Madras High Court
Commissioner Of Income Tax vs Income Tax Settlement Commission on 9 April, 2021
W.P.No.16552 of 2014
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 09.04.2021
CORAM
THE HONOURABLE MR. JUSTICE S.M.SUBRAMANIAM
W.P.No.16552 of 2014
Commissioner of Income Tax,
Central-II,
No.46, Mahathma Gandhi Road,
Chennai-600 034. .. Petitioner
vs.
1.Income Tax Settlement Commission
Additional Bench
640, Anna Salai, Nandanam
Chennai-600 035.
2.P.Suman .. Respondents
PRAYER : Writ Petition filed under Article 226 of the Constitution of
India, praying for the issue of a Writ of Certiorari to call for the records on
the file of the first respondent in S.A.No.TN/CN.53/2013-14/1/IT dated
31.07.2013 and quash the same as illegal and beyond the jurisdictional and
authority and restore the jurisdiction of assessing officer to pass regular
assessment order of the 2nd respondent for the Assessment year 2007-08 to
2013-14.
1/35
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
For Appellant : Mr.A.P.Srinivas
For Respondent : No-appearance for R1
Mr.R.Sivaraman for R2
JUDGMENT
The writ on hand is filed by the Commissioner of Income Tax to quash
the order passed by the Income Tax Settlement Commission, Additional
Bench, in proceedings dated 31.07.2013 on the ground that the order of
settlement passed is beyond the jurisdiction and authority. Therefore, the
High Court should restore the jurisdiction of the Assessing Officer so as to
pass regular assessment order of the second respondent for the assessment
year 2007-2008 to 2013-2014.
2. The learned counsel appearing for the second respondent/Assessee
initially raised the question of maintainability of the writ petition on the
ground that the order passed by the Settlement Commission under Section
245C of the Act cannot be entertained as the facts in detail were adjudicated
by the Settlement Commission by providing an opportunity to the
petitioner/Department. The question of fact adjudicated by the Settlement
Commission cannot be re-adjudicated in a writ proceedings under Article
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
226 of the Constitution of India. The nature of proceedings under Section
245C of the Income Tax Act is for settlement of disputes. Once the
settlement of disputes are finalized, then there is no scope for entertaining
the writ petition under Article 226 of the Constitution of India. The learned
counsel for the second respondent cited the judgments in support of his
arguments that no writ can be entertained against the order of the Settlement
Commission, if the facts in detail were adjudicated by the Settlement
Commission with reference to the documents and evidences produced by
the parties along with the application filed under Section 245C of the
Income Tax Act. In this regard, the learned counsel for the second
respondent cited the judgment in the case of JYOTENDRASINHJI vs.
S.I.TRIPATHI reported in [1993] 68 Taxman 59(SC). The Apex Court
formulated a principle stating that "whether only ground upon which either
High Court under Article 226 or Supreme Court under article 32 or 136 can
interefere with an order of Settlement Commission is that the order of
Settlement Commission is contrary to the provisions of the Act and that
such contravention has prejudiced assessee - held yes". Therefore, only in
the event of violation of the provisions of the Income Tax Act, the High
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
Courts are empowered to entertain the writ under Article 226 and with
reference to the factual details, no such writ proceedings can be entertained
at all. It is contended that the factual aspects were elaborately considered by
the Settlement Commission and the petitioner/Department has also
participated in the adjudication. Thus, there is no scope for entertaining the
present writ petition. Thus, the petition is to be dismissed on the ground of
maintainability.
3. The learned counsel cited the judgment of the High Court of Gujarat in
the case of Principal Commissioner of Income Tax, Surat-I vs. Shreyansh
Corporation which is also on the same line. The Gujarat High Court
considered the detailed items submitted by the assessee in respect of income
and arrived at a conclusion that the issues relating to such facts were
adjudicated in detail. Thus, there is no scope for further interference and
accordingly, the case of the assessee was settled in terms and conditions of
the order passed by the Settlement Commission.
4. The learned Senior Standing Counsel appearing on behalf of the writ
petitioner disputed the said contention by stating that the proposition
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
mooted out that the writ petition is not entertainable is incorrect. The writ
petitions are entertained on many occasions by various High Courts and by
the Hon'ble Supreme Court of India. What is required is, whether the
Settlement Commission passed an order in consonance with the ingredients
contemplated under Section 245C of the Income Tax Act or not. Thus, the
High Court is empowered to adjudicate those issues in order to form an
opinion, whether the writ petition is entertainable or not. It is not as if the
writ petition is not maintainable at all. The writ petitions are maintainable
subject to the condition that if the terms and conditions stipulated for filing
an application under Section 245C of the Income Tax Act are complied
with. Thus, the very contention raised is to be rejected. The judgments cited
are relatable to the facts of those cases. As far as the present writ petition is
concerned, the writ petitioner/Department could able to establish that there
was seizure conducted and during seizure, large quantity of account books
and incriminating evidences were recovered. Those evidences are to be
considered for the purpose of assessment under Section 153A of the Act and
the Settlement Commission, without considering the fundamental powers of
the Assessing Officer, formed an opinion and settled the matter, which is
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
impermissible, in view of Section 245(C) of the Income Tax Act. Thus, the
very contention of the second respondent that the writ petition is not
maintainable deserves no merit consideration.
5. This Court is of the considered opinion that the maintainability of the
writ petition is to be considered at the first instance as the same has been
raised by the second respondent. All the writ petitions are entertainable
under Article 226 of the Constitution of India. No writ petition can be
dismissed as not-maintainable. The powers of the High Court under Article
226 of the Constitution of India are wider enough to provide complete
justice to the litigants, who are all approaching the High Court. Thus, the
concept of non-maintainability of the writ petition is to be examined with
reference to the mixed question of law and facts and not merely on the
ground that the Settlement Commission under the Income Tax Act passed
an order. This being the scheme of constitution under Article 226, this Court
is of the considered opinion that on the mere ground that an order was
passed by the Settlement Commission settling the disputes between the
parties, no writ petition needs to be dismissed as not-maintainable.
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
6. The learned Senior Standing Counsel cited the judgment of this Court
in the case of ACE Investments Limited vs. Settlement Commission
reported in [2003] 264 ITR 571 (MAD). This Court, relying on the
judgment of the Hon'ble Supreme Court of India, made an observation that
"in so far as the power of this Court to exercise its jurisdiction under article
226 of the Constitution of India, the law is well settled that the judicial
review of this Court is not concerned with the decision, but only with regard
to the decision making process. The above position of law was reiterated by
the apex court in the judgment in R.B.Shreeram Durga Prasad and
Fatechand Nursing Das's case [1989] 176 ITR 169 and this proposition of
law is also not disputed. Equally, the judicial review of this Court to
interfere with the order of the settlement Commission is not barred, if the
order of the Settlement Commission is in contravention to any of the
provisions of the Act. The law on this question is settled by the Apex court
in the judgment in Jyotendrasinhji's case [1993] 201 ITR 611. This
proposition of law is also not disputed. Equally the power of this Court to
interfere in the order of the Settlement Commission unless there is patent
illegality as held by this Court in C.A.Abraham's case [2002] 255 ITR 540
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
is also not disputed."
7. With reference to the powers of the Assessing Officer under Section
153A of the Income Tax Act, the learned Senior Standing Counsel referred
the judgment in the case of CANARA JEWELLERS vs. SETTLEMENT
COMMISSION reported in [2009] 184 Taxman 491 (Madras). This Court
held as follows:
11.So far as Section 245F is concerned, though the
Settlement Commission is empowered to have all the powers
which are vested in an income-tax Authority under the Act, in
addition to the power conferred under Chapter XIX-A, but such
power can be exercised for the purpose of procedure of
settlement of application under Section 245C and not for
reasssessment of tax of a particular year which is vested with
the Assessing Authority".
8. Relying on the above judgments, the learned Senior Standing Counsel
contended that the writ petition is maintainable and therefore, the issues are
to be adjudicated regarding the manner in which the decision was taken by
the Settlement Commission and the decision making process adopted with
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
reference to Section 245C of the Income Tax Act.
9. This Court is of the considered opinion that Section 245(C) of the
Income Tax Act enumerates that "An assessee may, at any stage of a case
relating to him, make an application in such form and in such manner as
may be prescribed, and containing a full and true disclosure of his income
which has not been disclosed before the Assessing] Officer, the manner in
which such income has been derived, the additional amount of income- tax
payable on such income and such other particulars as may be prescribed, to
the Settlement Commission to have the case settled and any such
application shall be disposed of in the manner hereinafter provided".
10. A reading of the section portrays that it is a special provision
contemplated enabling the assessee to settle the disputes in a peaceful
manner with the Department, if they have come out with full and true
disclosure of income. Such special provisions are enacted with an intention
to provide an opportunity to the assessee to settle the issues, in order to
rectify certain omissions, commission, mistakes etc., by the Assessee. In
view of the complex nature of business by the Entrepreneurs, it is possible
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
for such omission, commission, mistakes etc., while filing income tax
returns and furnishing other particulars. Thus, the legislative intention of
Section 245C is to provide an opportunity to the Assessee to settle the
issues, if they found some discrepancy or commissions, omissions in respect
of the disclosures made before the Assessing Officer at the first instance.
Since such enabling provisions are made with good intention and to provide
an opportunity to the assessee to correct the mistakes, it is to be done in the
manner prescribed. Section 245(C) unambiguously stipulates that the
application filed under Section 245(C) is to be disposed of in the manner
provided in the very section itself. Therefore, it is an exclusive provision
under the Act, wherein the procedures are also contemplated and certain
terms and conditions are also stipulated for the purpose of settling the
disputes.
11. Law presumes that every assessee discloses his true and full income
at all times. Law mandates that an assessee must file his returns and show
the income in a true and correct manner. While the law expects that an
assessee to be truthful and correct in his particulars, the additional
provisions for settlement of the disputes are provided enabling the assessee
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
to settle the disputes in the event of any correction, omission, commission or
mistakes etc. Thus, an application for settlement of cases cannot be
construed as an absolute right. But, it is a right of an assessee to approach
the Settlement Commission with full and true disclosure of his income. The
right of the assessee is well enumerated in many other provisions of the
Income Tax Act. The assessment made by the Assessing Officer at the first
instance would be the factor for all purposes and the settlement of the
disputes is an additional provision, enabling the assessee to correct certain
mistakes, if at all occurred or on account of various other factors. Thus, the
scope of Section 245C of the Income Tax Act cannot be compared with the
regular assessments to be made in accordance with the procedures
contemplated under the Act nor Section 245(C) can be tagged along with
the regular provisions for the purpose of settling the disputes between the
assessee and the Department.
12. In a common parlance, the settlement of disputes are possible, only
if there is a consensus between the parties to the disputes. The dictionary
meaning of "settlement" would show that the settlement can be made, if the
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
difference between the parties are narrowed down. Undoubtedly, the
Settlement Commission has got certain powers to settle the issues.
However, such power of settlement is absolutely guided by the provision
itself. That is the reason why the proviso clauses are provided under Section
245(C). The proviso clause stipulates that no application shall be made
unless certain terms and conditions are fulfilled. But Section 245(C)(1)
provides that it is a pre-condition to entertain an application that the
assessee must disclose full and true facts and the evidence. Thus, Sub-clause
(1) to Section 245(C) is the preliminary requirement for entertaining the
application under Section 245C.
13. A question arises who will be the deciding Authority for the full and
true disclosure as contemplated under Section 245C. When an application is
made by the assessee for settlement, then an assessee wil1 contend that the
particulars provided in the application are the full and true disclosure.
However, if the Department raises an objection regarding such full and true
disclosure made by the assessee, then the Settlement Commission is
empowered to go into the facts and circumstances and find out the
correctness or truthfulness of the disclosure made by the assessee.
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
Therefore, it is always a mixed question of fact and law and in order to
ascertain the entertainability of the writ petition, the High Court is bound to
look into the facts as well as the laws. In the absence of examining both the
facts and laws, it may not be possible to form an opinion, whether the
application filed under Section 245(C) of the Income Tax Act is
entertainable or not?
14. In the case on hand, the Settlement Commission formed an opinion
that the issues can be settled. However, there is no clear finding that the
application filed by the second respondent contains full and true disclosure
of income. If a clear finding is formulated and found in the order of the
Settlement Commission, then the High Court can restrict its scope to deal
with the facts. However, in the absence of any such clear finding that the
application filed by the second respondent contains full and true disclosure
of the income, then it is always arguable by the Department that such
disclosure is not in full form and the materials are not considered by the
Settlement Commission.
15. With reference to the order passed by the Settlement Commission,
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
regarding the pre-requisite condition under Section 245C and regarding full
and true disclosure, it is relevant to extract paragraph No.7.4 of the order
passed by the Settlement Commission which reads as under:
"7.4. The Applicant has made a prayer for granting immunity
from penalty and prosecution under the Income Tax Act. The
Applicant has co-operated in the proceedings before us. She has
also disclsed the manner in which such income was derived. We
now proceed to discuss if the Applicant has made full and true
disclosure of income. Admittedly we have directed that some
additional income is required to be further disclosed in respect
of some issues because there seemed to be a possibility that
perhaps there could be a component of income arising out of the
transactions concerned. It was only to cover such a possibility
that we have directed further disclosure to be made. In respect of
most of the issues, there was no evidence to conclusively
establish that there had been any under disclosure of income.
The Applicant also agreed to abide by our directions for further
disclsure not because she accepted any understatement of income
but basically with a view to bring quietus to the matter and in the
spirit of settlement. In these circumstances, we find that it cannot
be said that the disclosure of income by the Applicant was not
full and true. Thus the Applicant has satisfied the requisite
conditions prescribed u/s.245H of the Act. Accordingly we allow
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
the prayer of the Applicant for immunity from penalty and
prosecution under the Income Tax Act only so far as the same
relate to issues dealt with in this order of settlement."
16. A perusal of the above findings regarding full and true disclosure
reveals that the Settlement Commission itself is doubtful about the
disclosure made. Further, it reveals that some additional income and some
other particulars were also adjudicated by the Settlement Commission,
which were not disclosed by the assessee even at the time of filing of the
application under Section 245C of the Act.
17. Thus, let us consider the scope as well as the powers of the Settlement
Commission to entertain an application under Section 245(C) of the Income
Tax Act. When the Section in unambiguous terms contemplates that the
application in such form and in such manner as may be prescribed
containing a "full and true disclosure" alone is entertainable, then it
becomes a pre-requisite condition for entertaining an application under
Section 245(C). The phraseology 'full and true disclosure of his income' is
contemplated in Section 245(C)(1) itself. Thus, it is for the assessee to
establish at the first instance that the application contains full and true
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
disclosure of the income. Once the said factum is established, then alone the
question of settlement would arise and not otherwise.
18. The learned counsel appearing for the second respondent made a
submission that the Settlement Commission is empowered to adjudicate the
complete facts and circumstances with reference to the various provisions of
the Income Tax Act and even, empowered to make an assessment under the
provisions of the Income Tax Act. The contention as a whole need not be
taken into consideration in view of the fact that the Settlement Commission
has got powers to deal with facts and circumstances with reference to the
provisions of the Income Tax Act. However, the Settlement Commission
cannot make an independent assessment, which is the power of the
Assessing Officer under the Act. The Settlement Commission cannot usurp
the powers of the Assessing Officer. If such an exercise is allowed to be
exercised, then the very settlement provisions under Section 245C would be
defeated and the purpose and object also would be defeated. Thus, the scope
of Section 245C and the procedures contemplated under Section 245D are
to be scrupulously followed by the Settlement Commission, while dealing
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
with an application filed under Section 245C. The interpretation of these
provisions cannot be expanded so as to confer any additional power to the
Settlement Commission, which is otherwise to be exercised by the other
Competent Authorities of the Income Tax Department. In other words, what
is not contemplated under Section 245C and 245D cannot be conferred on
the Settlement Commission by the Courts nor the Settlement Commission is
competent to usurp the powers. Undoubtedly, the Settlement Commission
has to consider the mixed question of law and facts. But, while considering
the same, the Commission is not competent to exercise the powers and the
procedures contemplated beyond the scope of the provisions of the Act.
Thus, the powers of the Settlement Commission to deal with facts,
circumstances in consonance with the provisions of the Act are permitted.
However, the Settlement Commission cannot make an assessment or
exercise the powers conferred on the other Authorities under the provisions
of the Act.
19. As far as the original power of the Assessing Officer under Section
153(A) of the Act is concerned, the Division Bench of this Court in the case
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
of CANARA JEWELLERS vs. SETTLEMENT COMMISSION reported
in [2009] 184 Taxman 491 (Madras) held that "the Settlement Commission
is empowered to have all the powers which are vested in an income-tax
Authority under the Act, in addition to the power conferred under Chapter
XIX-A, but such power can be exercised for the purpose of procedure of
settlement of application under Section 245C and not for reasssessment of
tax of a particular year which is vested with the Assessing Authority".
20. Thus, the power of the Assessing Officer conferred under Section
153(A) cannot usurped by the Settlement Commission, which would defeat
the very scheme of the Act nor the original powers vested on the Assessing
Officer cannot be neutralized. In other words, in the event of permitting the
Settlement Commission to exercise the original power of assessment, then
the power of assessment of the Assessing Officer is not only diluted, but the
very provision will be frustrated. Thus, such a power is neither
contemplated nor intended. As per the Division Bench judgment, the
original assessment power vested with the Assessing Officer cannot be
exercised by the Settlement Commission.
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
21. In respect of maintainability of the writ petition, the learned Senior
Standing Counsel appearing for the writ petitioner made a submission that
the Department had established that during conduct of seizure, they
recovered the account books, incriminating evidences to establish that there
was no full and true disclosure in the application and the power of
assessment vested with the Assessing Officer must be allowed to be
exercised for the purpose of assessment. By overtaking the powers of
Assessing Officer, the settlement cannot be made under Section 245(C) of
the Income Tax Act.
22. There is a force in the argument as the very purpose and object of the
income Tax Act is to ensure that the income disclosure must be full and
true. In the event of any discrepancy, the Department must be provided with
an opportunity to make an assessment under Section 153(A) and without
making such assessment, the question of settlement would not arise at all.
Undoubtedly, if the said assessment made is accepted by the assessee, then
the issues can be settled and not otherwise. That is the reason why in the
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
event of non-consensus, the settlement of disputes are impermissible. If
there is a strong objection and confrontation regarding full and true
disclosure, then the power of assessment must be given to the Assessment
Officer by the Settlement Commission and the Settlement Commission
cannot usurp the power of the Assessing Officer under Section 153(A) of
the Income Tax Act.
23. In the present case, the petitioner could able to establish that they
have made all the particulars before the Settlement Commission regarding
the seizures made and the books of accounts and incriminating evidences
collected from the premises of the second respondent. The detailed working
of each year were submitted by the Department on 25.07.2013 before the
Settlement Commission. Accordingly, the petitioner/Department found that
there is a difference of more than 11 crores in disclosing the true and full
income of the second respondent. When such a dispute is raised, then the
Settlement Commission ought to have allowed the Assessment officer to
make a fresh assessment with reference to the newly recovered materials
under Section 153A of the Act. It is improper to settle the issues despite the
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
fact that there are controversies regarding the true and full disclosure of
income. This being the mixed question of law and fact, the High Court is
well within its powers to entertain the writ petition under Article 226 of the
Constitution of India, in view of the fact that the point of jurisdiction as well
as the powers of the Settlement Commission is raised as a ground for filing
the present writ petition. Thus, the writ petition is maintainable and the said
issue is answered in favour of the petitioner/Department.
24. Let us now consider the grounds raised in the writ petition.
25. The learned Senior Standing Counsel appearing on behalf of the writ
petitioner-Department made a submission that even before filing of an
application by the second respondent-assessee under Section 245C of the
Act, the petitioner-Department conducted a search under Section 132 of the
Act in the residential premises of the assessee and the said search revealed
detection of unaccounted stock of gold and diamond jewellery, unaccounted
cash and several incriminatory records and the assessee, before the
authorities, admitted the undisclosed income to the tune of Rs.70.65 crores.
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
After the search, notices under Section 153A of the Act were issued for the
assessment years 2007-08 to 2012-13. The assessee filed her return of
income on 25.03.2013 for these years relying on the said search conducted
under Section 132 of the Act.
26. The learned Senior Standing Counsel made a submission that when
large quantity of undisclosed income, incriminating evidences were
recovered by the Department, then the application filed thereafter under
Section 245C of the Act, must be verified by the Settlement Commission, if
those incriminating evidences recovered are also included in the application
so as to entertain the application, as there is a pre-requisite condition under
the provision that the assessee must make full and true disclosure of income.
When true and full disclosure of income is contemplated as a pre-condition
under the Act, then the Settlement Commission is obligated to consider the
submission made by the Department regarding the incriminating evidences
and undisclosed income recovered from the assessee.
27. As far as the application filed by the assessee under Section 245C of
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
the Act is concerned, the disclosure made in the application is far lesser than
that of the actual income, which was identified by the Department more
specifically, while conducting search. Even the difference is not meagre or
the differential amount of income is huge, therefore, there is no reason for
the Settlement Commission to entertain an application under Section 245C
of the Act at all.
28. This Court is of the considered opinion that the provision for
settlement is an enabling provision to settle the dispute between the parties.
Therefore, law expects that the parties, who are approaching the Settlement
Commission by way of application, must disclose full and true income in
the event of any difference or confrontation in this regard such an
application for settlement cannot be entertained. Contrarily, the Assessing
Officer must be permitted to make regular assessment of income under
Section 153A of the Act. It is further contended that the differential amount
of income is crossing Rs.25 Crores and all these facts were placed before
the Settlement Commission by the Department. In this regard, it is
contended that the Settlement Commission has committed an error in
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
adopting the decision making process, as the process adopted is totally in
contravention to the facts and circumstances established by the Department
and further, such facts and circumstances are not correlating with the
application filed by the assessee under Section 245C of the Act. When there
are discrepancies and doubt arises with regard to the true and full disclosure
of income, then the natural course of action would be that the Assessing
Officer must be permitted to make a regular assessment under Section 153A
of the Act and settlement cannot be arrived under doubtful circumstances.
In such circumstances, settlements are impermissible and cannot be
construed as settlement at all.
29. The very concept of settlement is depending on the mutual consensus
and in the absence of element of mutual consensus between the parties, the
settlement by the Settlement Commission cannot be unilateral and in such
an event, Settlement Commission is usurping the powers of the Assessing
Officer under other provisions of the Act. In other words, every authority
under the Income Tax Act, 1961 is expected to exercise the powers as
contemplated.
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
30. The question of exercise of excessive powers or jurisdiction would
arise, if the authority made an attempt to travel beyond the scope of the
provision under which, such powers are conferred to a particular authority.
In the instant case, the power of the Settlement Commission is well
enumerated under Section 245C and 245D of the Act. The manner in which
settlement is to be arrived is also contemplated under the Act. Certain pre-
conditions are also stipulated. Thus, the Settlement Commission cannot
enter into the venture of assessment, which is the power of an Assessing
Officer under Section 153A of the Act. Therefore, this Court is of an
opinion that in the absence of any true and full disclosure, the Settlement
Commission cannot go beyond the scope of Section 245C of the Act and
adjudicate the additional income found by the Department during seizure,
which is admittedly not disclosed in the application filed at the first instance
by the assessee.
31. In the instant case, the assessee having knowledge about the search
and received notice under Section 153A of the Act, ought to have submitted
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
all such particulars along with the application including the undisclosed
income recovered by the Department in the application itself. The very fact
is that the assessee had not filed any details regarding the undisclosed
income recovered by the Department in her application under Section 245C
of the Act and therefore, the very application for settlement is certainly not
entertainable and prima facie the Department established that the assessee
had not approached the Settlement Commission with clean hands.
32. To substantiate the said contention, it is relevant to consider the
findings of the Settlement Commission more specifically, the findings from
paragraphs 6.3 to 6.6, which are all extracted hereunder:-
“6.3. Cash amounting to Rs.96,44,870/- was found
during the search though the cash book showed a
balance of only Rs.3,26,710/-. It has been claimed that
certain sales had been effected prior to the date of the
search which had remained to be entered in the books
of account. Such unrecorded sales proceeds
amounting to Rs.62,71,694/- received by way of cash
are claimed to represent a part of the cash found
during the search. It was argued that credit should be
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
given for the same. The learned AR pointed out that
the physical stock in the shop at the time of the search
was less than the stock recorded in the other set of
books. This indicates that there must have been some
sales, in respect of which bills had remained to be
issued. While this explanation may perhaps be true but
the fact remains that no evidence was found during the
search which establishes the fact that any sales had
remained to be entered in the books. Hence we are of
the view that there is no clinching evidence to support
the explanation for excess cash amounting to
Rs.62,71,694/-. Further disclosure to the extent of
Rs.62,71,694/- is, therefore, required to be made on
this account. The learned AR vehemently argued that
the sales had actually taken place and the
corresponding cash received formed part of the cash
found during the search. However, he stated that, in
the spirit of settlement and to bring a quietus to the
matter, a further amount of Rs.62,71,694/- is also
offered for taxation for the A.Y. 2013-14.
6.4. During the search, the Applicant had stated that
jewellery weighing 859.300 grams found in the locker
had been taken from the shop for personal use. She
had made an offer of Rs.23 lakhs as undisclosed
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
income on this account. 225 grams of jewellery was
also found at the residence. It was argued before us
that, considering the size of the family, the possession
of 1084.300 grams of gold jewellery was not abnormal.
We admit that, considering the size of the family, the
possession 1084.300 grams of jewellery is not
unreasonable. It is quite possible that the explanation
of the Applicant is correct. At the same time, we have
to keep in mind the fact that the Applicant had stated
during the search that jewellery weighing 859.300
grams pertained to the shop and did not belong to her.
This statement has never been retracted. We,
therefore, of the view that the value of the jewellery
which was estimated at Rs.23 lakhs is required to be
further disclosed. The learned AR stated that, though
the jewellery was actually owned by the Applicant and
her family members, the Applicant was willing to offer
a sum of Rs.23 lakhs for the A.Y. 2013-14 in the spirit
of settlement.
6.5. As regards payment of 'on money' for
acquisition of properties (summarised in paras 2.3.2 to
2.3.5 above), it has been argued before us that the
value of such properties as per the registered
documents was much below than what has been
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
admitted by the Applicant's son at the time of the
search. It was argued that this statement had been
given as the son was not aware of the value of the
properties as per the documents. The necessary
records in this respect were not available at that time.
It has also been argued that no material was unearthed
during the search to indicate that there was any 'on
money' payment in respect of these properties over and
above the documented value. After considering the
matter, we agree that no evidence was found during the
search to establish that any 'on money' was paid in
respect of these properties. We also agree that the
Applicant's son did not have the relevant documents
which is statement was being recorded during the
search. At the same time, it has also to be kept in mind
that a statement to this effect had been made during the
search which has not been retracted. We, therefore,
are of the view that the value of the properties over and
above the documented value (as admitted at the time of
the search) is required to be further disclosed as
unaccounted income. The learned AR stated that, even
though no evidence was unearthed during the search in
respect of such 'on money' payment, the Applicant
wishes to bring a quietus to the matter and hence is
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
willing to offer the following amounts:-
Property Value stated Value in Differen A.Y. Further
at in 132(4) Document ce disclos
statement ure
Bangalor 60,00,000 43,00,000 17,00,000 2011- 10,00,0
2012- 7,00,
K.K.Pudu 40,45,000
r, 60,00,000 19,55,000 19,7 2011- 40,64,7
Duty & 40,64,750
Others
Ganapath 27,15,000
y Stamp 40,00,000 12,85,000 1,16,69 2011- 28,31,6
others 28,31,690
6.6. There is another aspect in this case which we
would like to discuss. The Applicant has quantified the
undisclosed income on the basis of 'Net Accretion to
Asset Method'. However, considering the status of the
Applicant, there exists a possibility that there would
have been substantial drawings for personal purposes
out of the undisclosed business income. There is also a
possibility of some undetected errors and omissions
being present in the regular books of account. We are
of the view that this possibility is also required to be
covered even though there is no evidence to establish
any such drawings or error and omissions. In our
opinion, a total sum of Rs.3.30 crores is further
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
required to be disclosed as given below:-
(Amount in Rupees)
A.Y. Addition
2007-08 15,00,000
2008-09 25,00,000
2009-10 35,00,000
2010-11 45,00,000
2011-12 55,00,000
2012-13 70,00,000
2013-14 85,00,000
Total 3,30,00,00
33. Perusal of the above findings of the order of the Settlement
Commission clearly established that there are many additions regarding the
undisclosed income by the assessee. The additions are made due to the
search conducted and the Department has stated that the undisclosed income
are more and a regular assessment is to be made in order to scrutinise all the
books of accounts and incriminating evidences for the purpose of forming
an opinion and to determine the tax payable by the assessee. When such an
exercise to be made under the Act is not permitted and if the issues are
settled, then this Court has no hesitation in holding that the very purpose
and object of the provisions of the Act is defeated. This apart, the very
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
scope of Section 245C of the Act cannot be widened so as to permit the
Settlement Commission to make a regular assessment, which is not
contemplated.
34. The very factum that there are additional disclosures of income
during the pendency of the Settlement Commission, which were not made
available at the time of application by the assessee under Section 254C of
the Act there is a sufficient cause to reject the application under Section
245C of the Act. The very spirit of the provision is that the application
must contain full and true disclosure of income. Once it is established that
the application dose not contain full disclosure of income and additions are
made during the pendency of the application, it is sufficient to arrive a
conclusion that the application made by the assessee is not in consonance
with the provisions of Section 245C of the Act and therefore, the same is
liable to be rejected in limine. Contrarily, in the present case, the Settlement
Commission travelled beyond the scope of Section 245C of the Act and
adjudicated the additional income disclosed and further gone to the extent
of settling the issues based on the additional income, which were not
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
disclosed at the time of filing of an application under Section 245C of the
Act.
35. In view of the facts and circumstances, it is established that the
assessee has not approached the Settlement Commission with clean hands.
The assessee has not disclosed the true and full income and more
specifically, the undisclosed income recovered during the search were not
made available before the Settlement Commission along with the
application and this would be sufficient to reject the application by the
Settlement Commission. Contrarily, the Settlement Commission proceeded
by adjudicating the issues on merits on the presumption that the Settlement
Commission can pass an assessment order, which is otherwise not
permissible under the provisions of Section 245C of the Act. Thus, the
order passed by the Settlement Commission is perverse and not in
consonance with the provisions of the Income Tax Act, 1961 and the
Settlement Commission exceeded its jurisdiction by entering into the
venture of a regular assessment, which is otherwise to be made by the
Assessing Officer under the other provisions of the Income Tax Act, 1961.
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
36. Accordingly, the order passed by the first respondent-Settlement
Commission in S.A.No.TN/CN.53/2013-14/1/IT, dated 31.07.2013 is
quashed and consequently, the petitioner-Department is permitted to
proceed with the regular assessment through the competent authority under
the provisions of the Act and by following procedures as contemplated so as
to determine the tax payable and to initiate all further actions, in accordance
with law.
37. Accordingly, this writ petition stands allowed. No costs.
09.04.2021
ssb/abr
Index: Yes/No
Internet:Yes/No
Speaking order/Non-Speaking Order
https://www.mhc.tn.gov.in/judis/
W.P.No.16552 of 2014
S.M.SUBRAMANIAM, J.
ssb/abr
To
Income Tax Settlement Commission
Additional Bench
640, Anna Salai, Nandanam
Chennai-600 035.
W.P.No.16552 of 2014
09.04.2021
https://www.mhc.tn.gov.in/judis/
