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2023 (4) TMI 1178 - HC - Income TaxSettlement of case - full and true disclosure - Application rejected by the Income Tax Settlement Commission - objection of the revenue was that the petitioner had not provided for interest on non-performing assets, purity of gold which had been sold in various auctions, was estimated at 80% for working out the income of the petitioner under this head - HELD THAT:- Writ petition is liable to be allowed. The procedure for settlement, as contemplated by Chapter XIX-A of the Income Tax Act, 1961 as it then stood, was a procedure enabling assessees to declare their previously undisclosed income and arrive at a settlement of their case. After considering the reports of the Department, the Settlement Commission would proceed to adjudication to arrive at a conclusion as to whether any further tax is to be paid by the assessee under any head. While the assessee is required to make a full and true disclosure, the Settlement Commission is also authorised to render findings on any additional income that must be brought to tax and, consequently, the amount of tax, penalty or interest payable by the assessee that should be paid in addition to the tax, penalty or interest already paid on the income offered in the application for settlement. This is clear from a reading of Sub-Sections (4) and (6) of Section 245-D of the Act. It is clear that the Settlement Commission does not proceed merely on the basis of the statements contained in the application for settlement or any further pleadings before it and can, for reasons to be recorded, come to a conclusion that some higher income had to be offered by the assessee for arriving at a settlement. Therefore, taking into consideration the spirit and mandate of the provisions contained in Chapter XIX and merely for the reason that further amounts had to be offered by the assessee, the Settlement Commission cannot reject the application for settlement. This is not to say that the assessee is not required to make full and true disclosure. One of the main reasons which weighed with the Settlement Commission is the alleged non-disclosure owing to the fact that the purity of gold which was sold in the auction was determined at 80% (on average) to arrive at the previously undisclosed income under this head. There appears to be some material on record to suggest that the yardstick adopted by the assessee was correct. Similarly, the documents produced by the Department could also be scrutinised by the Commission to determine whether the purity of gold sold in auction should be taken at some higher value than 80% for the purpose of determining whether the assessee is required to disclose further income and to pay tax, interest and penalty on the same. However, it was wrong on the part of the Settlement Commission to come to the conclusion that merely because the purity of gold recorded at the time of issuing the loan in favour of one P.M. Reji was higher than the average recorded or disclosed in the settlement application, there was failure to make a full and true disclosure. Failure to offer the interest accruing on Non-Performing Assets as part of the income - The decision of the Supreme Court in Vasisth Chay Vyapar Ltd [2018 (3) TMI 56 - SUPREME COURT] is the authority for the proposition that the instructions issued by the Reserve Bank of India on income recognition will take precedence over any contrary provision in the Income Tax Act, 1961. Therefore finding of the Settlement Commission that the failure to offer interest income on non-performing assets constitutes a failure to make a full and true disclosure for the purpose of Section 245-C of the Act, is unsustainable. Settlement Commission has ceased to exist - whether, in a case like this (where the order of the Settlement Commission is required to be quashed), the matter can be reconsidered by the Interim Board ? - As relying on K.S. Thirumalaivasan v. The Chairman, Income Tax Settlement Commission and others case [2022 (7) TMI 438 - MADRAS HIGH COURT] the application filed by the Appellant would have to be treated as a pending application and appropriate orders are to be passed after giving the appellant sufficient opportunity and by considering all the materials placed by him. The effect of an order quashing the order passed by the Settlement Commission would result in the application for settlement filed by the petitioner being treated as a ‘pending application’ which has to be disposed of by the interim board. Order of the Settlement Commission has been quashed, will be considered afresh by the Interim Board after affording an opportunity to the petitioner and to the respondent Department.
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