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TMI Blog2024 (4) TMI 501X X X X Extracts X X X X X X X X Extracts X X X X ..... ncing with it, thereby, lacking jurisdiction to issue any orders pertaining to the subject matter outlined in the application. Additionally, in the case of Om Prakash Mittal [ 2005 (2) TMI 16 - SUPREME COURT] the Hon ble Supreme Court has held that the essential condition to proceed with the settlement through an application u/s 245C of the Act is the necessity for a complete and honest disclosure of income, including the method by which it was obtained. Following an enquiry into the authenticity of this disclosure, the ITSC may decide to either approve or dismiss the application. As in the present case ITSC in its order has succintly noted that the respondent-assessee group failed to provide a convincing explanation regarding repurchase of the share capital. It observed that the evidence submitted by the respondent-assessee group regarding the purported investors lacked credibility, as the shares of the companies had already been repurchased at an extremely unreasonable price. It further noted that the transaction involving the repurchase of shares having a face value of INR 10/-, at a nominal value of 10 paise per paid-up share, cannot be deemed to be authentic. Later, the respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the procedure prescribed under Chapter XIX-A of the Act is a marked departure from the general procedure involving assessment by the AO and consequent action under the law. As briefly observed in the initial part of this judgment, this departure is meant to provide an opportunity for the assessee to come clean regarding the income and tax payable thereon. However, the relief envisaged in Chapter XIX-A of the Act is wide in nature and apart from settlement and quantification of payable tax, it also protects the assessee from prosecution and penalties, if so ordered by the ITSC. At the root of this incentive, lies a commitment of the assessee to make a full, true and honest disclosure of the income, source of income and additional tax payable thereon. Once it is seen that the disclosure was not full and truthful, the ITSC loses its jurisdiction to entertain such an application as well as to provide any immunity to the applicant from prosecution and penalties. Hence, in the present case, the ITSC has erred in law by approving the application of the respondent-assessee group under Section 245C of the Act. The ITSC further went on to grant immunity from the penalty and prosecution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the Commissioner of Income Tax [ CIT ], Central-II, New Delhi, filed a report under Rule 9 of the Income Tax Settlement Commission Procedure Rules, 1997 [ Rule 9 ] on 12 February 2008, raising various issues against the respondent-assessee group, inter alia, doubting the genuineness of the transactions with respect to share capital amounting to INR 23.69 crores. 6. On 09 June 2014, the ITSC admitted all the applications filed by different members of the respondent-assessee group, including business entities and individuals therein, to settle their income tax liability. While deciding the settlement applications, the ITSC passed the impugned order and declared the total additional income to the tune of INR 18 crores, which includes a voluntarily offered amount of INR 1 crore at the instance of the respondent-assessee group. 7. While passing the impugned order, the ITSC accepted the Revenue s contention that unaccounted money was introduced as bogus share capital by the respondent-assessee group and thus, it proceeded to make the aforesaid addition. 8. Out of the total addition of INR 18 crores in the case of the respondent-assessee group, additions amounting to INR 7.51 crores (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roneously accepted the amount of INR 6.51 crores as bogus share capital and the impugned order does not contain the reasons based on which ITSC has ascertained the aforenoted amount. 14. Learned counsel for the Revenue also contended that the ITSC gave a contrary finding in its order, wherein, on one hand, it held that the explanation offered by the respondent-assessee group with respect to the face value of the share capital/premium was not genuine and on the other hand, the ITSC has allowed the revision application of the respondent-assessee group under Section 245C of the Act. 15. In addition, he placed reliance on the legislative mandate prescribed under Section 245H of the Act, which envisages a two-fold satisfaction namely, (i) full and true disclosure of income and the manner in which such income was derived and (ii) cooperation of the applicant in the proceedings before the ITSC. He, therefore, contended that the ITSC has mechanically recorded a finding that the respondent-assessee group has made full and true disclosure and fully cooperated in the proceedings before it. Thus, it granted immunity to the respondent-assessee group from penalty and prosecution. 16. He further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) of the Act. Similarly, assessment for AY 2004-05 was also made under Section 143(3) of the Act. 23. He contended that no incriminating material was found during the course of the search and despite the same, they voluntarily agreed to surrender an amount of the share capital which was in doubt. He further submitted that the ITSC, after a detailed discussion, had given reasons for arriving at its findings of additional income of INR 6.51 crores for AY 2002-03 and 2003-04 in the case of Pankaj Ltd. 24. Learned counsel for the respondent-assessee group submitted that after the settlement of the aforesaid sum, the CIT made a further assertion concerning an additional unaccounted income of INR 1.65 crores. He contended that the respondent-assessee group, without any material being found against it, further offered to surrender a sum of INR 1 crore, and in the spirit of settlement and cooperation, a total amount of INR 7.51 crores was offered before the ITSC despite the unaccounted amount being INR 6.51 crores. 25. With regard to the undelivered summons on shareholders, learned counsel for the respondent-assessee group argued that the share capital was acquired during the AYs 2001-02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficant cooperation to the extent that the respondent-assessee group voluntarily offered a substantial amount was ex-facie evident. 29. Moreover, he asserted that the ITSC has issued the order following the procedure outlined in the Act and has meticulously adhered to it, both in its literal interpretation and its intended purpose. Consequently, he argued that there is no justification for any intervention. 30. Lastly, while addressing the issue of revision, learned counsel for the respondent-assessee group relied upon the decision of the Gujarat High Court in the case of Pr. CIT v. Income-tax Settlement Commission 2017 SCC OnLine Guj 2697 to advocate that there is no bar on revision being made before the ITSC. 31. We have heard the learned counsel appearing on behalf of the parties and perused the record. DISCUSSION 32. It is pertinent to point out that the solitary issue for our consideration is- Whether the ITSC was justified in considering the application filed under Section 245C of the Act despite recognizing the absence of a full and true disclosure of income? 33. Before delving into the merits of the case, it would be beneficial to refer to the underlying legal framework conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthorized representatives, and after reviewing any additional evidence presented before it. The relevant part of Section 245D (4) of the Act is extracted herein below: 245-D. Procedure on receipt of an application under Section 245-C. --- 4. After examination of the records and the report of the [Principal Commissioner or Commissioner], if any, received under (i) sub-section (2-B) or sub-section (3), or (ii) the provisions of sub-section (1) as they stood immediately before their amendment by the Finance Act, 2007, and after giving an opportunity to the applicant and to the [Principal Commissioner or Commissioner] to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the [Principal Commissioner or Commissioner]. 34.5 Such orders may be issued by the ITSC upon arriving at the satisfaction that the applican ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion makes it incumbent upon the ITSC to arrive at an unequivocal finding of full and true disclosure in the application. If the ITSC is not satisfied as to the full and true disclosure of the income in the application, it shall refrain from advancing with it, thereby, lacking jurisdiction to issue any orders pertaining to the subject matter outlined in the application. The Hon ble Supreme Court while dealing with the principle of full and true disclosure in Ajmera Housing Corporation (supra) has held as under:- 26. A bare reading of the provision would reveal that besides such other particulars, as may be prescribed, in an application for settlement, the assessee is required to disclose: (i) a full and true disclosure of the income which has not been disclosed before the assessing officer; (ii) the manner in which such income has been derived; and (iii) the additional amount of income tax payable on such income. 27. 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 un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r family. Consequently, it was determined that a significant portion of the remaining share capital was derived from the individuals who either do not exist or have been identified as accommodation entry operators, as acknowledged by certain individuals in their statements to the effect that they utilized their bank accounts to facilitate accommodation entries. Notably, regarding the remaining investors, the summons that were dispatched were returned undelivered. The relevant portion from the CIT report is extracted hereunder:- A. The balance sheet of M/s Pankaj Buildwell for the year ending 31.3.2002 shows share capital of Rs 10,66,53,500/-. Further share capital was introduced in FY 2002-03 amounting to Rs 3,10,00,000/-. Thus the total share capital at end of FY 2004-05 was Rs 13,76,53,500/-. Out of this only Rs 22,33,500/- was from family/related members of the assessee and the balance share capital of Rs 13,51,20,000/- was from 753 external entities not connected/related to the assessee or his family. Thus the family had only nominal investment as share capital and a major part of the balance is from the entities/individuals which are non-existent or proved accommodation entry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roduced herein below:- As per CIT As per applicant a. Cash of Rs. 10855000 and jewellery of Rs. 3069415 were found during the course of search and should be added in the hands of Shri M K Gupta. Cash of Rs. 1.04 cr. was covered by offer and the balance has been standing In the books. Jewellery at Rs. 742340 has been offered and the balance is shown in wealth tax returns. b. The amount of Rs. 2100000 should be added in the hands of Shri M K Gupta for AY 2006-07 2007-08 on accounts of entries at page no. 28 to 36 of annexure A-3 found from the residence at E 301, East of Kailash, New Delhi. The CIT has not given the benefit of expenses made in cash which is around 21.40 lakhs. c. An amount of Rs. 42527701 should be added in the hands of Shri M K Gupta for the AY 2007-08 on the basis of a diary namely annexure A-5 found from residence. The CIT has not given benefit of expenses indicated in the said diary. However the applicant has considered the diary while working out the income at the time of filing of SOF. d. An amount of Rs. 103012105 should be added in the hands of Shri Pankaj Gupta for different years on the basis of laptop found as annexure A-7, from residence. The CIT has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscussed in the Court during several hearings. After hearing both the parties the Commission has identified the issues which require further explanation from the applicant. 5. As discussed, there were certain issues where the reply of the applicant was not found satisfactory. These issues are being discussed in the subsequent paras as under: 43. Interestingly, the ITSC in its order has succintly noted that the respondent-assessee group failed to provide a convincing explanation regarding repurchase of the share capital. It observed that the evidence submitted by the respondent-assessee group regarding the purported investors lacked credibility, as the shares of the companies had already been repurchased at an extremely unreasonable price. It further noted that the transaction involving the repurchase of shares having a face value of INR 10/-, at a nominal value of 10 paise per paid-up share, cannot be deemed to be authentic. Later, the respondent-assessee group voluntarily agreed to relinquish the amount in question, i.e., the value of the shares repurchased at an unreasonably low price, which was under scrutiny. The relevant paragraph from the ITSC order is extracted herein below: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. Hence amount of Rs. 17 cr. is being incorporated in the income of the applicant as per the details in the succeeding paras. 46. Additionally, the ITSC noted that the respondent-assessee group failed to provide sufficient evidence to substantiate the authenticity of the share capital and consequently, it further increased the earlier addition of INR 17 crores by INR 1 crore, resulting in a total addition of INR 18 crores. The relevant paragraph is extracted herein below:- 5.2 The Commission has gone through the submissions made by the rival parties. It is noticed that out of the total amount of Rs. 1.65 Crores the applicant has already returned Rs. 1.25 Crores in lieu of cancelation of booking of flats made by the respective parties, and amount of Rs. 50 lacs was received on account of share capital. The applicant has also submitted copy of account of the respective parties. The CIT (DR) on the other hand argued that these are not genuine transaction but are accommodation entries taken by the applicant. The Commission after a careful consideration of the facts on record is of that since the major amount has been refunded back hence the contention of the Department is not valid o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 35,21,130 5. Shri Mahesh Kumar Gupta 2001-02 9,92,660 50,000 - 10,42,660 2002-03 9,67,060 75,000 - 10,42,060 2003-04 11,81,719 1,00,000 - 12,81,719 2004-05 12,49,790 1,25,000 - 13,74,790 2005-06 16,13,979 1,50,000 - 17,63,979 2006-07 18,91,503 2,00,000 - 20,91,503 2007-08 21,62,330 2,50,000 - 24,12,330 6. Smt. Usha Gupta 2001-02 9,12,800 10,000 - 9,22,800 2002-03 11,78,600 15,000 - 11,93,680 2003-04 8,00,100 20,000 - 8,20,700 2004-05 2,41,869 25,000 - 2,66,869 2005-06 17,16,695 30,000 - 17,46,695 2006-07 15,68,369 35,000 - 16,03,369 2007-08 12,53,398 3,55,000 - 16,08,398 7. Smt. Archana Gupta 2001-02 12,23,700 12,000 - 12,35,700 2002-03 10,90,570 17,000 - 11,07,570 2003-04 10,75,350 22,000 - 10,97,350 2004-05 8,30,570 25,000 - 8,55,570 2005-06 13,03,884 28,000 - 13,31,884 2006-07 2,99,490 35,000 - 3,34,490 2007-08 16,60,660 3,60,000 - 20,20,660 Total 9,36,47,637 1,53,50,504 18,00,00,000 28,89,98,821 47. At this juncture, it is pertinent to refer to the decision of this Court in Om Prakash Jakhotia (supra), wherein, while recognizing the onus on the part of the assessee to approach the ITSC with clean hands, the Court held as under:- 21. The second and equally important reason for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, 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. The Assessing Officer shall proceed hereafter, in accordance with law and complete the block assessments. The time taken during the pendency of proceedings before the Commission and the time during which the Commission's order was in force, shall be ignored for the purpose of limitation. [Emphasis supplied] 48. Further, addressing the respondent-assessee group s contention regarding the revision of the application, we are of the opinion that the statutory framework of Chapter XIX-A of the Act does not allow for any revision or amendment of an application under Section 245C of the Act, as this would essentially entail submitting a new application in the same case while withdrawing the previous one. Such a process would afford the respondent-assessee group an opportunity to retract their initial submission and make a fresh one. Therefore, permitting the revision of the application would indirectly provide the respondent-assessee group a chance to accomplish something that they could not achieve directly. Furthermore, it wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot otherwise achieve directly and in the process rendering the provision of sub-section (3) of section 245C of the Act otiose and meaningless. In our opinion, the scheme of said Chapter is clear and admits no ambiguity.. . As aforestated, in the scheme of Chapter XIX-A, there is no stipulation for revision of an application filed under section 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. .. We are convinced that, in the instant case, the disclosure of Rs. 11.41 crores as additional undisclosed income in the revised annexure, filed on September 19, 1994, alone was sufficient to establish that the application made by the assessee on September 30, 1993, under section 245C(1) of the Act could not be entertained as it did not contain a true and full disclosure of their undisclosed income and the manner in which such income had been derived. However, we say nothing more on this aspect of the matter as the Commissioner, for reasons best known to him, has chosen not to challenge this part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1957) to a person who makes an application under section 245C on or after the 1st day of June, 2007. (1A) An immunity granted to a person under sub-section (1) shall stand withdrawn if such person fails to pay any sum specified in the order of settlement passed under sub-section (4) of section 245D within the time specified in such order or within such further time as may be allowed by the Settlement Commission, or fails to comply with any other condition subject to which the immunity was granted and thereupon the provisions of this Act shall apply as if such immunity had not been granted. (2) An immunity granted to a person under sub-section (1) may, at any time, be withdrawn by the Settlement Commission, if it is satisfied that such person had, in the course of the settlement proceedings, concealed any particular material to the settlement or had given false evidence, and thereupon such person may be tried for the offence with respect to which the immunity was granted or for any other offence of which he appears to have been guilty in connection with the settlement and shall also become liable to the imposition of any penalty under this Act to which such person would have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ework concerning applications under Section 245C (1) of the Act fundamentally requires a full and true disclosure of additional income. It must be noted that the procedure prescribed under Chapter XIX-A of the Act is a marked departure from the general procedure involving assessment by the AO and consequent action under the law. As briefly observed in the initial part of this judgment, this departure is meant to provide an opportunity for the assessee to come clean regarding the income and tax payable thereon. 55. However, the relief envisaged in Chapter XIX-A of the Act is wide in nature and apart from settlement and quantification of payable tax, it also protects the assessee from prosecution and penalties, if so ordered by the ITSC. At the root of this incentive, lies a commitment of the assessee to make a full, true and honest disclosure of the income, source of income and additional tax payable thereon. Once it is seen that the disclosure was not full and truthful, the ITSC loses its jurisdiction to entertain such an application as well as to provide any immunity to the applicant from prosecution and penalties. 56. Hence, in the present case, the ITSC has erred in law by appro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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