2024 (6) TMI 1369 - HC - Income Tax

Legal heirs cannot claim settlement without full disclosure of deceased's foreign assets and undisclosed transactions

M/s. Anand Granite Exports Pvt Ltd represented by its Director Mr. Sridhar Anand, M/s. Global Exports represented by its Partner Mr. Sridhar Anand, Mr. Sridhar Anand represented by his Legal heir Late Dr. P. Anand Versus Income Tax Settlement Commission, The Deputy Commissioner of Income Tax Central Circle - 1 (1), Chennai

The Madras HC upheld the Settlement Commission's rejection of settlement applications filed by legal heirs of a deceased assessee. The court found that ... Rejection of settlement applications by the Settlement Commission - appellants had suppressed the income - original assessee died with only son as his legal heir left behind - On intimation of the demise of the original assessee, notices issued under section 153A were withdrawn and fresh notices were issued to the legal heir of the deceased. Upon receipt of the same, the appellants preferred the settlement applications under Section 245-C HELD THAT:- We are not inspired by the submissions so made on behalf of the appellants. First of all, settlement applications must contain full and true disclosure of the income supported by documentary evidence. In the absence of such disclosure, the remedy by way of settlement cannot be availed. The Settlement Commission, in its orders has dealt with each and every opposition raised by the Principal Commissioner of Income Tax and the replies furnished by the appellants thereof. On going through the oppositions raised by the Principal Commissioner of Income Tax, which were narrated by the Settlement Commission extensively in its orders dated 16.11.2017, we find that there are several shortcomings in the particulars of income disclosed by the appellants in their settlement applications. As evident from the orders of the settlement commission that the first respondent, after considering Rule 9 reports of the PCIT and the replies submitted by the appellants, rejected the settlement applications filed by the appellants, by observing that the disclosure is not full and true and that, there is deficiency in explaining the manner in which the income has been earned. On a detailed analysis, it is also apparent that there is no disclosure of the facts in the applications or in the returns of income about the foreign bank accounts or deposits or investments and income from M/s. Universal Construction Supplies, FZE, Sharjah, UAE and flat at Dubai Marina, UAE of the original applicant late Dr.P.Anand. That apart, the business activities of the applicant and his company M/s.Anand Granite Exports Pvt Ltd. situated in Dubai, have not been mentioned in the applications or returns of income. Therefore, the settlement commission was of the view that there is concealment of facts, which require deeper investigation into the case of the applicants, particularly, with regard to the foreign accounts / assets. Though the applicant/ legal heir of the deceased/assessee, stated that he is not aware of the dealings of his father Dr.P.Anand, the same was not accepted by the settlement commission stating that he is also involved in the dealings of the original applicant, as evident from the documents received from the UAE authorities. First respondent / settlement commission has also observed in its orders which were impugned in the writ petitions that the original applicant late Dr.P.Anand was the Managing Director of Anand Granite Exports Private Limited during the period covered in the settlement applications; that, various foreign bank accounts in Dubai, China and UK have been found, and that the enquiry in relation to these accounts is in progress. It was specifically mentioned by the settlement commission in its order relating to M/s.Anand Granite Exports Pvt. Ltd, that as per the evidence furnished by UAE authority, the applicant company obtained licence on 28.10.2013 to do trading of building and constructions materials; but the business activities of the applicant company in Dubai and any income derived therefrom were not disclosed in the settlement applications or in the returns of income filed before the Department. That apart, the names of the maistries given for verification, do not tally with that of the name given in the sworn statements, settlement applications and during the course of hearing. In addition, the appellant failed to extend full co-operation to furnish and explain the true nature of entries / transactions with Bannari Amman Sugars Ltd. It is also pointed out in the order relating to M/s.Global Exports that the applicant has suppressed the export sales receipts for the AY 2008-09 which was admitted only at the time of final hearing after verification. Thus, it is clear that the appellants failed to disclose true and full particulars of the income earned and to explain the manner in which it was earned. In such circumstances, this Court cannot direct the Settlement Commission to entertain the settlement applications submitted by the appellants, notwithstanding the various shortcomings noticed by them. Pointing out the specific facts and circumstances to reach the conclusion that the settlement applications do not contain true and full particulars of the income to be subjected to tax under the Income Tax Act, the learned Judge has rightly held that such a finding of fact need not be interfered with by this Court under Article 226 of the Constitution of India, unless such facts are found to be error apparent. When there was an adjudication of facts and the Settlement Commission arrived at a finding that factually, the appellants could not establish while filing the settlement applications, then, this Court has to exercise restraint in entertaining the writ petitions as against the order of the Settlement Commission. Therefore, this court finds no reason to interfere with the order passed by the learned Judge in dismissing the writ petitions filed by the appellants. Issues Involved:1. Legality of the search and seizure operations.2. Validity of the notices issued under Sections 153C and 142(1) of the Income Tax Act.3. Adequacy and correctness of the settlement applications under Section 245C of the Act.4. Compliance with principles of natural justice.5. Legitimacy of the rejection of settlement applications by the Settlement Commission.6. Jurisdiction and powers of the Settlement Commission under Sections 245D and 245F of the Act.Issue-wise Detailed Analysis:1. Legality of the Search and Seizure Operations:The appellants contested the search conducted by the respondent authorities on 25.02.2014 under Section 132 of the Income Tax Act at the premises of Anand Granite Exports Private Limited and the residential premises of Dr. P. Anand. The search extended to M/s. Global Exports under Section 133A, during which sworn statements were recorded under Sections 131/132(4). The legal challenge primarily revolved around the procedural adherence and the legitimacy of the search operations.2. Validity of the Notices Issued under Sections 153C and 142(1) of the Income Tax Act:Post-search, notices under Section 153C read with Section 153A were issued for assessment years 2008-2009 to 2013-2014, and under Section 142(1) for the assessment year 2014-15. Following the death of Dr. P. Anand, notices were reissued to his legal heir. The appellants argued that these notices were procedurally flawed and lacked proper basis.3. Adequacy and Correctness of the Settlement Applications under Section 245C of the Act:The appellants submitted settlement applications disclosing various incomes and additional tax liabilities. The Settlement Commission initially allowed these applications under Section 245D(1). However, subsequent Rule 9 reports from the Principal Commissioner of Income Tax raised issues regarding the completeness and truthfulness of these disclosures, leading to the rejection of the applications under Section 245D(4).4. Compliance with Principles of Natural Justice:The appellants argued that the Settlement Commission violated principles of natural justice by not providing adequate time to respond to the Principal Commissioner's reports. The reports were received on 09.11.2017, and the hearing was scheduled for 10.11.2017, providing insufficient time for a detailed response. The appellants contended that this procedural lapse vitiated the rejection orders.5. Legitimacy of the Rejection of Settlement Applications by the Settlement Commission:The Settlement Commission rejected the applications on grounds of incomplete and untrue disclosures, particularly concerning foreign bank accounts, investments, and business activities not mentioned in the returns or applications. The Commission's findings were based on discrepancies noted in Rule 9 reports and the appellants' failure to satisfactorily explain the manner of income generation.6. Jurisdiction and Powers of the Settlement Commission under Sections 245D and 245F of the Act:The judgment emphasized that the Settlement Commission's powers under Section 245D are confined to ensuring true and full disclosure of income. The Commission is not empowered to conduct regular assessments, which are within the purview of the Assessing Officer. The court cited precedents affirming that applications lacking true and full disclosure must be rejected, and the Commission's powers are limited to the scope defined under Section 245C.Conclusion:The High Court upheld the Settlement Commission's rejection of the settlement applications, affirming that the appellants failed to make full and true disclosures as required under Section 245C. The court found no procedural errors or violations of natural justice that would warrant interference with the Commission's findings. Consequently, the writ petitions were dismissed, and the appeals were not entertained, reinforcing the statutory mandate for complete and truthful income disclosure in settlement applications.