Gujarat H.C : The Settlement Commission (‘the Commission’ for short) under section 245D of the Income Tax Act, 1961, accepting offer of settlement made by the respondents and granting immunity from prosecution and penalty

High Court Of Gujarat

Pr.CIT vs. Income Tax Settlement Commission & Anr.

Section 245D(4)

Asst. Year 2012-13 to 2014-15

Akil Kureshi & Biren Vaishnav, JJ.

Special Civil Application No. 1733 of 2017 TO 1736 of 2017

13th June, 2017

Counsel Appeared:

Manish Bhatt, Advocate with Mauna M Bhatt, Advocate for the Petitioner.: S N. Soparkar, Senior Counsel, for B S Soparkar, Advocate for the Respondent

AKIL KURESHI, J.

1. These petitions arise in common background. They have been heard together and would be disposed of by this common judgment.

2. Brief facts are as under.

3. These petitions are filed by the Revenue, challenging a common order dated 21.01.2016 passed by the Settlement Commission (‘the Commission’ for short) under section 245D of the Income Tax Act, 1961, accepting offer of settlement made by the respondents and granting immunity from prosecution and penalty.

4. The respondent no.2 in each of the petitions are assessees engaged in the business of construction and development of immovable properties. They also belong to the same group of assessees. Assessments for the assessment years 2012-13 to 2014-15 in case of these assessees were pending. Desirous of settling such disputes, the assessees moved different settlement applications, each by the respective assessee, seeking to resolve the disputes with the Revenue arising in the said pending assessments for the four various assessment years such as 2012-13 to 2014-15. These settlement applications passed through various stages till coming to the stage of the Commission passing an order under section 245D(4) of the Act. In the settlement applications, the assessees had made additional disclosures of undisclosed incomes. They had admitted to have received on money through sale of the constructed properties. According to the assessees however, the Entire on money receipt was not its unaccounted income. The unaccounted income would comprise of the profit element embedded in such cross receipts according to the assessees. The assessees projected 15% profit on the turnover. On the basis of the turnover of unaccounted receipts mentioned above and 15% profit rate claimed by the assessees, the assessees had made disclosures of additional income in the applications for settlement filed by them.

5. During the proceedings before the Commission, detailed examination of materials on record took place. Revenue raised multiple contentions to oppose settlement applications of the assessees. In particular, the contentions of the Revenue were that further inquiry was necessary and that 15% rate of profit was on the lower side. According to the Revenue, in similar business, the rate of return was much higher.

6. The Commission accepted the disclosure of the turnover made by the assessees as it appeared that the Revenue had not brought any contrary material on the record in this respect. The Commission also suggested that 15% rate of profit out of the turnover was reasonable. The Commission while passing the impugned order further recorded that during the course of the proceedings, the representatives of the assessees had made a voluntary disclosure of an additional sum of Rs.2 crores i.e. Rs.50 lakhs in case of each assessee for the assessment year 2014-15 “In a spirit of settlement and to put a quietus to the issue.” Taking note of the materials on record in these further disclosures made by the assessees, the Settlement Commission passed the impugned order and, as noted, accepted the offers of settlement and granted immunity to the assessees from prosecution and penalties.

7. This order, the Revenue has challenged primarily on the ground that the assessees had failed to make true and full disclosures of their income, which is one of the basic requirements of settlement as provided in sub-section (1) of section 245C of the Act. The Revenue has also questioned the approach of the Commission in not carrying out further inquiries.

8. Appearing for the Revenue, learned counsel Shri Manish Bhatt contended that the assessees had after making initial disclosures, during the proceedings before the Settlement Commission, made further substantial disclosures. This itself would mean that assessees’ initial disclosures were not true and full. Relying on the judgment of the Supreme Court in case of Ajmera Housing Corporation and Another 13.06.17 v. Commissioner of Income-Tax reported in [2010] 326 ITR 642 (SC), counsel submitted that it is not open for the assessee to revive its disclosure. Our attention was drawn to a judgment of Division Bench of this Court in case of Principal Commissioner of Income-tax Vadodara v. Shree Nilkanth Developers reported in [2016] 73 taxmann.com 76 (Guj), in which, the Court, relying on the decision of Supreme Court in case of Ajmera Housing (supra), had set aside the order of the Settlement Commission when it was found that the assessee had at a belated stage, made fresh and further disclosures.

On the other hand, learned counsel Shri Soparkar for the assessees contended that the disclosures were made by the assessees in the spirit of settlement These disclosures must be seen in light of overall disclosures made by the assessees for all the four assessment years. The further disclosures were not substantial as compared to the original disclosures made by th assessees. He drew our attention to a Division Bench judgment dated 12.07.2016 in Special Civil Application No.2881 of 2015 and connected petitions, in which, looking to facts of the case, the order of the Settlement Commission acting on further disclosures made by the assessee was upheld. Counsel submitted that Division Bench of Bombay High Court in case of Commissioner of Income-tax— Central-I v. Income Tax Settlement Commission, reported in [2016] 65 taxmann.com 40 (Bombay), had also taken a view that further disclosures made by the assessees during the settlement proceedings would not necessarily lead to the inference that the initial disclosures were invalid and that the settlement application should be rejected. Our attention for the same purpose was also drawn to a decision of Kerala High Court in case of Commissioner of Income-tax (Central), Kochi v. Settlement Commission (IT & WT), reported in [2014] 51 taxmann.com 351 (Kerala).

The Supreme Court in case of Ajmera Housing (supra) considered a situation where the assessee having applied for settlement, revised the disclosed income manifold by making multiple further disclosures. In this background, the Supreme Court observed that in an application for settlement, the assessee is required to disclose a full and true disclosure of the income which has not been disclosed before the Assessing Officer and the manner in which such income has been derived as also pay the additional amount of tax payable on such income. It was further observed that:

“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 pre-requisites for a valid application under section 245C(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 245C(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.

33. 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. Para

36. 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 19th September, 1994 alone was sufficient to establish that the application made by the assessee on 30th September, 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 of the impugned order.”

In case of Ajmera Housing (supra) thus, when the assessee made huge further disclosures of income in addition to what was already disclosed in an application for settlement and which was accepted by the Settlement Commission, the Supreme Court disapproved the approach. In the judgment of this Court dated 12.07.2016 in Special Civil Application No.2881 of 2015, taking note of earlier judgment of the Court involving similar facts, in which, the decision of Ajmera Housing (supra) was noticed, the Court did not disturb the order of the Settlement Commission finding that the further disclosures made by the assessee were not drastic as compared to the original disclosures.

On the other hand, in the case of Shree Nilkanth Developers (supra) relied upon by the counsel for the Revenue, looking to the facts of the case when it was found that as compared to the original disclosure made in the settlement application, the further disclosures were substantial, relying on the judgment of Ajmera Housing (supra), the Court set aside the order of Settlement Commission, making following observations:

“17. In the present case, however the disclosures revised by the assessee during the course of the settlement proceedings were substantial and, in fact, far greater than the initial disclosure made. The Settlement Commission completely ignored the opposition of the Revenue in this respect on the ground that it is difficult to ascertain with degree of accuracy the undisclosed income on the basis of impounded documents, a ground which in our opinion is not valid.”

13. With this background, we may revert to facts on hand. The four different assessees had made following disclosures for different assessment years in the respective applications for settlement.

Shree Aadhya shakti Addl. –1,20,17,94140,71,560 1608950150,00,000 Income offered in SC

These assessees made further disclosure of Rs.50 lakhs each in the assessment year 2014-15 at the time of settlement proceedings. If one were to compare the further disclosures in light of the initial disclosures made for the assessment year 2014-15, the same may project a substantial and in some cases a steep rise. However, if one were to project the further disclosures of Rs.50 lakhs each for the entire period for which the settlement is sought and the total initial disclosures for the years under consideration, the further disclosures do not represent a substantial rise. In case of assessees, the initial disclosures were in tune of more than a crore each and in some cases much more; for example, in Shree Aadhyashakti Enterprises for the assessment year 2013-14, the initial disclosure itself was of income of Rs.87.65 lakhs and for the assessment year 2014-15, it was Rs. 1,00,32,930/-. In case of Shree Shakti Associates, disclosures for the assessment year 2011-12 was Rs.20.25 lakhs, for the assessment year 2012-13 Rs.34.53 lakhs, for the assessment year 2013-14, it was Rs.45.65 lakhs and so on. For Shree Ambe Realty for the assessment year 2011-12, additional income offered was Rs.15.45 lakhs. For the assessment year 2012-13, it was Rs.28.35 lakhs and for the assessment year 2013-14, it was Rs.21.35 lakhs. For the assessment year 2014-15 such disclosure was Rs.8.91 lakhs. M/s. Shruti Construction for the assessment year 2013-14 had made additional disclosure of Rs.1.20 crores and for the assessment year 2014-15, the disclosure of Rs.40.71 lakhs.

14. It is true that before the Settlement Commission, the assessees indicated that the additional disclosure of Rs.50 lakhs each may be accounted for the assessment year 2014-15. However, we cannot lose sight of the fact that such disclosures were, as noted above, in the spirit of settlement and to put an end to the controversy. The assessees therefore cannot be pinned down to the effect of such disclosures in the year 2014-15 alone. We cannot fragment a larger picture and telescope the additional disclosures for a particular year and taking into account the comparable figures for that year decide whether such disclosures would shake the initial disclosures as to apply the ratio laid down by the Supreme Court in case of Ajmera Housing (supra) and to hold that the initial disclosures themselves were untrue projecting the additional disclosures for all years the assessees had sought settlement, we find the Commission committed no error in accepting hem and in proceeding to pass final order on such settlement applications.

15. In the result, petitions are dismissed.

[Citation : 409 ITR 495]