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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 ..... Section 245D (4) of the Act, for the Assessment Years ["AY"] 2001-02 to 2007-08. FACTUAL MATRIX 3. The relevant facts for deciding the controversy at hand would reveal that the respondent-assessee group is engaged in real estate business in Delhi, and particularly in the development of commercial complexes. The business activities of the respondent-assessee group involve purchase of land from the Delhi Development Authority on auction, followed by development and sale of the same to various customers. 4. On 11 October 2006, a search and seizure operation was conducted at the business and residential premises of the respondent-assessee group under Section 132(1) of the Act. During the said operation, various incriminating documents including jewellery and cash were found and the same were accordingly seized. Subsequently, the case of the respondent-assessee group was centralized with the Assessing Officer ["AO"], Central Circle-08, New Delhi. 5. During the pendency of the assessment proceedings, the respondent-assessee group, vide letter dated 30 May 2007, preferred settlement applications under Section 245C (1) of the Act before the ITSC for AYs 2001-02 to 2007-08, thereby, di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf of the Revenue, submitted that the respondent-assessee group has failed to fully and truly disclose the additional income before the ITSC, which was an elementary requirement for proceeding with any application made by an assessee in terms of Chapter XIX-A (Sections 245A to 245L) of the Act. According to him, the scheme of Chapter XIX-A does not envisage revision of the application filed by the assessee under Section 245C (1) of the Act. 12. He contended that during the course of proceedings, the respondent-assessee group had offered certain additional amounts which clearly shows that full and true disclosure of income was not made in the application under Section 245C of the Act. He, therefore, submitted that the respondent-assessee group had not approached the ITSC with clean hands. 13. Learned counsel for the Revenue further argued that the CIT, in its Rule 9 report dated 12 February 2008, has calculated and quantified the undisclosed sum of INR 23.69 crores for AYs 2001-02 to 2007-08 as the total amount of bogus share capital. The said quantification is based on the summons issued to the shareholders, which had returned undelivered, thereby, indicating the non-existence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue placed reliance on the decisions of the Hon'ble Supreme Court in the case of CIT Jalpaiguri v. Om Prakash Mittal (2005) SCC OnLine SC 376., and Ajmera Housing Corporation v. CIT (2010) SCC OnLine SC 918., and the decision of this Court in the case of PCIT v. Om Prakash Jakhotia (2019) SCC OnLine Del 8063., and CIT v. ITSC (2014) SCC OnLine Del 626. RESPONDENT'S SUBMISSIONS 20. Per contra, Mr. Salil Aggarwal, learned counsel appearing on behalf of the respondent-assessee group vehemently opposed the submissions made by learned counsel for the Revenue. 21. Learned counsel for the respondent-assessee group submitted that they had filed an application under Section 245C (1) of the Act for the AYs 2001-02 to 2007-08 by disclosing an additional income of INR 98,43,706/- qua Pankaj Ltd. He contended that replies dated 19 July 2012, 31 January 2014 and 20 February 2014 along with complete documentary evidences were filed before the ITSC to establish the identity and creditworthiness of the shareholder and the genuineness of the transaction, which was questioned by the Revenue in the CIT report. 22. Learned counsel further submitted that a sum of INR 1.60 crores was surrendered i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw till the date, order under Section 245D of the Act was passed. 27. Additionally, he contended that the subsequent sale of shares at a reduced price was irrelevant for determining the authenticity of the investment in the share capital. He also submitted that the issue of tax avoidance in repurchasing shares from the promoters' family members at a nominal cost of INR 13.15 lakhs, compared to the face value of INR 13.15 crores, needs to be scrutinized in the hands of the purchaser of the shares. He, therefore, asserted that there is no reason to question the legitimacy of the share capital received by the respondent-assessee group. 28. Furthermore, learned counsel argued that the ITSC has offered well-founded justifications for granting immunity from prosecution and penalties, considering the facts and circumstances of the case. According to him, as a customary practice, the ITSC usually grants immunity from penalties and prosecution under the Act when an applicant exhibits full cooperation in resolving the case and provides a comprehensive and truthful disclosure of their income. In context of the present case, he contended that it is uncontested that the respondent-assessee gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of income tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided...." 34.2 The settlement application under the aforesaid Section necessitates a thorough declaration of any additional income by the applicant. Through Form No.34B, extensive details are requested and the applicant is required to sign a verification form affirming the completeness and accuracy of the provided information. 34.3 Section 245D of the Act delineates the procedure to be followed by the ITSC, upon receiving an application for settlement under Section 245C of the Act. Pursuant to sub-Section (1) of Section 245C of the Act, the ITSC is empowered to solicit a report from the CIT. Based on this report and considering the nature and circumstances of the case or the complexity of the investigation involved, the ITSC may, after conducting a preliminary enquiry, decide whether to allow the settlement application or reject it. 34.4 Furthermore, sub-Section (4) of Section 245D of the Act confers upon the ITSC an authority to issue an order, subsequent to ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted before the ITSC, it cannot be withdrawn by the applicant. On receipt of such an application, the ITSC commences the process of evaluating whether the application is liable to be proceeded with. In respect of an application which is allowed to be proceeded with, the ITSC stands empowered to call for a report from the CIT in terms of Section 245D(2B) of the Act. Taking proceedings further and in respect of applications which have not been declared to be invalid, the ITSC in terms of Section 245D(3) of the Act is enabled to call for the records and, if deemed necessary, to direct such further inquiry or investigation as may be necessary. Pursuant to the aforesaid power as conferred, the Principal Commissioner/Commissioner is obliged to undertake a further inquiry or investigation and submit a report in respect of all matters covered by the application as also any other matter relating to the case. Sub-Section (4) of Section 245D of the Act envisages the ITSC passing final orders upon the application taking into consideration the report submitted by the Principal Commissioner/Commissioner, an examination of all the evidence that may have been placed before it and proceed to pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment is an application which the assessee can file at any stage of a case relating to him in such form and in such manner as is prescribed. The statutory mandate is that the application shall contain "full and true disclosure" of the income which has not been disclosed before the assessing officer, the manner in which such income has been derived. The fundamental requirement of the application under Section 245-C is that full and true disclosure of the income has to be made, along with the manner in which such income was derived. On receipt of the application, the Commission calls for report from the Commissioner and on the basis of the material contained in the report and having regard to the nature and circumstances of the case or complexity of the investigation involved therein, it can either reject the application or allow the application to be proceeded with as provided in Section 245-D(1)." [Emphasis supplied] 37. Referring to the particulars of the present case, it is observed that according to the CIT report, the total share capital at the end of the Financial Year ["FY"] 2004-05 amounted to INR 13,76,53,500/-. Out of this sum, only INR 25,33,500/- originated from family ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd true disclosure in the application. The relevant paragraph of the CIT report is being extracted herein for reference:- "Looking at aforesaid facts, in M/s Pankaj Buildwell Ltd the assessee has routed Rs 23,69,70,000 as share capital/share application money in various previous years. The year wise bifurcation of addition of share capital/share application money is not readily available, therefore, if in excess of Rs. 23,69,70,000/- is received by M/s Pankaj Buildwell, the detail of the same may be obtained by Hon'ble Settlement Commission from the assessee and added as unexplained cash credit in the year of receipt. However, the amount of Rs. 23,69.70.000/- is added as unexplained cash credit in the hands of assessee for A.Y. 2001-02 to A.Y. 2007-08. This aspect has not been disclosed at all by the assessee in its application before the Settlement Commission. Therefore, the disclosure of the assessee does not represent the correct undisclosed income and should be treated as incomplete disclosure." [Emphasis supplied] 40. Later on, during the course of proceedings, the ITSC took note of the said undisclosed income as highlighted by the CIT report and sought a reply from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of accommodation entries rises. h. Bogus share capital gains at Rs. 69951880 for the AY 2006-07 in the case of Usha Gupta. The transactions are genuine and all the proofs are attached. i. An amount of Rs. 63787700 should be added in the case of M/s Pankaj Buildwell for the AY 2003-04 to 2006-07 on the basis of page no. 1 of annexure A-2 found from residence. The CIT has not given benefit of expenses recorded in the diary. However the applicant has considered the diary while working out the income at the time of filing of SOF. j. An addition of Rs. 98.67 lakhs in the case of Sh. Pankaj Gupta and Rs. 50 lakhs in case of Smt. Archana Gupta on account of various investments made as per annexure A-3 for the AY 2007-08. All the investments are reflected in books of accounts and evidences are attached. k. Addition of Rs. 14190100 should be made in the hands of Shri M K Gupta for AY 2007-08 on the basis of annexure A-4 found from residence. The transaction has been duly shown in books of accounts. 42. Further, the ITSC in its order noted that the aforesaid reply of the respondent-assessee group was not satisfactory. The relevant paragraph of the impugned order is culle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n estimated basis. The total amount of Rs. 17 cr. has been worked out in the case of M/s Pankaj Buildwell Ltd. and Raghav Buildwell Ltd." [Emphasis supplied] 44. Accordingly, it is seen that the respondent-assessee group did not reveal the said additional income in the settlement application or before the ITSC at the very threshold. Rather, it only acknowledged the said additional income after the CIT report was submitted to the ITSC, thereby, raising doubts regarding the completeness and accuracy of the disclosure made by the respondent-assessee group in the settlement application preferred under Section 245C of the Act. 45. Hence, despite acknowledging the respondent-assessee group's inadequate disclosure regarding the share capital/premium and the absence of a satisfactory explanation from its side, the ITSC proceeded with the settlement application. Upon concluding the same, the ITSC made an an enormous addition of INR 17 crores to the respondent-assessee group's income. The relevant extract of the said order is reproduced herein:- Sr.No. Name of Applicant A.Y. Amount Total 1. M/s Pankaj Buildwell Ltd. 2002-03 2003-04 Rs. 5.01 cr. Rs. 1.50 cr. Rs. 6.51 cr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cants for different AYs as mentioned in the paras below." 8. On the basis of the forgoing paras the income settled by the Commission in the case of all the applicants for different years is given in the table below: Sr.No. Name of the applicant A.Y. Incomer as per ROI (in Rs.) Additional income offered in SOF (in Rs.) Additional income settled-under 245D(4) Total income (in Rs.) (A) (B) (C) (D) (E) (F) (G) 1. M/s. Pankaj Buildwell Ltd. 2001-02 2,94,310 30,000 - 3,24,310 2002-03 6,24,649 40,000 5,01,00,000 5,07,64,649 2003-04 1,69,08,990 55,000 1,50,00,000 3,19,63,990 2004-05 33,23,910 74,587 - 33,98,497 2005-06 9,51,120 58,145 - 10,09,265 2006-07 31,79,250 19,54,968 40,00,000 91,34,218 2007-08 49,02,917 76,31,006 60,00,000 1,85,33,923 2. M/s. Raghav Buildwell Ltd. 2001-02 N/A N/A - N/A 2002-03 N/A N/A - N/A 2003-04 7,781 1,00,800 5,26,00,000 5,27,08,581 2004-05 6,71,970 85,013 5,23,00,000 5,30,56,983 2005-06 7,48,910 52,355 - 8,01,265 2006-07 16,89,110 7,28,034 - 24,17,144 2007-08 1,85,32,520 16,21,596 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to compute the amounts offered and observed that the difference in the net asset and the income declared was Rs. 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 Rs. 5.55 crores. A letter was filed on November 10, 2014 offering additional income of Rs. 5.55 crores, which is placed on record". The Income-tax Settlement Commission thereafter recorded: "9. As discussed in the foregoing paras, we have considered the submissions of the applicant and the Department. All the issues were discussed one by one during the course of hearing. After carefully considering the submissions of the Department and the applicant and the facts of the case, we are of the view that the offer made by the applicant in the statement of facts and the additional offer of Rs. 5.55 crores made during the course of proceedings under section 245D(4) before this Commission adequately cover all the issues. Therefore, the offer of additional income of Rs. 5.55 crores is accepted." 24. Clearly, the decision of the Income-tax Settlement Commission was untenable in law. Once the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C [2013] SCC OnLine Del 2341, this Court, while relying upon the decision of the Hon'ble Supreme Court in the case of Ajmera Housing Corporation (supra), concluded that revising a disclosure made in a settlement application would clearly indicate that the original disclosure was neither truthful nor comprehensive. The relevant paragraph no. 31 is being reproduced herein for reference:- "31. In the context of the factual matrix of the case before it, the Supreme Court observed that a disclosure made in a settlement application cannot be permitted to be revised inasmuch as no such revision is contemplated under the scheme of the Act. In this context, the Supreme Court observed as under (pages 656, 657, 659): It is plain from the language of sub-section (4) of section 245D of the Act that the jurisdiction of the Settlement Commission to pass such orders as it may think fit is confined to the matters covered by the application and it can extend only to such matters which are referred to in the report of the Commissioner under sub-section (1) or sub-section (3) of the said section. A 'full and true' disclosure of income, which had not been previously disclosed by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it is important to note that the said Section empowers the ITSC to exercise discretion in granting immunity to assessee from prosecution for any offence under the Act or the Indian Penal Code, 1860 or from the imposition of any penalty under the Act, pertaining to the case covered by the settlement. The grant of such immunity is subject to conditions that the ITSC may deem appropriate to impose. A prerequisite for granting immunity is that the applicant must have cooperated in the proceedings before the ITSC and made a "full and true disclosure" of its income and the manner in which such income has been derived. For the sake of clarity, the relevant provision of Chapter XIX-A of the Act is extracted as under:- "245H. Power of Settlement Commission to grant immunity from prosecution and penalty.-(1) The Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 245C has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his income and the manner in which such income has been derived, grant to such person, subject to such conditions as it may think fit to impos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk Ltd. v. CIT 2023 SCC OnLine SC 1215, examined the pertinent condition required to be fulfilled prior to the granting of immunity under Section 245H of the Act. The relevant paragraph has been reproduced herein below:- "6. On a close reading of the provisions extracted hereinabove, it emerges that under section 245H(1) if the Settlement Commission is satisfied that any assessee who makes the application for settlement under section 245C, has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of its income and the manner in which such income has been derived, may grant immunity from prosecution or from the imposition of penalty, either wholly or in part with respect to the case covered by the settlement. The necessary ingredients for granting immunity from prosecution would be : (a) the assessee should have co-operated with the Settlement Commission in the proceedings before it ; and (b) the assessee should have made a full and true disclosure of its income and the manner in which such income has been derived, to the satisfaction of the Commission. Therefore, what is of essence is that the assessee ought to hav ..... 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