High Court quashes Income Tax Settlement Commission order, emphasizing onus on assessee for genuine disclosures

The High Court set aside and quashed the Income Tax Settlement Commission's order, directing the Assessing Officer to proceed with block assessments due to flaws in the ITSC's approach, including disregarding delays in retraction of statements and lack of full and true disclosure. The court emphasized the onus on the assessee to prove the genuineness of loan credits and rejected the retraction of a statement made by one of the respondents. Additionally, the court found the ITSC's acceptance of revised income disclosure to be legally untenable, emphasizing the mandatory requirement for full and true disclosure under the Income Tax Act.

---

---

Issues Involved:

1. Validity of the order by the Income Tax Settlement Commission (ITSC) dated 26.11.2014.
2. The genuineness of the loan credits and their disclosure by the assessee.
3. The retraction of the statement made by the assessee under Section 132(4) of the Income Tax Act.
4. The assessment of the additional income disclosed by the assessees.
5. Compliance with the requirement for full and true disclosure under Section 245C(1) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the ITSC Order:
The Revenue challenged the ITSC's order dated 26.11.2014, which accepted the application made by the respondent assessees and issued consequential directions. The High Court found that the ITSC's approach was flawed, particularly in disregarding the significant delay in the retraction of the statement made by the assessee and failing to ensure that the disclosure was full and true as mandated by Section 245C(1) of the Income Tax Act. Consequently, the High Court set aside and quashed the ITSC's order, directing the Assessing Officer (AO) to proceed with the block assessments in accordance with the law.

2. Genuineness of Loan Credits:
The Revenue contended that the assessees did not provide sufficient evidence to prove the genuineness of the loan credits reflected in their ledger. The ITSC noted that the loans were arranged through brokers who only provided the names of the creditors without their addresses. Despite opportunities, the assessees failed to provide the names or addresses of the creditors or their PAN details, leading to doubts about the genuineness of the loan transactions. The High Court emphasized that the onus of proving the genuineness of the transaction lay upon the assessee, which they failed to discharge.

3. Retraction of Statement:
The first respondent retracted his statement made under oath on 20.01.2012, citing that the surrender was made without referring to the seized documents and entirely on an ad hoc basis without professional help. The Revenue argued that the retraction, made nearly two years after the statement, was an afterthought and should not be accepted. The High Court agreed with the Revenue, noting that the retraction lacked credibility and that the statement made during the search had probative and evidentiary value.

4. Assessment of Additional Income:
The ITSC accepted the additional income disclosed by the assessees during the proceedings, which was higher than the initial disclosure. The High Court found this approach to be legally untenable, as it allowed the assessees to revise their disclosure, which is not permitted under Section 245C(1) of the Income Tax Act. The High Court held that the determination of income by the Settlement Commission must be with reference to the income disclosed in the initial application.

5. Compliance with Full and True Disclosure Requirement:
The High Court emphasized the mandatory nature of the duty to fully disclose all income, as required by Section 245C(1) of the Income Tax Act. The ITSC's acceptance of the revised disclosure was found to be in violation of this requirement. The High Court cited the Supreme Court's decision in Ajmera Housing Corporation v Commissioner of Income Tax, which underscored that full and true disclosure of income is a prerequisite for a valid application under Section 245C(1). The High Court concluded that the assessees did not make a full and true disclosure, rendering the ITSC's order unsustainable.

Conclusion:
The High Court allowed the writ petition, set aside the ITSC's order, and directed the AO to complete the block assessments in accordance with the law, ignoring the time during which the ITSC's order was in force for the purpose of limitation.

---