2024 (4) TMI 1291 - HC - Income Tax

Revenue's challenge to ITSC order under Section 68 dismissed; no fraud or bias found against commission members

Principal Commissioner of Income Tax (Central) -3 Versus Income Tax Settlement Commission (ITSC) & Ors, Jagdish Bhagwandas Ahuja

The HC dismissed the revenue's challenge to the ITSC order under section 68 regarding cash loan data, finding no allegations of fraud, malice, or bias ... Order passed by the Income Tax Settlement Commission (ITSC) - Addition u/s 68 - seized data pertaining to cash loans - revenue is aggrieved by the discretion exercised by the ITSC, the interpretation placed by the ITSC on the sufficiency of the evidence available and on the documents seized, on the facts and circumstances of the case HELD THAT:- There is no allegation in the petition of any fraud or malice or bias against the settlement commission. Therefore, the view and opinion expressed by this court to a challenge of this nature by the revenue to an order passed by the ITSC as held in Commissioner of Income Tax,Central-II Vs. Income Tax Settlement Commission Kanakia Spaces Pvt Ltd. [2024 (4) TMI 663 - BOMBAY HIGH COURT] As well as in Income Tax Settlement Commission M/s Wadhwa Group Holding Pvt Ltd. [2024 (4) TMI 1029 - BOMBAY HIGH COURT] will be squarely applicable to the case at hand as it is evident from Section 245 of the Act that the Central Government has appointed the members as their representatives to settle the disputes with assessee, which reflects the confidence they had in the members because the persons appointed are of integrity and known for their outstanding ability and expertise and for the special knowledge and experience in problems relating to direct taxes and business accounts. Therefore, these members have been authorised to settle the disputes on behalf of the Government and it does not lie in the mouth of the Government to challenge the decision taken by their own representatives without making allegations of bias or fraud or malice. This petition cannot be entertained. ISSUES: Whether the Income Tax Settlement Commission (ITSC) erred in accepting 'satisfactory explanation' under Section 68 of the Act regarding the nature and source of cash loans without adverse inference from seized data.Whether the ITSC erred in holding that details such as lender identity, PAN, finance broker, and ledger accounts satisfy the requirements of Section 68 for establishing genuineness of cash loans.Whether the ITSC was required to conduct further enquiry or obtain confirmation from loan creditors or finance brokers to verify identity and creditworthiness.Whether failure to obtain third-party evidence (confirmation letters) can be excused as a 'practical impossibility' and not held against the applicant, contrary to Special Bench decisions.Whether the ITSC misinterpreted Supreme Court decisions regarding the necessity of substantiation and truthfulness of facts disclosed in settlement applications under Section 245C(1).Whether the ITSC erred in holding that Section 245C(1) and 245H(1) require only disclosure of facts but not substantiation.Whether the ITSC improperly accepted undisclosed income offers and directions for repayment of outstanding cash loans without verifying genuineness or specifying repayment terms.Whether the ITSC's exercise of discretion in levying penalties and allowing claims for expenditure was arbitrary or perverse.Whether the ITSC erred in not treating unexplained deficits in unaccounted expenses as additional undisclosed income.Whether the ITSC's acceptance of additional undisclosed income on accommodation entries without disclosure in the settlement application was erroneous.Whether the High Court's scope of judicial review over ITSC orders extends to reassessing factual findings or correctness of interpretation of documents and trust deeds.Whether the ITSC's discretion and powers under Chapter XIX-A of the Act limit judicial interference except in cases of violation of statutory provisions, procedural irregularity, bias, fraud, or malice. RULINGS / HOLDINGS: The ITSC did not err in holding that the applicant offered a 'satisfactory explanation' under Section 68 regarding cash loans, and no adverse inference was warranted from seized data under Section 68 read with Section 292C.The ITSC correctly held that details such as lender's name, PAN, finance broker, and ledger accounts satisfy Section 68's requirements to establish identity, creditworthiness, and genuineness of loan transactions.The ITSC was not required to conduct further enquiry or obtain confirmation from loan creditors or finance brokers; acceptance of documents seized under Section 132 and their contents presumed true under Section 292C(1)(ii) sufficed.Failure to obtain third-party confirmation letters was rightly held a 'practical impossibility' and cannot be held against the applicant, despite contrary Special Bench decisions.The ITSC's interpretation of Supreme Court decisions was not erroneous; facts disclosed in the settlement application can be held 'true and correct' even in absence of further substantiation where evidence is practically impossible to obtain.The ITSC correctly held that Section 245C(1) and 245H(1) require 'disclosure of fact' but do not mandate substantiation of such facts for settlement purposes.The ITSC did not err in directing repayment of outstanding cash loans without further verification of genuineness or specifying repayment timelines; such discretion is within its powers.The ITSC's levy of nominal penalties under Sections 271D and 271E and allowance of expenditure claims without detailed examination was a valid exercise of discretion and not perverse or arbitrary.The ITSC was not obliged to treat unexplained deficits in unaccounted expenses as additional undisclosed income where the source remained unexplained; no interference warranted.The ITSC's acceptance of additional undisclosed income on accommodation entries not disclosed in the settlement application was not a ground to reject the application under Section 245C(1).The High Court's jurisdiction to review ITSC orders is limited to examining whether the order is 'contrary to any of the provisions of the Act' or suffers from procedural irregularity, bias, fraud, or malice; it cannot reassess factual findings or correctness of document interpretation.The ITSC's wide discretion under Chapter XIX-A to accept settlements, grant immunity, and condone defaults is to be respected; judicial interference is appropriate only for violation of statutory provisions or procedural fairness. RATIONALE: The Court applied the statutory framework of Chapter XIX-A of the Income Tax Act, including Sections 68, 132, 245B, 245C, 245D, 245H, 245HA, 245I, and 292C, emphasizing the wide discretionary powers conferred on the ITSC.Precedents such as Jyotendrasinhji v. S. I. Tripathi and N. Krishnan v. Settlement Commission were relied upon to establish the limited scope of judicial review over ITSC orders, focusing on legality and procedural propriety rather than correctness of findings.The Court recognized that the ITSC's acceptance of documents seized under Section 132 is presumed truthful under Section 292C, obviating need for further enquiry or third-party confirmations where practically impossible.The doctrine that the ITSC's order is a 'package deal' was reiterated, precluding selective acceptance or rejection of parts of the order by reviewing courts.The Court underscored the policy rationale behind Chapter XIX-A to encourage settlement and avoid protracted litigation, cautioning against judicial interference that may undermine bonafide taxpayers' confidence.The appointment of ITSC members by the Central Government based on integrity and expertise was noted as reinforcing the presumption of fairness and reasonableness in their decisions.No allegations of bias, fraud, or malice were made, and no procedural irregularity was found, thus precluding interference under Article 226 jurisdiction.The Court acknowledged that even incorrect interpretation of documents or trust deeds by the ITSC does not amount to violation of the Act warranting interference.