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2015 (7) TMI 1031 - MADHYA PRADESH HIGH COURT

2015 (7) TMI 1031 - MADHYA PRADESH HIGH COURT - [2016] 380 ITR 82 - Validity of Settlement Commission order under subsection 2C of Section 245D challenged - respondent No.1 has paid tax only on the additional income offered before the Settlement Commission and the tax payable on the additional income offered in the returns of income has not been paid by the respondent No.1 on or before filing the settlement application - Held that:- In simple terms, where an assessee has furnished return of inco .....

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lity to pay additional tax for maintaining an application for settlement. Such special formula contains a deeming fiction. Such deeming fiction for the purpose of calculating additional tax payable defines term "total income" in artificial manner.

In the present case, legislature has created a deeming fiction by providing that the tax of the applicant would be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were .....

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Section 5 of the Act for the purpose of calculating additional tax of an applicant for settlement of a case cannot be accepted.

In the present case, formula which contains a special definition for a special purpose would, therefore, have its effect only for Section 245C. Being a special provision it would prevail over any other general term of a concept contained in the Act. Section 245 C (1) of the Act also requires the applicant to provide besides other details, true and full disclo .....

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e application was not valid and quashed the order passed by the Settlement Commission, Mumbai - Decided in favour of revenue. - Writ Petition No. 6313/2014 - Dated:- 7-7-2015 - P. K. Jaiswal And J. K. Jain,JJ. For the Petitioner : Shri R L Jain Senior Counsel with Ms Veena Mandlik, learned counsel For the Respondents : Shri Manoj Munshi, learned counsel ORDER Per P.K. Jaiswal, J. The Commissioner of Income Tax (Central), Bhopal has challenged the order passed by the Settlement Commission 26.05.2 .....

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er consideration. The cases were centralised with the DCIT (Central), Indore and notices under Section 153A were issued for the assessment year 2006-07 to 2011-12 on 02.04.2012. Notice under Section 143(2) was issued for the assessment year 2012-13 on 27.08.2013. 4. In compliance to the notices, the respondent No.1 filed returns of income, as detailed in the table below:- A.Ys. Date of filing of return U/s 153A Income shown in return filed U/s 139(1) Income shown in the return U/s 153A Additiona .....

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ns filed in compliance to notices under Section 153A". 6. Thereafter, the respondent No.1 filed a settlement application under Section 245C(1) of the Act before the Settlement Commission for settlement of its cases on 28.03.2014 claiming to show full and true estimate of undisclosed income for the years as under:- Asstt. Years A.Y. 2006- 07 A.Y. 2007- 08 A.Y. 2008- 09 A.Y. 2009- 10 A.Y. 2010- 11 A.Y. 2011- 12 A.Y. 2012- 13 Total Addl. Income 0.5 0.5 0.5 0.5 0.5 0.5 1.55 Rs.1.58 crores 7. It .....

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.1 upon filing the returns under Section 153A on 10.09.2013, 29.05.2012 and 31.05.2012 and under Section 139(A) for the assessment year 2012-13 has not paid the self assessment tax in relation to the income declared in the returns. It is also pointed out that the respondent has paid the taxes and interest only on the additional income of ₹ 1.58 crores disclosed before the Settlement Commission on 28.03.2014. The objection of the petitioners before the Settlement Commission was that the agg .....

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fore filing the settlement application and hence, the settlement application is not valid as per Section 245C of the Act. 9. The Settlement Commission admitted the application by order dated 10.04.2014 (Annexure-P/2) under Section 245D (1) has held as follows:- 17. We have carefully considered the submissions made by the AR requesting for admission of the application. We find that the conditions regarding the threshold limit for the quantum of tax on additional income, payment of additional tax .....

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find straight from the decision of the ITSC, Chennai Bench in the case of M/s. Radha Realty Ltd. on this issue. In our considered opinion, admission of application u/s. 245D(1) cannot be denied. 17.2 As regards the manner of earning of income is concerned, we find that the same has been adequately explained by the A.R. and the same has also been discussed in the settlement application. As to the claim of making the true and full disclosure, we are of the considered opinion that as of now, the di .....

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hat full and true disclosure of income was not made by the respondent No.1 in their application dated 28.03.2014 and raised the following objections:- Full and true disclosure of income and the manner in which such income derived In this case search and seizure was conducted by the department on 05.05.2011. during the investigation documents were found which indicated concealment of income by the assessee. Th preliminary estimates (discussed in Annex B) show undisclosed incomes of ₹ 240,04 .....

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he total undisclosed income of the assessee based on investigation and documents seized during the search, statements of the assessee and other relevant documents works out to ₹ 240,04,38,487/-. However it is noted that the assessee has offered undisclosed income of ₹ 1,58,00,000/- in the settlement application filed before the Settlement Commission u/s 245C of the Act and ₹ 34,74,39,663/- before the AO in the return of income filed in response to notice u/s 153A. He has howeve .....

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by the assessee cannot be held to be full and true disclosure of income since it is far below the estimated undisclosed income of ₹ 240,04,38,487/- determined on the basis of the seized documents and enquiries conducted by the department. As a matter of fact the undisclosed income of ₹ 1,58,00,000/- offered before the Settlement Commission u/s 245C is even far below the undisclosed income of ₹ 34,74,39,663/- surrendered u/s 132(4) and suo moto offered to tax in return of incom .....

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oceeded with u/s 245D(1) is erroneous since the assessee had not paid the taxes and interest on the additional income declared in return of income u/s 153A and as increased by the additional income offered before the Settlement Commission. Thus on the merits of the case and the legal position on the issue as contained in proviso to section 245C (1) read with sub-section 1D of the Act, the commission should have rejected the settlement application u/s 245D (1) of the Act. The facts of the case of .....

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ing of settlement application. Further prosecution proceedings u/s 276C (2) have also been initiated by the AO before the filing of the settlement application and the approval of the CIT (Central) u/s 279 is pending for want of legal opinion of the prosecution counsel. In view of the above, I am to hold that the assessee has not made full and true disclosure of income before the Settlement Commission u/s 245C and the assessee has not even paid the tax payable on the returned income u/s 153A of t .....

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the alleged income of ₹ 240.04 crores stood fully taxed in the hands of the four companies belonging to the group namely, 1) Keti Infrastructure Pvt. Ltd., 2) M/s Keti Highway Developers Pvt. Ltd., 3) M/s Keti Toll Infrastructure Pvt. Ltd. and 4) M/s Keti Buildcon Pvt. Ltd. and that further addition of the same amounts in the hands of the respondent company cannot be made because the same income cannot be taxed twice. The respondent No.2 passed an order dated 26.05.2014 under Section 245D .....

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losed before us the income of ₹ 1.58 Crores which is stated to have been earned by giving machineries and equipments on hire. In these circumstances it cannot be stated that applicant has not disclosed its true and full income. We have already held in our order passed on 10-04-2014 u/s 245D(1) that what is required by the applicant, in respect of payment of taxes and interest is such payment on the income disclosed before us. The applicant has done so. In view of the above we hold that the .....

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l income of ₹ 1.58 crores before the Settlement Commission, which is not in conformity with the voluntary disclosure of income of ₹ 34.74 crores duly declared in its return under Section 153A. The assessee had not paid the taxes and interest on the additional income declared in the return of income under Section 153A and as increased by the additional income offered before the Settlement Commission. 14. On 31.05.2012, i.e., after 12 months, respondent No.1 filed its return under Sect .....

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passing the impugned order. 15. In reply, learned counsel for the respondent No.1 submits that under Section 245C of the Act, respondent No.1 is required to disclose in the application before the Settlement Commission and to pay taxes and interests on such income which has not been disclosed before the Assessing Officer. It is submitted that the respondent No.1 has disclosed the income of ₹ 1.58 crores in the settlement application, which was never disclosed before the Assessing Officer a .....

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therefore, not binding upon the respondent. It is also pointed out that they have withdrawn the return of income filed under Section 153A vide letter dated 07.03.2014 filed on 10.03.2014 for each of the assessment year and stick to the return filed under Section 139(5) read with Section 139(1) of the Act. He further submits that, in case of withdrawal and retraction of declared income during the search, no liability can be legally fastened upon the respondent unless proper and due assessment of .....

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rayed for dismissal of the writ petition. 16. Having thus heard learned counsel for the parties and having perused the documents on record, the facts emerged more or less as undisputed. Such undisputed facts are that assessment for the year 2006-07 to 2012-13, the respondent No.1 made an application to the Settlement Commission for settlement of the case. In such an application, the respondent declared an undisclosed income of ₹ 1.58,00,000/-. For the said years, respondent No.1 had filed .....

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.04.2012 and for 2012-13 notice under Section 153-A was issued on 27.08.2013. Respondent No.1 filed his return under Section 153-A for the year 2006-07 on 10.09.2013; for the years 2007-08 to 2010-11 on 31.05.2012; for the year 2011-12 on 29.05.2012 and for the year 2012-13 on 30.09.2012 and additional income offered in the return filed under Section 153- A for the aforesaid assessment years was ₹ 34,74,39,663/-. A short question is whether the respondent was required to deposit additional .....

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Court in the case of CIT vs. Express Newspapers Ltd. reported in [1994] 206 ITR 443 (SC) has held the following:- "For a proper delineation of the jurisdiction of the Commission, it is necessary to bear in mind the language of sub-section (1) of Section 245C. It provides that at any stage of a case relating to him, an assessee may make an application to the Commission disclosing fully and truly income which has not been disclosed before the Assessing Officer. He must also disclose how the s .....

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losed exceeds ₹ 50, 000/-, the application under section 245C is not maintainable." 19. The Apex Court in the case of Commissioner of Income Tax vs. Om Prakash Mittal reported in [2005] 246 (SC) has observed the following:- "The foundation for settlement is an application which assessee can file at any stage of a case relating to him in such form and in such manner as is prescribed. The statutory mandate is that the application shall contain "full and true disclosure" o .....

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f the case or complexity of the investigation involved therein, it can either reject the application or allow the application to be proceeded with as provided in Section 245D(1). It has to be noted that the Commission exercises power in respect of income which was not disclosed before the authorities in any proceeding, but are disclosed in the petition under Section 245C. It is not that any amount of undisclosed income can be brought to the notice of the Commission in the said petition. Commissi .....

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losed to the Commission by a petition under Section 245C. There is a purpose why the legislature has prescribed the condition relating to declaration of the order void when it is obtained by fraud or misrepresentation of facts. It cannot be said that there has been a true and fair declaration of income which is the pre- requisite for settlement by the Commission. If an order is obtained by fraud or misrepresentation of facts, it cannot be said that there was true and fair disclosure. It was note .....

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Section 245C is in the nature of voluntary disclosure of concealed income, but as noted above it must be true and fair disclosure. Voluntary disclosure and making a full and true disclosure of the income are necessary preconditions for invoking the Commission's jurisdiction." 20. Section 245C pertains to the application for settlement of cases. Sub section (1) of Section 245C provides inter alia that an assessee may, at any stage of a case relating to him, make an application in prescr .....

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the return of income before the Assessing Officer on the date of application and the proof of such payment to be attached with the application. 21. Section 245D of the Act pertains to procedure on receipt of an application under Section 245C. Under sub section (1) of Section 245D on receipt of an application under Section 245C, the settlement commission, within seven days from the receipt of the application, would issue a notice to the applicant requiring him to explain why the application made .....

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Section 245D of the Act, the Settlement Commission with respect to the applications which have been allowed to be or deemed to have been allowed to be proceeded with shall call for a report from the Commissioner which would be furnished by the Commissioner within 30 days from the receipt of communication from the Settlement Commission. 23. Under sub section (2C) of Section 245D of the Act, the Settlement Commission would proceeded to pass an order on the basis of the report by the Commissioner .....

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mission to call for the records from the Commissioner and to direct further enquiry or investigation, if necessary, and to pass such order as it thinks fit. 24. Sub-section (4A) of Section 245D of the Act lays down time limit for passing order under sub section (4). Under Section 245H the Settlement Commission has the power to grant immunity from prosecution and penalty. Section 245HA pertains to abatement of proceedings before the Settlement Commission, in particular, it provides that where in .....

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bringing within the tax-net otherwise undisclosed income by an assessee with the temptation to avoid prosecution and penalty. These special provisions, therefore, have been made in the said Chapter in order to bring about an early end to such settlement proceedings. Different stages envisaged after an assessee makes an application for settlement of his case come with time limits. For example, as we saw, on receipt of an application under Section 245C of the Act, the Settlement Commission would, .....

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e furnished within 30 days of the communication by the Settlement Commission. Sub section (4A) of Section 245D lays down time limits for passing orders under sub section (4) in terms of Section 245HA (1) (iv). If no such order is passed within the time prescribed, the proceedings before the Settlement Commission would abate from such date. Thus, it can be seen that the proceedings before the Settlement Commission have to be completed within the time frame and various stages envisaged under Secti .....

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losed before the Assessing Officer. Sub section (1A) of Section 245 C prescribes the manner in which the additional amount of income tax payable in terms of sub section (1) of Section 245 C in respect of income disclosed in an application made under the said sub section shall be computed by providing that the same shall be calculated in accordance with the provisions of sub sections (1B) to (1D). Sub section (1B) envisages two situations; first is where the applicant had not furnished a return i .....

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total income. In terms of Clause (ii) of said section (1B) therefore the tax would be calculated on the aggregate of the returned total income and the disclosed income, treating the aggregate thereof as the total income of the applicant. Sub section (1C) of Section 245C provides for the additional amount of income tax payable in respect of income disclosed. Clause (b) thereof which covers our situation provides that the amount of tax calculated under Section 245 C (1B) (ii) shall be reduced by t .....

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the total income returned for that year. 28. Sub-section (1B) and (1C) of Section 245 C thus provide for a special formula for arriving at an applicant's liability to pay additional tax for maintaining an application for settlement. Such special formula contains a deeming fiction. Such deeming fiction for the purpose of calculating additional tax payable defines term "total income" in artificial manner. Use of the deeming fiction is the well known legislative device to give rise t .....

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this context, it was observed that if the fiction introduced by the said section is to be deemed as if it were a tax it is obvious that full effect must be given to this legal fiction. In case of Khemka & Co. (Agencies) (P.) Ltd. Vs State of Maharashtra [1975] 2 SCC 22 the Supreme court had the occasion to consider the deeming provision enacted by using expression "as if". Section 9 (2) of the Central Sales Tax adopted the machinery for assessment, reassessment, collection and enfo .....

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t. It comes into existence only for the purpose of calculating the tax to be deposited by an applicant for settlement of a case. In such a situation, the aggregate of the total income returned and the income disclosed would be considered as total income. 31. Under the circumstances, the contention of the Counsel for the respondent No.1 that the term "total income" should be construed as defined under Section 5 of the Act for the purpose of calculating additional tax of an applicant for .....

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te of the total income returned and the income disclosed which would partake the character of a total income for this limited purpose. Thirdly, such deeming fiction cannot be discarded by bringing into consideration such term used elsewhere by the legislature. It is well known that legislature provides for definition of various terms frequently used in the statues. The definition section usually comes with the expression "unless the context otherwise provides" or "unless there is .....

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ition for a special purpose would, therefore, have its effect only for Section 245C. Being a special provision it would prevail over any other general term of a concept contained in the Act. Section 245 C (1) of the Act also requires the applicant to provide besides other details, true and full disclosure of his income which has not been disclosed before the Assessing Officer and amount of income tax payable on "such income". Reference to "such income"thus is the income discl .....

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ment Commission is required to ascertain where an assessee applicant has paid the additional tax with interest thereon only upon which application can be allowed to proceed further, no complex exercise or verification is envisaged. If the concept of total income contained in the Act is imported as such a stage, it can give rise to multiple disputes and lengthy debates with respect to the total income of an assessee and whether full tax on such income has been paid or not. At such a stage, the le .....

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