income over and above the amount shown and declared by the assessee in the settlement application. 78. Unless and otherwise, the factual aspect of the declaration by the assessee on the financial affairs concerning the assessment years in the settlement application filed as not true and full disclosure, there is absolutely no right vested to challenge the powers of settlement vested on the 1st Respondent under Chapter XIXA of the Act. 79. According to the 2nd Respondent assessee there was complete disclosure of financial results pertaining to the first six assessment years especially in reporting the gross receipts at 113.84 Crores which sum was notaltered/enhanced at any stage both by the 1st Respondent or by the Writ Petitioner. Hence, the presumption of the failure on the part of the 2ndRespondent in reporting full and true disclosure of the financial affai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs initiated by the Income Tax Department is to be tested in view of the proposed law of scrapping of the income tax settlement commission with effect from 01.02.2021. The Income Tax Department having not disputed so far the jurisdiction of the income tax settlement commission for settling the disputes pertaining to the search proceedings of the 2nd Respondent in initiating the said settlement process from 19.02.2013 cannot plead for setting aside their order on the stated factual grounds which according to the 2nd Respondent should be considered as infructuous in the light of the above referred proposed law. 86. The pleading for setting aside the order of the income tax settlement commission for the stated factual grounds by circumventing section 245 I of the Act for remanding the entire matter to the file of the Jurisdictional Assessing Officer is completely invalid in view of the ousting of the jurisdiction of the Jurisdictional Assessing Officer on the date of filing of the settlement application by vesting of such jurisdiction with the income tax settlement commission exclusively as per Section 245F(2) of the Act. 87. Finally, it is submitted that in the light of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the assessment year 2006-07 to 2011-12. 91. The aforesaid additional income of ₹ 15,88,78,598/- was arrived by the 2nd respondent assessee out of ₹ 35,30,63,554/- by claiming 56% deduction towards expenditure allegedly incurred out of the aforesaid amount of ₹ 35,30,63,554/-. 92.In the application filed under Section 245C of the Income Tax Act, 1961 before the 1st respondent, the 2nd respondent had offered tax on 44% of the aforesaid undisclosed gross receipt of ₹ 35,30,63,554/- as additional income and thus agreed to pay tax and interest on ₹ 15,88,78,598/- for settling the case under Chapter XIX A of the Income Tax Act, 1961. 93. By the impugned order, the 1st respondent Settlement Commission has restricted the deduction on expenses to a mere 7% of ₹ 35,30,63,554/- and thereby added a sum of ₹ 11,44,97,626/- to the additional income offered by the 2nd respondent. 94. By the impugned order, the 1st respondent , has determined the total additional income as ₹ 27,33,76,219/- (₹ 11,44,97,620/- + ₹ 15,88,78,599/-) for the Assessment Year 2006-07 to 2011-12. In other words, the additional income on whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 101. Though, the 2nd respondent had offered to pay tax on the entire amount of ₹ 35,30,63,554/- which was unearthed during the course of the search proceedings by giving statement to that effect the additional amount that was offered as income for settling the case before the 1st respondent settlement commission was confined to only 44% of the aforesaid amount amounting to ₹ 15,88,78,598/-. There was an apparent change of heart to pay lesser tax by offering lesser amount as additional income. 102. The 2nd respondent assessee thus to claimed a deduction of 56% from the aforesaid amount of ₹ 35,30,63,554/-. This was towards expenses incurred by the 2nd respondent while generating the aforesaid gross receipt. Even in the course of normal assessment, even if such a claim for deduction was made, it would not have been allowed by an Assessing Officer scrutinising the returns. 103. Ultimately, the deduction was confined to a mere 7% by the 1st respondent, Settlement Commission from the aforesaid amount of ₹ 35,30,63,554/-. The 2nd respondent was asked to offer another sum of ₹ 11,44,97,626/- to settle the case for the Assessment Year 2006-07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 245- C(1) of the Act. Additionally, the amount of income tax payable on such undisclosed income is to be computed and mentioned in the application. It needs little emphasis that Section 245-C(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 matter covered by the application. 39. Before addressing the other issues, at the outset, we record our disapproval with the view of the High Court that it would not be proper to set aside the proceedings before the Settlement Commission even though it was convinced that the assessee had not made full and true disclosure of their income while making application under Section 245-C of the Act. As stated above, in its earlier order dated 28-7-2000 while declaring the order dated 17-11-1994 as ab initio void and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that the assessee had not made true and full disclosure of their income in the previous application, the foundational requirement of a valid application under Section 245-C(1) of the Act. Accordingly, we have no hesitation in rejecting the argument . 110. I therefore do not find any reasons to sustain the impugned order of the 1st respondent Settlement Commission as the 2nd respondent had not made true and full disclosure as was required under the provisions of the Income Tax Act, 1961. The 2nd respondent had a golden opportunity to settle the case under Chapter XIX A of the Income Tax Act, 1961 which was squandered by the 2nd respondent. 111. Though, the 2nd respondent has eventually accepted the additional amounts determined by the 1st respondent Settlement Commission, the 1st respondent Settlement Commission ought to have dismissed the application filed by the 2nd respondent assessee, as the 2nd respondent took a calculated risk by not offering the correct amount as additional income which was not disclosed in the regular returns for the respective assessment years. The fact that the provisions of the Income Tax Act, 1961, pertaining to the settling a cases ..... X X X X Extracts X X X X X X X X Extracts X X X X
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