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2016 (8) TMI 1004 - GUJARAT HIGH COURT

2016 (8) TMI 1004 - GUJARAT HIGH COURT - TMI - Validity of order of Settlement Commission - Held that:- In the present case the disclosures revised by the assessee during the course of the settlement proceedings were substantial and, in fact, far greater than the initial disclosure made. The Settlement Commission completely ignored the opposition of the Revenue in this respect on the ground that it is difficult to ascertain with degree of accuracy the undisclosed income on the basis of impounded .....

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HI) 1. This petition is filed by the Income Tax Department challening an order dated 04.02.2015 passed by the Income Tax Settlement Commission ['Settlement Commission' for short] under Section 245D(4) of the Income Tax Act, 1961 ['the Act' for short] concerning respondent-assessee for assessment years 2011-12 to 2013-14. 2. Brief facts are as under: Respondent No.1-assessee is a partnership firm. The Income Tax department conducted a survey under Section 133A of the Act at the pr .....

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cation to proceed further. On 12.03.2014, the Settlement Commission passed a further order under Section 245D(2C) of the Act. On 16.06.2014, the Commissioner of Income Tax filed a report under Rule 9 of the Income Tax Rules, 1962. On 19.01.2015, the petitioner filed a rejoinder to such report. The Settlement Commission thereafter, fixed the hearing of the application on 20.01.2015. 4. On 04.02.2015, the Settlement Commission passed impugned order under Section 245D(4) of the Act. In such order, .....

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h 2015. In the process, the Settlement Commission levied interest upto the date of passing of the order under Section 245D(1) of the Act but granted immunity from penalty and prosecution. 5. It is this order of the Settlement Commission which the Revenue has challenged in this petition mainly on two grounds. First is, according to the Revenue, the assessee having disclosed income of ₹ 34 lacs for the three assessment years 2011-12 to 2013-14 while filing the application for settlement, cou .....

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as with respect to the undisclosed income. Counsel submitted that the Revenue had produced sizable materials collected during the survey to show that the assessee had earned undisclosed income worth crores of rupees. The materials produced by the Revenue and its contention in this regard were completely ignored. The Settlement Commission, without giving adequate reasons, merely accepted the version of the assessee which was not supported by any evidence and discarded the cogent materials produce .....

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. In this respect, he relied on the decision of learned Single Judge of Kerala High Court in case of Commissioner of Income Tax vs. Settlement Commission (IT & WT) and anr reported in 369 ITR 606. 7. Counsel further submitted that the Settlement Commission has given sufficient reasons. The scope of judicial review in the writ petition against the order of Settlement Commission is extremely narrow. This Court would not act as an appellate forum. 8. Having thus heard learned counsel for the pa .....

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as been derived, the additional amount of income tax payable on such income and such other particulars as may be prescribed. Section 245D lays down the procedure to be followed on receipt of an application under Section 245C. After crossing various stages provided under Section 245D, the Settlement Commission would pass a final order under sub section (4) of Section 245D of the Act which provides that the Settlement Commission, after examination of the records and the report of the Principal Com .....

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Rule 9 of the Income Tax Rules. In such report, the Commissioner had strongly opposed the application for settlement inter alia on the ground that the applicant had not disclosed full and true undisclosed income. It was pointed out that during the survey, incriminating documents were found and impounded. On the basis of such materials, the statement of the partner of the firm was recorded, under which, he had admitted the practice of receiving undisclosed amount and had offered additional income .....

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had deliberately disclosed the income in such a manner that the additional tax payable on such income exceeds ₹ 10 lacs which is one of the requirements for filing application for settlement under sub section (1) of Section 245C of the Act. 10. We have noticed that during the course of hearing of the settlement application, at the stage of Section 245D(4) of the Act, the assessee had made further offer in following terms: 1. Increasing the turnover (on-money) by an amount of ₹ 1.25 c .....

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crease in the on money Total Profit @ 15% before interest & Remune ration (Col 5*15%) Profit before interest + remuner ation as already disclosed Further additional income (6-7) (1) (2) (3) (4) (5) (6) (7) (8) 2011-12 1.31 0.69 0.30 0.20 0.35 0.35 0.35 2012-13 4.27 0.33 0.15 4.75 0.71 0.52 0.19 2013-14 3.74 1.90 0.80 6.44 0.97 0.65 0.32 Total 9.32 2.92 1.25 13.49 2.03 1.47 0.56 12.The Settlement Commission, in the impugned order, noted that keeping in view of the submissions made by the depa .....

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that the Commission would agree with the representative of the applicant's view point that arriving at the exact undisclosed income from the impounded documents is very difficult and estimation has to be resorted to. Even there is discrepancy of the cash receipts in the report of the CIT (Appeals). It is not clear whether even the Revenue wanted to arrive at such income by affixing two zeros or three to the entries found in the documents. The Settlement Commission recorded that under the si .....

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plicant has come forward voluntary for further offer by increasing the receipts by an amount of ₹ 1.25 crores and also by applying a higher net profit rate of 15% at the level of profit before allowance of interest and remuneration to partners. Keeping in view the extent of business operation of the applicant and the higher estimation of turnover, the revised net profit rate is considered quite reasonable and hence accepted. We are of the view that the order of additional income (including .....

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t. Secondly, that it was difficult to arrive at an exact undisclosed income from the impounded documents. We may recall, the initial disclosure of undisclosed income of the assessee alongwith the application for settlement was total of ₹ 34 lacs for three years under consideration. The assessee, later on, at the stage of hearing of application under Section 245D(4) of the Act, made what can be categorized as substantial revision, by offering an additional income of ₹ 56 lacs to tax. .....

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de at the time of filing of the application for settlement. This is not a case where, during the course of the settlement, to put an end to the dispute, the assessee made minor adjustments in the disclosures already made. When we compare the initial disclosure of income with the further disclosures, it would reveal that the further declaration was more than 150% of the initial disclosure. 15.One of the prime requirements for settlement is of filing an application under sub section (1) of Section .....

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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 income as disclosed in the application. 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. It was further observed that, in the scheme of Chapter XIX-A, there is no stipulation for revision of .....

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tlement. Nevertheless, the Supreme Court frowned upon any revision in disclosures initially made which would tantamount to the initial disclosure being not true and full disclosure. It was observed as under: 35. Before addressing the other issues, at the outset, we record our disapproval with the view of the High Court that it would not be proper to set aside the proceedings before the Settlement Commission even though it was convinced that the assessee had not made full and true disclosure of t .....

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his Court and was set aside vide order dated 11th July, 2006 and the case was remanded back to the High Court for fresh consideration. Nevertheless, all points raised by the parties, including the plea of the revenue that the application filed by the assessee before the Settlement Commission was not maintainable as the assessee had not made a full and true disclosure of their undisclosed income were kept open. The High Court addressed itself on the said issue and found that the assessee had not .....

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settlement under Chapter XIXA of the Act. At this juncture, it would be appropriate to notice a few illuminating observations in W T Ramsay Ltd. Vs. Inland Revenue Commissioners10, which was considered to be a turning point in the interpretation of tax laws in England and was a significant departure from Inland Revenue Commissioners Vs. Duke of Westminster11 dictum, noted in the passage extracted below :- "Given that a document or transaction is genuine, the court cannot go behind it to som .....

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ent or transaction was intended to have effect as part of a nexus or series of transactions, or as an ingredient of a wider transaction intended as a whole, there is nothing in the doctrine to prevent it being so regarded; to do so is not to prefer form to substance, or substance to form. It is the task of the court to ascertain the legal nature of any transactions to which it is sought to attach a tax or a tax consequence and if that emerges from a series or combination of transactions, intende .....

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