Gujarat High Court
Commissioner Of Income Tax - I vs Income Tax Settlement Commission & on 12 July, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, A.J. Shastri
C/SCA/2881/2015 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 2881 of 2015
With
SPECIAL CIVIL APPLICATION NO. 2882 of 2014
TO
SPECIAL CIVIL APPLICATION NO. 2884 of 2014
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
==========================================================
1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
==========================================================
COMMISSIONER OF INCOME TAX - I....Petitioner(s)
Versus
INCOME TAX SETTLEMENT COMMISSION & 1....Respondent(s)
==========================================================
Appearance:
MRS MAUNA M BHATT, ADVOCATE for the Petitioner.
MR Mr. S.N.Soparkar, Senior Advocate with Mr. B S SOPARKAR, ADVOCATE
for the Respondent No. 2
NOTICE SERVED for the Respondent No. 1
==========================================================
CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
Page 1 of 7
HC-NIC Page 1 of 7 Created On Thu Aug 11 02:23:55 IST 2016
C/SCA/2881/2015 JUDGMENT
Date : 12/07/2016
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) In this group of petitions, Income Tax Department has challenged the order passed by the Settlement Commission on 30.6.2014 concerning a group of assessees. The Settlement Commission by the impugned order accepted the offer of settlement of the applicants and granted immunity from penalty and prosecution. The Department has challenged this order primarily on two grounds; firstly, that the Settlement Commission committed a serious error in estimating profit of the assessee at the rate of 15 per cent of the own money received in the course of business of construction. According to the Department, the entire own money receipts were in the hands of the assessee whereas the Commission accepted the suggestion of the assessee that out of on money receipts, substantial portion close to 85 per cent would go in expenditure. The second contention of the Revenue is that during the course of settlement proceedings, the assessee's revised offer of settlement by admitting additional sum of Rs. 50 lakhs in all. This would mean that initial offer of settlement was not containing true and full disclosure of previously under declared income.
2. Both these issues came up for considerations in the case Commissioner of Income Tax vs. Income Tax Settlement Commission in Special Civil Application No. 11909 of 2014 to 11911 of 2014, in which by a separate judgment passed today, the Court made following observations:
"6. With this background, we may revert to the facts of the case. The Settlement Commission had in the Page 2 of 7 HC-NIC Page 2 of 7 Created On Thu Aug 11 02:23:55 IST 2016 C/SCA/2881/2015 JUDGMENT impugned order examined material on record in the context of the declarations made by the applicants for settlement including certain transactions of the applicants of lending their on money on short term basis. The Settlement Commission had thereafter come to the conclusion that the offers of the assessees for settlement considering their disclosure of 15 per cent return on the revised figure of on money of Rs. 50 lakhs, Rs. 50 lakhs and Rs. 75 lakhs respectively required to be accepted. We may recall that the initial declaraltion of such sums of Rs. 25 lakhs, Rs. 21 lakhs and Rs. 30 lakhs respectively and the return offered by the applicants for tax was at the rate of 12.5 per cent thereof. These aspects we would refer to at a later stage when we deal with the Revenue's contention of lateron improving or revising offer of settlement would essentially demonstrate that initial disclosures were not full. However, at this stage of examining legality of the order passed by the Settlement Commission, we do not see that the Settlement Commission committed breach of any provisions of the Act. The Settlement Commission has examined material on record, given its own findings and made observations and come to conclusions which cannot be said to be perverse or that the order was contrary to any of the provisions of the Act. Recognising the limitation of judicial review by the High Court in exercise of writ jurisdiction against the order of Settlement Commission, we do not find any justifiable grounds for interference in this respect.
7. Coming to the question of disclosures, we may notice that under section 245-C of the Act, an assessee at any stage of a case relating to him is allowed to make application for settlement in a prescribed form which would require a full and true disclosure to be made by him of his income which has not been disclosed before Assessing Officer and the manner in which such income has been derived. We may also notice that while processing such application under section 245-D of the Act, it would be open for the Settlement Commission to reject an application for settlement if it is found that the applicant has not made true and full disclosure of his income in the application for settlement. In the context of these provisions, the Supreme Court had an occasion to examine the issue of true and full disclosure and the Page 3 of 7 HC-NIC Page 3 of 7 Created On Thu Aug 11 02:23:55 IST 2016 C/SCA/2881/2015 JUDGMENT stage where the same must be made in the case of Ajmera Housing Corporation (supra). It was a case where the assessee had filed an application seeking immunity under section 245C(1) of the Act disclosing additional income of Rs. 1.94 crores (rounded off) for the assessment years 1989-90 to 1993-94 which was in addition to income declared in the return filed before Assessing Officer. The Settlement Commission called for return from the Commissioner in terms of section 245D(1) of the Act. The Commissioner opposed the disclosures made by the assessee as not being true and full disclosures and suggested that the income of the group assessees should not be settled at less than Rs. 223.55 crores. The arguments on the question whether Settlement Commission should allow the application to proceed further were concluded and order was reserved at which stage, the assessee filed revised settlement application declaring additional income of Rs. 11.41 crores. The Settlement Commission thereafter passed an order on 17.11.1994 deciding to proceed with the application of settlement. The Settlement Commission thereupon asked the Commissioner to furnish a further report. The Commissioner in his report dated 30.8.1995 contended that the income disclosed by the assessee should not be treated as true and correct and asserted that the total unaccounted income of the assessee was to the tune of Rs. 187.09 crores. Hearing of the case commenced before the Settlement Commission. During the course of such hearing, the assessee made a further disclosure of unaccounted income of Rs. 2.76 crores. Ultimately on 29.1.1999 the Settlement Commission passed an final order determining total income of the assessee for the said assessment years at Rs. 42.58crores.
8. This order was challenged by the Commissioner before Bombay High Court. Aggrieved by the order of High Court, the assessee had approached Supreme Court. The Supreme Court remanded the matter back before Bombay High Court for fresh consideration upon which Bombay High Court on 29.1.1999 passed an order remitting the matter back to the Settlement Commission against which the applicants-assessees approached Supreme Court. It was in this background that that the Supreme Court observed as under:Page 4 of 7
HC-NIC Page 4 of 7 Created On Thu Aug 11 02:23:55 IST 2016 C/SCA/2881/2015 JUDGMENT '26........It is plain from the language of sub-section (4) of Section 245D of the Act that the jurisdiction of the Settlement Commission to pass such orders as it may think fit is confined to the matters covered by the application and it can extend only to such matters which are referred to in the report of the Commissioner under sub-section (1) of sub-section (3) of the said Section. A full and true disclosure of income which had not been previously disclosed by the assessee, being a pre-condition for a valid application under Section 245C(1) of the Act, the scheme of Chapter XIX-A does not contemplate revision of the income so disclosed in the application against item No.11 of the form. Moreover, if an assessee is permitted to revise his disclosure, in essence, he would be making a fresh application in relation to the same case by withdrawing the earlier application. In this regard, Section 245C(3) of the Act which prohibits the withdrawal of an application once made under sub-section (1) of the said Section is instructive in as much as it manifests that an assessee cannot be permitted to resile from his stand at any stage during the proceedings. Therefore, by revising the application, the applicant would be achieving something indirectly what he cannot otherwise achieve directly and in the process rendering the provision of sub-section (3) of Section 245C of the Act otiose and meaningless. In our opinion opinion, the scheme of the said Chapter is clear and admits no ambiguity.
31. We are convinced that, in the instant case, the disclosure of Rs. 11.41 crores as additional undisclosed income in the revised annexure, filed on 19th September, 1994 alone was sufficient to establish that the application made by the assessee on 30th September, 1993 under Section 245C(1) of the Act could not be entertained as it did not contain a true and full disclosure of their undisclosed income and the manner in which such income had been derived. However, we say nothing more on this aspect of the matter as the Commissioner, for reasons best known to him, has chosen not to challenge this part of the impugned order.' Page 5 of 7 HC-NIC Page 5 of 7 Created On Thu Aug 11 02:23:55 IST 2016 C/SCA/2881/2015 JUDGMENT
9. We may recall that such observations were made by the Supreme Court being conscious of the fact that the Revenue had not preferred any appeal against judgment of the High Court on the question of full and true disclosures. Despite which the Supreme Court examined the issue threadbare and made above-noted observations.
10. It can thus be seen that on the issue of true and full disclosure, stage at which such disclosures should be made and the effect of making further disclosures by revising initial offers of settlement was examined by the Supreme Court in the case of Ajmera Housing Corporation (supra). The manner in which the Supreme Court has dealt with such issue and has made elaborate and conclusive observations, it cannot be stated contrary to what was argued before us that the above-noted portion of the judgment should not be seen as ration of the judgment of the Supreme Court. Ratio of this judgment is that the true and full disclosure of the income must be made at the initial stage and large scale remissions in such disclosure itself would show that the initial disclosures were not true.
11. However, the facts of the present case are somewhat different. The applicants had initially offered on money rotation of Rs. 25 lakhs, Rs. 21 lakhs and Rs. 30 lakhs respectively and income at the rate of 12.5 per cent thereof by way of interest earned which during the course of assessment proceedings was revised to Rs. 50 lakhs, Rs. 50 lakhs and Rs. 75 lakhs respectively with rate of return at 15 per cent. With respect to revised rate of return, even counsel for the Revenue would not be in a position to argue that the same would form part of declaration of two incomes since whether rate of return should be estimated to 12.5 per cent or 15 per cent would be would be substantially in the realm of estimation of not profit. He would however, strenuously contend that revised declaration of on money should be enough to establish that initial disclosures made by the assessees were not full or true disclosures of such income. In this context, we had called for the letter written by the applicants making such revised offers. Copies of such letters dated 6.2.2014 written by the partners of the firm are produced on record. In such letters, it was conveyed that the applicants had filed a Page 6 of 7 HC-NIC Page 6 of 7 Created On Thu Aug 11 02:23:55 IST 2016 C/SCA/2881/2015 JUDGMENT petition for settlement in which offered a sum of Rs. 7,75,000/- at the rate of 12 per cent on peak balance of funds deployed in money lending activity. It was further stated that the applicant during the course of hearing under section 245D(4), in the spirit of settlement, agreed to further additional income of Rs. 39,12,667/- which is computed on the basis stated hereinbelow:
a. interest in money lending activity @ 15% p.a.; b.Amount deployed in money lending activity Rs. 50,00,000/-
c. Income out of on money receipt @ 15%.
12. Similar declarations were made in the case of other applicants as well. It can thus be seen that these revised offers of tax was in the nature of spirit of settlement and cannot be seen in strict sense of abandoning initial disclosures and replacing the same by fresh disclosures on the basis of such revised offers. What in essence the assessee did was to raise their offers marginally to put an end to the entire dispute through settlement or in the spirit of settlement as is referred to in the said letter. This cannot be seen as accepting that original or initial declaration was not true and full disclosure thereby paving way for the application of judgment in the case of Ajmera Housing Corporation (supra).
13. In the result, the petitions are dismissed."
3. Without recording separate reasons therefor, these petitions are also dismissed.
(AKIL KURESHI, J.) (A.J. SHASTRI, J.) VC DARJI Page 7 of 7 HC-NIC Page 7 of 7 Created On Thu Aug 11 02:23:55 IST 2016