2016 (8) TMI 1004 - HC - Income Tax

High Court sets aside Settlement Commission's order for inadequate initial disclosure, contravening Section 245C(1)

The High Court set aside the Settlement Commission's order as the substantial revision of income by the assessee during settlement proceedings indicated ... Validity of order of Settlement Commission - Held that:- In the present case 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. In the result, the order of Settlement Commission is set aside only on this ground. It is, therefore, not necessary to examine the second contention of the Revenue. Issues Involved:1. Validity of the revised disclosure of income by the assessee.2. Settlement Commission's consideration of the materials on record.Issue-wise Detailed Analysis:1. Validity of the revised disclosure of income by the assessee:The petition was filed by the Income Tax Department challenging the order of the Income Tax Settlement Commission under Section 245D(4) of the Income Tax Act, 1961, concerning the respondent-assessee for assessment years 2011-12 to 2013-14. The main contention of the Revenue was that the assessee initially disclosed an income of Rs. 34 lakhs for the three assessment years in question but later revised this to include an additional Rs. 56 lakhs. The Revenue argued that this revision indicated that the initial disclosure was not accurate, relying on the Supreme Court's decision in Ajmera Housing Corporation vs. Commissioner of Income Tax, which stated that the scheme of Chapter XIX-A of the Act does not contemplate the revision of income disclosed in the application for settlement.The Settlement Commission, however, accepted the revised disclosure, stating that the assessee made the additional disclosure in the spirit of settlement and due to the difficulty in estimating the exact undisclosed income from the impounded documents. This was contested by the Revenue, which argued that the Settlement Commission ignored sizable materials collected during the survey, which showed that the assessee had earned undisclosed income worth crores of rupees. The Settlement Commission's decision was based on the view that arriving at the exact undisclosed income was difficult and that the revised net profit rate was reasonable.The High Court, however, held that the substantial revision of income by the assessee during the settlement proceedings was not permissible as per the scheme of Chapter XIX-A. The court emphasized that a full and true disclosure of income is a pre-condition for a valid application under Section 245C(1) of the Act. The court referred to the Supreme Court's decision in Ajmera Housing Corporation, which disapproved of any revision in disclosures initially made, as it would imply that the initial disclosure was not true and full.2. Settlement Commission's consideration of the materials on record:The Revenue also argued that the Settlement Commission ignored the materials on record while accepting the assessee's pleas regarding the undisclosed income. The Revenue had produced substantial materials collected during the survey, including statements and documents, which indicated that the assessee had earned undisclosed income worth crores of rupees. The Settlement Commission, however, did not give adequate reasons for discarding these materials and merely accepted the assessee's version, which was not supported by any evidence.The High Court noted that the Settlement Commission's decision to accept the revised disclosure was primarily based on the difficulty in estimating the exact undisclosed income from the impounded documents. The court found this reasoning invalid, as the substantial revision of income by the assessee indicated that the initial disclosure was not true and full. The court held that the Settlement Commission's order was not sustainable on this ground and set it aside.Conclusion:The High Court set aside the order of the Settlement Commission on the ground that the substantial revision of income by the assessee during the settlement proceedings indicated that the initial disclosure was not true and full, which is a pre-condition for a valid application under Section 245C(1) of the Act. The court did not find it necessary to examine the second contention of the Revenue regarding the Settlement Commission's consideration of the materials on record. The petition was disposed of accordingly.