AI Drafter 
TaxTMI 
TaxTMI 
2016 (8) TMI 1358
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....e commenced its business as partnership concern which subsequently became Proprietarship with effect from 1.6.1990. Assessee is engaged in the business of manufacture and sale of Handicraft items, mainly of Marble. 4. A search and seizure/survey operation was conducted under section 132(1) of Income Tax Act 1961 (hereinafter referred to as "Act 1961") on 10.3.2010. Pursuant to seizure memo and survey report, notices were issued by Assessing officer (hereinafter referred to as 'AO') to Assessee under section 153-A for assessment years 2004-2005 to 2011-2012. 5. Pursuant thereto return of income was filed by Assessess disclosing aggregate income to Rs. 1,76,50,000/- as income from outside of books of accounts, not disclosed in regular books of accounts. Thereafter, Assessee submitted an application under section 245-C(1) before ITSC disclosing total additional income to Rs. 3,21,85,040/-. 6. In accordance with Section 245D(2B), ITSC called for a report from CIT. Report dated 2.11.2011 was submitted under Rule 9 with a covering letter dated 5.11.2011. Besides other, CIT stated that Assessee during course of search & seizure, offered 17 crores as undisclosed income for....
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....l income of Rs. 3.21 crores and odd was not inclusive of additional income of Rs. 1,76,50,000/- crores disclosed in the return filed under section 153-A. Shri Singh pointed out that CIT raised an objection with regard to stock valued at Rs. 7,30,01,487/-. The inventory of stock was prepared at tag price. In the application filed before ITSC, while calculating stock valuation, Assessee took element of commission at 32% based on tag price but CIT said that actual commission paid was only 8.33% in financial years i.e 2007-2008 to 2010-2011. Meaning thereby that there was a difference of stock to the tune of Rs. 7,30,01,487/-. ITSC during hearing observed that value of stock i.e Rs. 7,26,28,670/-, in view of the discussion made above, be treated additional income, to which suggestion, Assessee aggreed and that is how additional income of Rs. 12.24 crores in all has been finalised by ITSC. Learned counsel for respondent Assessee pleaded that such surrender or acceptance, during proceedings of ITSC, cannot be faulted and it will not amount to non disclosure of full and correct facts in the application under section 245-C(1). Learned counsel for respondent-2 further contended that as a ma....
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.... Assessee before AO under section 153-A and before ITSC in application under section 245-C(1) comes to Rs. 49835040/-. The said income included stock also. CIT in report submitted that as per his compuation, tentative undisclosed income comes to Rs. 155,91,66,555/- crores which included stock worth Rs. 7,30,01,487/- in the assessment year 2010-2011. CIT report also included and estimated gross profit to the tune of Rs. 12,03,72,096/- for assessment years 2004-2005 to 2011-2012. The break up of this amount of Rs. 155 crores and odd, is broadly in the following heads: (i) Uncounted/unexplained payment of salary Rs. 6,27,37,344/- (ii) Estimated gross profit Rs.1,20,99,72,094/- (iii) Unexplained advanced expenditure/investment etc. Rs. 21,34,55,630/- Excessive stock Rs. 7,30,01,487/- 15. ITSC found that in computing gross profit vis-a-vis valuation of stock entry, there was a huge gap in as much as Revenue has determined gross profit at 125% of tag price and for that reason report disclosed a colossal figure which was not justified. It also found that even gross profit worked out by CIT resulted in a figure which was more than tur....
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....ion (1) of section 153A or clause (b) of sub-section (1) of section 153B in case of a person referred to in section 153A or section 153C have been initiated, the additional amount of income-tax payable on the income disclosed in the application exceeds fifty lakh rupees, (ia) in a case where- (A) the applicant is related to the person referred to in clause (i) who has filed an application (hereafter in this sub-section referred to as "specified person"); and (B) the proceedings for assessment or re-assessment for any of the assessment years to in clause (b) of sub-section (1) of section 153A or clause (b) of sub-section (1) of section 153B in case of the applicant , being a person referred to in section 153A or section 153C, have been initiated, the additional amount of income-tax payable on the income disclosed in the application exceeds ten lakh rupees, (ii) in any other case,the additional amount of income-tax payable on the income disclosed in the application exceeds ten lakh rupees, and such tax and the interest thereon, which would have been paid under the provisions of the Act had the income disclosed in the application been declared in the return of income....
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....nty per cent of the voting power; and (B) in any other case, such person is, [on the date of search], beneficially entitled to not less that twenty per cent of the profits of such business or profession.] (1A) For the purposes of sub-section (1) of this section, the additional amount of income-tax payable in respect of the income disclosed in an application made under sub-section (1) of this section shall be the amount calculated in accordance with the provisions of sub-sections (1B) to (1D). (1B) Where the income disclosed in the application related to only one previous year,- 1. if the applicant has not furnished a return in respect of the total income of that year ,then, tax shall be calculated on the income disclosed in the application as if such income were the total income; 2. if the applicant has furnished a return in respect of the total income of that year, tax shall be calculated on the aggregate of the total income returned and the income disclosed in the application in the application as if such aggregate were the total income. (1C) The additional amount of income-tax payable in respect of the income disclosed in the application relating to the previou....
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....uation as Rs. 7,26,28,670/- as additional income which was accepted by Assessee and thereafter ITSC proceeded to determine tax liability of Assessee and question of waiver of penalty etc. and passed impugned order. 23. This acceptance of additional income by way of increased valuation of stock is on the proposal made by ITSC, during the course of hearing, as is evident from following findings recorded in paragraph 7.3 of impugned order of ITSC. "The applicant agreed to the suggestion of the Commission for increasing valuation of stock by Rs. 7,26,28,670/- and submitted as under: "During the course of the hearing, Hon'ble Commission propsoed to settle the issue related to stocks at Rs. 7,26,28,670/- over and above what has already been offered in this regard at Rs. 90 lakhs thereby making a proposal of additional income at Rs. 12,24,63,710/- i.e 7,26,28,670/- + 4,98,35,040/- additional income offered while filing returns in response to notice u/s 153A of the Act for Assessment Years 2004-2005 to 2009-2010 and as per the statement of facts." (emphasis added) 24. The argument of Shri Goel that it amounts to revision of income disclosed by Assessee before....
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....ccounts. 28. The only conditions necessary to exist are that Assessing Officer has not already discovered it or has either gathered material to establish particulars of such income or fraud, to enable an Assessee to file application under section 245-C. Court in Commissioner of Income Tax versus Express News Papers Ltd.(Supra) said that for a proper delineation of jurisdiction of ITSC, language of Section 245C(1) must be kept in mind. It provides that an Assessee, at any stage of case relating to him, may make an application to ITSC disclosing fully and truly income which has not been disclosed before Assessing Officer. He must also disclose how said income was derived by him besides certain other particulars. It means that Assessee cannot approach ITSC for settlement of his case with respect to income already disclosed before Assessing Officer. Such an application is maintainable only if it discloses income which has not been disclosed before Assessing Officer. 29. Thus, the word "disclosure" under section 245C is, in the nature of voluntary disclosure of concealed income. Moreover, application under section 245-C is not a escape goat to Assessee to frustrate suo motu discov....
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....l and true disclosure and will render application bad and in the teeth of Section 245-C(2). This argument, in our view, would not only defeat the very purpose of constitution of ITSC but will also render ITSC, a statutory body, to do some mechnaical work instead of considering a matter of settlement wherein there is scope of negotiation also. 32. The term "settlement" by itself means that there are two parties to the dispute and a third party, independent and objective in functioning, shall bring out settlement between two disputing parties, following a process of give and take. 33. A similar argument, we find, was raised before Bombay High Court in Major Metals Ltd. Versus Union of India 2014(303) E.L.T 380 (Bombay). It was argued that ITSC had no jurisdiction to deal with an issue not raised in the application and adjuticating function is confined to the matters covered by application. Referring the entire scheme under Chapter XIX-A of Act 1961, a Division Bench, vide judgement delivered by Hon'ble Dr.D.Y.Chandrachud (as his Lordship then was) observed that ITSC is not designed to act as a passive spectator to what Assessee discloses. ITSC can act proactively in gatheri....
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....as any failure to disclose fully and truly the income. This is particularly so where the correct determination of income is dependent upon the application of the appropriate Transfer Pricing Rule which to an extent is subjective, as in this case. In such a case, if an additional income is declared during the course of the hearing in view of what emerges during debate before the Commission,it cannot be said that the original application did not make true and full dislosure of its undisclosed income. It is for the Commission to consider on the basis of the facts that emerge before it, whether the original application contained a bonafide true and full disclosure of the Applicant's income or not. This would necessarily be dependent upon various factors including the manner in which the application forwpl-1806-2015 settlement has been made out." (emphasis added) 35. In the present case also, Assessee did not file any revised application after report was submitted by CIT under section 245D(2B) though that was the case in Azmera Housing Corpn.(Supra). Here CIT did not file any report within time, and thereafter application was held valid and ITSC proceeded. During course of hea....
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....red by the Supreme Court. Moreover, the Supreme Court was considering the case of an assessee who had suo moto revised his declaration, by making offers of additional amounts by way of disclosure of income at various stages of the proceedings before the Settlement Commission. Under those circumstances, the Court found that,judging by the assessee's own conduct, his original application could not be seen as containing a full and true disclosure of his income for the purposes of settlement under the Act....." 37. Further, Court held in paragraph 13, as under: "13. The issue to be considered here is whether, the observations of the Supreme Court in the aforementioned judgment are to be taken to mean that in every case where an applicant makes an offer of additional amounts, even at the instance or suggestion of the Settlement Commission, it would follow that the original declaration made by the applicant did not contain a full and true disclosure of his income and thereby rendering it invalid and, consequently, denuding the Settlement Commission of its jurisdiction to proceed further in the matter? In my view, such an interpretation would render meaningless the scheme of set....
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....in Commisioner of Income Tax versus Income Tax Settlement Commisison and others 2000(246) 63, Azmera Housing Corporation and 19 individuals filed 31 applications under section 245-C in October 1993 in respect of assessment years 1989-90 to 1993-94. Therein Assessee's applications filed under section 245C(1) on 19.9.1994 were forwarded by ITSC to Commissioner seeking his report. Commissioner submitted report on 27.1.1994 informing that on the basis of seized material and documents found in search under section 132, an order was already passed under section 132(5) on 12.3.1992 determining concealed income at Rs. 200.60 crores. Court found that Assessee initially, in the application filed before ITSC, disclosed additional income of Rs. 1.94 crores and then filed another application on 11.9.1994 i.e after almost 7 and 1/2 months, after CIT had submitted report, disclosing additional income of Rs. 11.41 crores. ITSC passed order to proceed with the application on 8.12.1994. Court found that Assessee neither disclosed correct facts nor correct income and after CIT's report, himself filed an application with additional disclosure of income showing that his disclosure at initial st....
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....Commission to refuse to exercise its power. Court as a matter of fact recorded its findings as under: "The appellant according to it, made false and misleading asscertions about having submitted all the details, while in fact he had not done so". 42. Lastly, in Dr.C.M.K.Reddy versus Settlement Commission (IT/WT) and Others 2008 (306) ITR 403, application under section 245C(1) filed by Assessee was rejected on various grounds including non disclosure of full and true income. Court found that in the application Assessee claimed to have received Rs. 12.5 lacs through a will executed by his mother but as a matter of fact, the said amount was paid by Testator during her life time i.e on the date of execution of deed and hence it was a gift deed but neither source of amount was disclosed nor gift tax return was filed. Further from the cash flow statements of different assessment years, filed by Assessee, ITSC found that investment in fresh assets and higher amount of investment in existing assets had been shown in addition to the claim made for the receipt of fresh loans and gifts for most of the years which had not been established. Therefore, rejection of application was on its o....
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....hatever disclosure has been made by Assessee in his application or subsequently accepted before ITSC, should not be an income which was disclosed before Assessing Officer earlier or has already been discovered by income-tax authorities establishing the same to be an undisclosed income supported with due material. In all other cases where jurisdiction has been exercised by ITSC and order has been passed, such enhancement has been held valid. 47. Even otherwise, we should also keep in mind that scope of judicial review in respect of final orders of ITSC is extremely limited. ITSC is a kind of statutory authority. Background facts with regard to consititution of ITSC have been considered in Shreeram v.Settlement Commission 118 ITR 169. It was held that purpose is to settle a tax dispute expeditiously which will serve cause of nation needing huge resources for its vast welfare schemes. ITSC is to be manned by persons of impeccable integrity and unquestioned competence. Great expertise and greater responsibility in the decision-making process are integral parts of its independent functioning. It has to free itself from extraneous considerations or alien influences. It is not reasonab....
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.... of Income Tax versus British Paints India Ltd. (1991) 188 ITR 44, Court said, that a well recognized principle of commercial accounting to enter in the profit and loss account is the value of stock-in-trade at the beginning and at the end of the accounting year at cost or market price whichever is lower. Court cited an observation of Lord President in Whimster and Co.versus CIR (1925) 12 Tax Cases 813, It says: "........ in computing the balance of profit and gains for the purposes of incomes-tax, ....two general and fundamental common places have always to be kept in mind. In the first place, the profits of any particular year or accounting period must be taken to consist of the difference between the receipts from the trade or business during such year or accounting period and the expenditure laid out to earn those receipts. In the second place, the account of profits & loss to be made up for the purpose of ascertaining that difference must be framed consistently with the ordinary principles of commercial accounting, so far as applicable and in conformity with the rules of the Act, 1961, or of that Act as modified by the provisions and schedules of the Acts regulating excess ....
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....0 ITR 871 (SC), Court observed that as no prudent trader would care to show increased profit before its actual realization, that is the theory underlying the rule that closing stock is to be valued at cost or market price whichever is lower. (Cost here means raw material plus expenditure). 56. In Commissioner of Income Tax versus Bannari Amman Sugars Ltd. (2012) 349 ITR 708 (SC) Court observed that valuation of opening and closing stock is a very important aspect of ascertainment of true profits. An improper valuation could result in rejection of books of account though all that is needed for rectifying it, is to make an addition or necessary adjustment based on proper valuation. Valuation of stock, whatever be the method, should be consistently followed. Method of valuation is generally at cost or the market value, whichever of the two is lower. However, it is open to the Assessing Officer to probe accounts so as to arrive at the real income. 57. Profits of business could only be ascertained by comparison of assets and liabilities of the business at the opening and closing of the accounting year. The method that an Assessee adopts for closing is an integral part of accountin....
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....taken but our purpose is not to write down a thesis on the subject but only to highlight the fact that as a matter of fact, method of determination of valuation of stock in the case in hand by taking tag price of the goods lying in stock was something which has never been recognized either in any recognized system or for the purposes of computation of tax under the fiscal statute. Revenue in the case in hand determined valuation of stock on the basis of tag price of goods and raised dispute. If contested, Assessee might have got success to a larger extent but his intention appears to be quite bonafide and reasonable that he wanted to give a quietus to the entire dispute, and therefore, whatever determination was made giving a marginal discount towards commision, when it was offered by ITSC to Assessee to accept as additional income, he accepted and agreed for payment of tax thereon 61. Before ITSC it was not the case of Revenue that valuation of stock represented income not already disclosed by Assessee, or that the Assessee has concealed income by under valuation of stock. 62. Be that as it may, real objection on the part of Revenue raised before us is the acceptance by Asse....