PRINCIPAL COMMISSIONER OF INCOME TAX, SURAT-1 vs. M/S SAMARTH INDIA

COMMON ORAL ORDER (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI)

in capital

account

of Rs.1,51,50,052/-, it was pointed out that such amount had duly been considered in the combined cash flow of Shri M.D. Patel and the settlement petition of the group. The details of addition to capital account of Rs.1,51,50,052/- are set out in paragraph 4.1.1 of the impugned order.

income

for the year

under consideration viz. assessment year 2004-2005. In terms of the report made by the Principal Commissioner of Income Tax under rule 9 of the rules after the Settlement Commission allowed the application to be proceeded further under sub- section (2D) of section 245D of the Act, the Assessing Officer had proposed the following additions: Asst. Yr. Amount of addition Nature of addition 2004-05 1,12,06,467 Unexplained Capital Introduced 3,69,690 Unexplained Purchases @25% 1,21,413 Disallowance of administrative expenses @ 10% 10,11,348 Disallowance of interest on capital 1,94,664 Disallowance of trading expenses @ 5% Total 1,29,03,582/- 6.On 27.11.2017, the respondent – applicant gave its comments to the contents of the above report by a reply as contemplated under rule 9A of the rules, wherein it had dealt with additions proposed by the Assessing Officer as follows:

The Settlement

Commission accordingly, settled the cases of the respondents/applicants on the terms and conditions set out in the impugned order. Being aggrieved, the petitioner has filed the present petitions. 10.From the submissions made on behalf of the petitioner, it appears that it is these amounts of Rs.2,07,498/- and Rs.1,94,644/- which the respondents/applicants had offered to put an end to the issue and to buy peace of mind and which came to be accepted by the Settlement Commission, which form the core of the dispute in the present petitions. 11.Mr. Nikunt Raval, learned counsel for the revenue submitted that offering such amounts by the applicants vide their letter dated 8.6.2018, would amount to amending their applications made under section 245C(1) of the Act and would also tantamount to the applicants not having made a full and true disclosure of their unaccounted income in their original applications filed before the Settlement Commission and hence, the Settlement Commission ought not to have disposed of the applications under section 245D(4) of the Act. In support of his submission, the learned counsel placed reliance upon the decision of this court in the case of Principal Commissioner of Income Tax Vadodara v. Shree Nilkanth Developers, (2016) 73 taxmann.com 76 (Gujarat), wherein it has been observed thus:

“15. One of the prime requirements for settlement is of filing an application under sub section (1) of Section 245C of the Act by the assessee which would contain a full and true disclosure of his income which has not been disclosed before and the manner, in which, such income has been derived. If the assessee fails in this requirement, the application would have to be rejected. In this context, we may refer to the decision of the Supreme Court in case of Ajmera Housing Corpn. (supra) in which it was observed that a full and true disclosure of income which has 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 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 an application filed under Section 245C(1) and the determination of income by the Settlement Commission has necessarily to be with reference to the income disclosed in the application filed under that section. Revision of income would tantamount to revision of application, no contemplated in the scheme......” 12.From the averments made in the memorandum of petition, it further appears that the order of the Settlement Commission is sought to be challenged on the ground that it is a non- reasoned order. 13.It is in the backdrop of the aforesaid facts and contentions that the validity of the impugned order passed by the Settlement Commission is required to be examined. On a perusal of the impugned order, it can be seen that the Settlement Commission has considered the additions proposed by the Assessing Officer and the explanation given by the respondents/ applicants and has been satisfied with such explanation. Insofar as the addition on account of unexplained capital introduced is concerned, the authorised representative had also explained that the capital so introduced had been duly considered in the combined cash flow of Shri Mohan D. Patel and that all payments and receipts of the 154 parties (the two applicants being one of them) has been included in the cash flow of Shri Mohan D. Patel which formed the basis of the settlement application filed by him. In this regard, the Settlement Commission has considered the fact that the applicants had submitted affidavits on the same lines as submitted by its group members which were accepted by the department, based on which those petitions were disposed of vide order dated 8.11.2017 passed under section 245D(4) of the Act. Moreover, the applicants had also submitted that if at any stage these affidavits are found to be false, it may be treated as a misrepresentation of facts as per section 245D(6) of the Act and the consequences as per section 245D(7) thereof may follow in case of the two applicants. Insofar as the other proposed additions are concerned, the applicants had explained the same and the Settlement Commission had found the same to be acceptable. Considering the nature of the proposed additions and the explanation put forth by the applicants, no infirmity can be found in the approach of the Settlement Commission in accepting such explanation. 14.As noticed earlier, the revenue appears to be mainly aggrieved by the fact that in respect of proposed additions viz., proposal to disallow 5% of the trading expenses of Rs.38,93,299/- amounting to Rs.1,94,664/- in case of Samarth India

and Rs.41,49,973/-

amounting

to Rs.2,07,498/- in case of Shreyansh Corporation, the applicants, by their letter dated 8.6.2018, had submitted that such expenses are genuine; however, to put an end to the issue and to buy peace of mind, the applicants offered to tax Rs.1,94,664/- and Rs.2,07,498/- respectively; which came to be accepted by the Settlement Commission. According to the petitioner, acceptance of such liability on the part of the applicants amounts to non-disclosure of full and true facts in the applications filed by them under section 245C of the Act, and hence, the Settlement Commission ought not to have decided the applications under section 245D(4) of the Act, but ought to have rejected them for non- disclosure of full and true facts. 15.In the considered opinion of this court, the stand of the petitioner in the present petitions is against the spirit of settlement as envisaged under section 245D of the Act. Proceedings before the Settlement Commission are in the nature of settlement between the parties and are not strictly speaking adjudicatory proceedings. On a perusal of the impugned order passed by the Settlement Commission, it is abundantly clear that both the respondents had not accepted the liability of 5% of trading expenses, but in the spirit of settlement offered to pay the amount computed by the Assessing Officer with a view to bring the quietus to the matter and buy peace of mind. This court is of the view that the offer to pay such amounts in addition to the amounts disclosed in the applications under section 245C of the Act cannot be said to be disclosure of any further amounts under that section as the same have been offered only to bring about a settlement. The fact that the applicants have offered to pay such amounts, the liability whereof has not been accepted by them, cannot be termed as non-disclosure of full and true facts in the applications under section 245C of the Act. Under the circumstances, considering the amounts so offered by way of settlement which are quite meagre considering the overall disclosure made, this court does not find any infirmity in the impugned order passed by the Settlement Commission warranting interference in exercise of powers under article 226 of the Constitution of India. 16.The decision of this court in the case of Shree Nilkanth Developers (supra) would not be applicable to the facts of the present case, inasmuch as in the facts of that case as well as in the case before the Supreme Court in Ajmera Housing Corporation v. CIT, (2010) 326 ITR 642, which finds reference therein, there were revised disclosures which were drastic in nature as compared to the initial disclosure made in the applications for settlement. The Supreme Court has frowned upon any revision in the disclosures initially made as the same would amount to the initial disclosure not being full and true disclosure. In the facts of the present case, no revised application under sub-section (1) of section 245C of the Act had been filed by the respondents revising the initial disclosures. The respondents/ applicants have not made any revised disclosures, nor have they accepted the liability to pay the additional amounts. Nonetheless, in the spirit of settlement, the respondents- applicants have, offered to pay such amounts to bring a quietus to the matter and buy peace of mind. Moreover, the additional amounts which the respondents have agreed to pay are meagre considering the overall amounts disclosed in the applications under section 245C(1) of the Act. Under the circumstances, the contention that there was no full and true disclosure in the applications made under section 245C(1) of the Act, does not merit acceptance. 17.Insofar as the contention that the impugned order is a non-reasoned order, from the facts noted hereinabove, it is evident that the Settlement Commission has applied its mind to the nature of disclosures, the contentions of the revenue and the explanation of the respondent- applicants and has given its findings thereon. On a perusal of the impugned order it is not possible to state that it is a non-speaking order.

Such contention

is,

therefore, misconceived. 18.In the light of the above discussion, this court does not find any infirmity in the impugned order, so as to warrant interference. The petitions, therefore, fail and are accordingly, summarily dismissed. (HARSHA DEVANI, J) (SANGEETA K. VISHEN,J) BINOY B PILLAI