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Facts
During a search action, the assessee, a partnership firm, filed an application before the Income Tax Settlement Commission (ITSC), offering additional income (Rs. 32,00,000 for AY 2012-13, and a total of Rs. 2,26,50,000 for AYs 2012-13 to 2018-19) on an ad-hoc basis to avoid litigation. This application was subsequently rejected by the ITSC. The Assessing Officer (AO) then made additions based solely on this disclosure. For the Assessment Year 2012-13, which was a non-abated assessment year, no incriminating material was found during the search.
Held
The Income Tax Appellate Tribunal (ITAT) held that for a non-abated assessment year, additions can only be made based on incriminating material found during a search. Since no such material was found, and the disclosure before the ITSC was made voluntarily without incriminating evidence and the application was rejected, the information provided to the ITSC could not be used as the sole basis for making additions. Relying on judicial precedents, the ITAT deleted the additions made by the AO and sustained by the CIT(A).
Key Issues
Whether additions made solely based on the assessee's disclosure before the Income Tax Settlement Commission (ITSC) in a non-abated assessment year are valid when no incriminating material was found during a search operation.
Sections Cited
250, 153A, 143(3), 245D, 245C, 245HA, 271(1)(c), 132, 132A, 139, 147, 149, 151, 153, 37, 40(a), 263
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Income Tax Appellate Tribunal, “E” BENCH MUMBAI
Before: SHRI SANDEEP GOSAIN & SHRI PRABHASH SHANKAR
Assessee by Shri Rajiv Khandelwal Revenue by Shri Biswanath Das, CIT DR सुनवाई क" तारीख/Date of Hearing 28.11.2024 घोषणा क" तारीख/Date of Pronouncement 24.01.2025 आदेश / ORDER PER BENCH: The present appeals have been filed by the assessee challenging the different impugned orders passed u/s 250 of the Income Tax Act, 1961 (‘the Act’) dated 30.05.2020, by the learned Commissioner of Income Tax (Appeals) - 48, for the A.Ys 2012-13 to 2018-19. 2 HK Enterprises, Mumbai
Since all the issues involved in these appeals are common and identical, therefore, they have been clubbed, heard together and consolidated order is being passed for the sake of convenience and brevity. We shall take A.Y 2012-13 as lead case and facts narrated therein. The assessee has raised the following grounds of appeal:
The Ld. CIT(A) has erred in law and in facts in confirming the additions made by the Assessing Officer without any incriminating evidence found at the time of search.
2. The Ld. CIT(A) has erred in law and in facts in confirming the addition of 32,00,000/- on account of additional income offered in the application filed u/s. 245D(1) of the Act before the Honorable Income Tax Settlement Commission. 3. The appellant craves leave to add to, alter, amend and/or delete in all the foregoing grounds of appeal 3. Ground No. 1 & 2 both the grounds raised by the assessee are interrelated and interconnected and relates to challenging the confirmation of additions by the assessee on account of additional income offered in the application filed u/s 254(d) of the Act before the Hon’ble Income Tax Settlement Commission (ITSC) in the absence of any incriminating evidence found at time the of search. Therefore, we have decided to dispose off these grounds through the present consolidated order.
The Ld. AR appearing on behalf of the assessee reiterating the same arguments as were raised by him before the revenue authorities and also relied upon the written 3 HK Enterprises, Mumbai submissions submitted by him before Ld. CIT(A) and the same is reproduced herein below:
Written submissions of the appellant 1. The appellant is a partnership firm engaged in bulk import of commodities mainly coal, coke, metal scrap etc. For the year under consideration, the appellant has filed its return of income on 16.09.2012 declaring total income at 29,48,060/-. The return was subject to scrutiny assessment and order u/s. 143(3) of the Act was passed on 25.02.2015 determining the total income at 29,48,060/-, Later, search action was carried out on 16.11.2017 in the case of the appellant and group concerns. Subsequently, notice u/s. 153A of the Act was issued on 01.01.2019 and the appellant filed a return in response to the same on 14.02.2019 declaring total income of ` 29,48,060/-. During the course of assessment proceedings, the appellant appeared before the Assessing Officer and submitted details as sought by the Assessing Officer. The assessment was completed vide order passed u/s 153A r.w.s 143(3) of the Act dated 06.03.2020 wherein total income is determined at `61,48,060/-. Being aggrieved by the said order, the appellant has preferred this appeal before Your Honour.
2. In the appeal filed before Your Honour, the following grounds have been raised by the appellant: "1. The Learned Assessing Officer (AO) has erred in law and in facts in passing the order under section 143(3) r.w.s. 153A of the Act and determining the total income at Rs. 61,48,060/- as against returned income of Rs. 29,48,060/- filed u/s. 153A of the Act on 14-02-2019 (same as original return of income).
2. The AO has erred in law and in facts in passing the assessment order and without giving effective opportunity of hearing to the appellant. The order has been passed without observing principles of natural justice.
3. The AO has erred in law and in facts in not appreciating that the A.Y. 2012-13 is non-abated assessment and that no incriminating evidence has been brought on record in the assessment order in respect of additions made.
4 HK Enterprises, Mumbai
4. The AO has erred in law and in facts in making addition of sum of Rs. 32,00,000/- on account of additional income offered for the AY 2012-13 in the application filed u/s. 245D(1) of the Act before the Hon'ble Income Tax Settlement Commission (ITSC) as mentioned herein below: A.Y Adhoc Disallowance Further adhoc Total Additional of business disallowance of Income expenses expenses 2012-13 32,00,000 --- 32,00,000 2013-14 32,00,000 50,000 32,50,000 2014-15 32,00,000 --- 32,00,000 2015-16 32,00,000 50,000 32,50,000 2016-17 32,00,000 50,000 32,50,000 2017-18 32,00,000 50,000 32,50,000 2018-19 32,00,000 50,000 32,50,000 Total 2,24,00,000 2,50,000 2,26,50,000
The AO has erred in law and in facts in not granting set-off of alleged addition of additional income offered before ITSC against additions made on account of alleged unexplained cash credits.
6. The AO has erred in law and in facts in initiating penalty proceedings u/s. 271(1)(c) of the Act. 7. The appellant craves leave to add, amend, modify alter and/or delete any of the above grounds before or during the course of hearing of appeal." 3. Ground of appeal
nos. 1 & 2 are general in nature and dealt with other grounds of appeal.
4. In ground of appeal no. 3, the appellant has challenged the action of the assessing officer in making addition without any incriminating material found at the time of search action carried out at the premises of the appellant.
5. In this regard, the appellant submits that that the present proceedings are carried out u/s. 153A of the Act and hence the assessment has to be guided by the said provisions. As per s. 153A of the Act, any assessment or reassessment pending on the date of initiation of search shall abate and merge into the assessment proceedings initiated u/s. 153A of the Act. In respect of a non-abated assessment year, the assessment can be made 5 HK Enterprises, Mumbai only on the basis of incriminating material found in the course of search.
No incriminating material found for which additions are made in the assessment order.
It is submitted that the present year ie. A.Y. 2012-13 is a non abated assessment year as the assessment was already completed vide assessment order u/s 143(3) of the Act dated 23.03.2015 as on date of initiation of search. Hence, addition, if any, can only be made with respect to incriminating material found at the time of search.
7. In the impugned assessment order, the assessing officer has made addition on account of disclosure made before Hon'ble Settlement Commission of ` 32,00,000/-.
As regards addition on account of disclosure made by the appellant before Hon'ble Settlement Commission, it is submitted that the applicant had filed application before Hon'ble Settlement Commission on 27.12.2019 wherein various disclosures were made. Further, the applicant had offered income of 32,00,000/- on ad hoc basis for the current year to cover up any discrepancies and buy peace of mind. Later, the application of the appellant got rejected vide order dated 06.01.2020. As the appellant had offered such income, the assessing officer proceeded to make addition of the same in the hands of the appellant. It is submitted that the additional disclosure of income before Hon'ble Settlement Commission was not towards any particular unaccounted income which had escaped assessment or for which any evidence found at the time of search. Hence, the aforesaid addition made is also without any incriminating material found at the time of search.
9. Thus, no incriminating material was found during the course of search. It is a settled law that in case of a non-abated assessment, addition can be made only on the basis of incriminating material found during the course of search.
In this regard, reference is invited to the decision of Hon'ble Special Bench of the Mumbai Tribunal in the case of All Cargo Global Logistics Ltd. v. DCIT [137 ITD 287] wherein on the identical issue involved, it was held as under:
6 HK Enterprises, Mumbai "58. Thus, question no. 1 before us is answered as under:
In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s. 153A for which assessments shall be made for each of the six assessment years separately; In other cases, in addition to the income that already been assessed, the assessment u/s. 153A will be made on the basis of incriminating material, which in the context of relevant provisions means (i) books of account, other documents found in the course of search, but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search."
This decision is subsequently affirmed by Hon'ble Bombay High Court in CIT v. Continental Warehousing Corpn (Nhava Sheva) Ltd and others [374 ITR 645) wherein it is held as under: 23. We are of the view that there is much substance in the contentions of Mr. Dastur that the provisions such as section 153A enabling assessment in case of search or requisition making specific reference to the provisions which enable carrying out of search or exercise of power of requisition that the assessment in furtherance thereof is contemplated.
24. His reliance upon the Division Bench judgment of this Court in that context is, therefore, well placed.
We do not see as to how while allowing the appeal of the assessee and setting aside the order of the Commissioner under section 263 could the judgment be said to be laying down a proposition and as canvassed by Mr. Pinto. True it is that the assessment which has to be made in pursuance of the notice is in relation to the six years. An order will have to be made in that regard. While making the order the income or the return of income filed for all these assessment years is to be taken into account. A reference will have to be made to the income disclosed therein. However, the scope of enquiry, though not confined as held by the High Court of Karnataka, it essentially revolves around the search or the requisition under section 132A as the case may be. We do not find anything in these observations and reproduced above which would enable us to conclude that the Division Bench 7 HK Enterprises, Mumbai judgment of this Court in the case of Murli Agro requires reconsideration or does not lay down a correct principle of law. We cannot, therefore, accede to the submissions of Mr. Pinto and revisit any of the conclusions rendered by the Division Bench of this Court."
12. The SLP filed against this decision of the High Court has been dismissed by Hon'ble Supreme Court in the case of CIT v. Continental Warehousing Corpn (Nhava Sheva) Ltd [SLP (C) 18446/2018] dated 09.07.2018.
13. Reliance is placed on the decision of Hon'ble Bombay High Court in the case of PCIT v. Jignesh P. Shah [99 taxmann.com 111] wherein the court confirmed the order of the Tribunal that where assessment for relevant years had already attained finality and no incriminating material was found during the search relating to addition made, the addition was held to be invalid.
Reliance is also placed on the decision of the Hon'ble Delhi High Court in the case of CIT v. Kabul Chawla [380 ITR 573] wherein it was held that completed assessments can be interfered with by the Assessing Officer while making the assessment under s. 153A of the Act only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.
15. As can be seen from the above decisions, it is now a settled law that in cases where assessments are not abated, the provisions of s. 153A can be invoked only in respect of the income which is found to have escaped assessment as a result of incriminating material found during the course of search. In fact, the very scheme of s. 153A of the Act itself suggests that it is an assessment in case of search or requisition. Moreover, the provisions of s. 153A are also operative notwithstanding anything contained in s. 139, 147,149,151 and 153 of the Act. Thus, the assessments in the present case can be completed only based on the evidences found as a result of search and the past assessments completed cannot be disputed or disturbed unless any evidence is found as a result of search.
8 HK Enterprises, Mumbai
16. In view of the above submissions and judicial precedents, we submit that since no evidences to prove that the additional income was earned were found during the course of search, no addition on account of the same can be made in the hands of the appellant.
17. Thus, it is prayed that the present year being non abated year, the additions without any incriminating material cannot be made in the eyes of law. Hence, the additions made by the assessing officer in the assessment order be kindly deleted. 18. In ground of appeal
no. 4, the appellant has challenged the action of the Assessing Officer in making addition of additional income offered for the year before Hon'ble Income Tax Settlement Commission aggregating to 32,00,000/-.
19. During the course of assessment proceedings carried out pursuant to search, the appellant filed application before Hon'ble Settlement Commission u/s. 245C of the Act for A.Υ. 2012-13 to A.Υ. 2018-19 on 27.12.2019 in order to settle the case. In the said application, the appellant had declared additional income aggregating to 2,26,50,000/- in the settlement commission for all the said years. For the year under consideration, the appellant had declared additional income of 32,00,000/-. An order u/s. 245D(1) of the Act was passed on 06.01.2020 rejecting the application of the appellant. Accordingly, the jurisdiction of the case was transferred to the assessing officer to pass the assessment order. In the assessment order, the assessing officer has stated that as additional income was suo moto declared by appellant and hence as per s. 245HA(3) of the Act stated that all material filed before Hon'ble Settlement Commission can be used for completion of the assessment. Accordingly, he proceeded to make addition of additional income declared before Hon'ble Settlement Commission amounting to 32,00,000/-.
20. In this regard, it is submitted that the action of the assessing officer in making addition on account of disclosure made before Hon'ble Settlement Commission is incorrect and invalid as per law. It is submitted that for current year, the appellant had offered additional income only to buy peace of mind and to avoid ruinous litigation. Disclosure made in settlement proceedings cannot be solely used to make addition in assessment proceedings 9 HK Enterprises, Mumbai
21. It is submitted that the appellant had disclosed information in its settlement application before Hon'ble Income Tax Settlement Commission. The settlement application came to be rejected vide order dated 06.01.2020 u/s. 245D(1) of the Act. All information submitted in the said settlement application is confidential in nature. This information cannot be used by any other authority for using it against the appellant.
22. Further, no incriminating material has been found relating to earning of aforesaid income. The additional income offered during the year was only to buy peace of mind and avoid ruinous litigation. The appellant has offered 32,00,000/- as adhoc disallowance of Business Expenditure for the year. The appellant had stated in their application before Hon'ble Settlement Commission that these expenses are genuine in nature and backed with evidences. It was only to cover up any deficiency and/or omission in total income and to buy peace of mind that such expenditure was disallowed. Moreover, in the present case, the application before Hon'ble Settlement Commission was not admitted at initial stage by virtue of order u/s 245D(1) of the Act dated 27.12.2019. Hence, the details and records of the appellant filed before Hon'ble Settlement Commission cannot be available with the department and that the same cannot be used against the department. Further for the said year, during scrutiny assessment in past, there has been no disallowances of expenses. The return of income has been accepted. 23. In this regard, the relevant para of the Statement of Facts forming part of the Application filed before the Hon'ble Income Tax Settlement Commission is reproduced as below: 38. In the course of business carried on by the applicant, several expenses are incurred and claimed the deduction in the returns filed for various years. Although, all the expenses are genuine and that no evidences have been found as a result of search, with a view to buy peace of mind and to cover any possible deficiency and/or omission in any of these evidences with respect to these expenses incurred, the applicant has quantified the disallowance of business expenses for A.Y. 2012-13 to A.Y. 2018-19 on estimated basis. The applicant seeks to offer following 10 HK Enterprises, Mumbai disallowance of business expenses as income in the respective assessment years as income.
Relevant extracts of statement of facts filed before Hon'ble Settlement Commission is enclosed herewith.
24. In light of the above, it is submitted that the additional income offered of 32,00,000/- was only to buy peace of mind and avoid ruinous litigation and same cannot be basis to make addition by the Assessing Officer without any incriminating material found with respect to such additional income.
In this regard, reliance is placed on the decision of Hon'ble Gujarat High Court in the case of CIT v. Maruti Fabrics (47 taxmann.com 298] wherein the Gujarat High Court has held that whatever material is produced alongwith application by assessee before Settlement Commission or result of inquiry held or evidence recorded by Settlement Commission in course of proceedings before it can be used by adjudicating authority against the appellant as if same had produced before such Central Excise Officer provided there is incriminating material for the same. If no evidences are found for such disclosure made, addition of said amount cannot be made. The relevant extract of the decision is reproduced below: "3. The aforesaid cannot be accepted as the same has no substance. Considering sub-section (2) of section 32L of the Act, in a case where an order is passed by the Settlement Commission under sub-section (1) of section 32L and thereafter adjudicating authority is required to adjudicate the case, the Central Excise Officer shall be entitled to use all the materials and other information produced by the assessee before the Settlement Commission or the result of inquiry held or evidence recorded by the Settlement Commission in the course of the proceedings before it as if such materials, information, inquiry and evidence have been produced before such Central Excise Officer or held or recorded by him in the course of the proceedings before him on fair reading of sub-section (2) of Section 32L of the Act whatever is admitted by the assessee while submitting the application before the Settlement Commission submitted under Section 32E(1) of the Act straightway cannot be said to be admission on behalf of the assessing accepting the liability. Whatever the material is produced alongwith the application and/or any material and/or 11 HK Enterprises, Mumbai other information produced by the assessee before the Settlement Commission or the result of the inquiry held or evidence recorded by the Settlement Commission in the course of the proceedings before it can be used by the adjudicating authority as if such materials, information, inquiry and evidence has been produced before such Central Excise Officer, while adjudicating the show cause notice and the proceedings. If the contention on behalf of the appellant is accepted, in that case, there is no question of further adjudication by the Central Excise Officer with respect to the amount admitted by the assessee while submitting the application before the Settlement Commission submitted under Section 32E(1) of the Act. Once the application or proceedings before the Settlement Commission fails, the Central Excise Officer is required to adjudicate the entire proceedings and show cause notice. Under the circumstances, so far as proposed question of law No.1 is concerned, the present Tax Appeals deserve to be dismissed and are, accordingly, dismissed by answering the proposed question of law No.1 against the Revenue."
26. Based on this decision of the Hon'ble Gujarat High Court, the Hon'ble Tribunals in various decisions have held that the section of 32L(2) of the Central Excise Act is parallel to section 245HA(2) and 245HA(3) of the Income Tax Act. Thus, the Hon'ble Tribunals in various decisions have deleted the addition made by the Assessing Officer of additional income offered in Settlement Commission for want of evidences. The same are as follows: 27. Reliance is placed on the decision of Hon'ble Mumbai Tribunal in the case of Anantnadh Constructions and Farms (P.) Ltd. v. DCIT [166 ITD 83] wherein the Hon'ble Tribunal held that no addition can be made on the basis of income offered by assessee before Settlement Commission in absence of incriminating material. Relevant extract of the decision is reproduced as below: 13. We find that assessee has made declaration and filed some information before Settlement Commission admitted under section 245D of the Act and it can be used only for limited purpose for settlement of tax dispute and passing an order under section 245D(4) of the Income Tax Act and not for other purpose. The assessee has made a disclosure and such disclosure ultimately ended in settlement order under section 245D(4) of the Act. The disclosure came to the possession of AO. The fact that the 12 HK Enterprises, Mumbai disclosure made under section 245D(1) of the Act even if constructed as if no order under section 245D(4) has been passed it will not give a license to the AO to use the confidential information disclosed in an annexure to the application of the Settlement Commission. If the application is treated as not admitted under 245D(1) of the Act, then the provisions are clear that confidential information can never be passed on to the AO nor can it be used in evidence against the assessee. Section 245D(4) has clearly held that admission of assessee's application under section 245(1) was incorrect. We find that any confidential information disclosed in annexure to the settlement application before Income Tax Settlement Commission can never be the basis to make the addition. We find that in the instant case, the AO has reopened the assessment under section 147. Thereafter, AO has not brought any evidence or made any inquiry that assessee has earned additional income of Rs.5 lakhs as brokerage income. In the instant case, after reopening the assessment order, the AO had not made any inquiry and not examined the material which was before him that how this income was declared by the assessee and addition has been made simply relying upon the declaration made in the application before the Settlement Commission under section 245D. The AO was in possession of the paper relating to the income but in absence of any material no addition can be made. The Hon'ble Gujarat High Court in the case of Maruti Fabrics (supra) has held that whatever material is produced along with application by the assessee before Settlement Commission or result of inquiry held or evidence recorded by the Settlement Commission in course of proceedings before it can be used by the adjudicating authority as if same had been produced before such Central Excise Officer. Once application or proceedings before Settlement Commission fails, Central Excise Officer is required to adjudicate entire proceedings and show cause notice and Hon'ble Gujarat High Court has held as under: 14. Respectfully following the same, we hold that Hon'ble Gujarat High Court's judgment in the case of Maruti Fabrics (supra) pertains to Central Excise but if we compare central excise under section 32E of the Central Excise Act this section is parallel to section 245C of the Income Tax Act. One primary condition mentioned in section 32E for filing central excise settlement petition is "a show cause notice for recovery of duty issued by 13 HK Enterprises, Mumbai Central Excise Officer has been received". In Income Tax Act section 245C requires some pendency of proceedings. The Central Excise application is allowed or rejected vide order under section 32F(1). This section is parallel to section 245D(1). Section 32L gives the powers and procedure of Central Excise Settlement Commission. This section is similar to section 245F of the Income Tax Act. Section 32L gives the powers of the Settlement Commission to send the case back to the Central Excise Officer. Section 32L reads as under: "32L(1) The Settlement Commission may, if it is of opinion that any person who made an application for settlement under section 32E has not co- operated with the Settlement Commission in the proceedings before it, send the case back to the Central Excise Officer having jurisdiction who shall thereupon dispose of the case in accordance with provisions of the Act as if no application under section 32E had been made. 32L(2) For the purpose of sub-section (1), the Central Excise Officer shall be entitled to use all the materials and other information produced by the assessee before the Settlement Commission in the course of the proceedings before it as if such materials, information, inquiry and evidence had been produced before such Central Excise Officer or held or recorded by him in the course of the proceedings before him."
15. We find that section 245HA(1) of the income Tax Act lists several circumstances in which the case before the Settlement Commission would abate; whereas in section 32L(1) non cooperation of the petitioner is the only ground. The Central Excise Officer derives its power its power to assess such abated proceeding vide section 32L(2) of the Central Excise Act. This is identical to powers vested with an AO under section 245HA(2) and 245HA(3) under the Income Tax Act. It is therefore very clear that the provisions of Central Excise Settlement Commission and that for Income Tax settlement Commission are identical. Therefore, the judgment of Hon'ble Gujarat High Court in the case of Maruti Fabrics although pertaining to Central Excise should be applied to cases abated under section 245HA of the Income Tax Act also.
16. Therefore, we are of the view that the judgment of Hon'ble Gujarat High Court is applicable to the facts of the assessee's case. We find that Hon'ble Gujarat High Court has held that if the 14 HK Enterprises, Mumbai petition filed before the Settlement Commission wherein assessee has made declaration but proves that assessee has neither earned such income nor any incriminating material was found during the search relating to undisclosed income then no addition can be made.
We have also gone through the judgment of ITAT, Mumbai in the case of Dolat Investments Ltd. (supra) wherein the ITAT has specifically held in para 22 which reads as under: "22. The first issue is whether the case of the assessee for assessment year 2005-06 was admitted by the Settlement Commission under section 245D(1) of the Act? On this issue, we have already seen that in the order dated 30- 11-2007 under section 245D(4) of the Act, the Settlement Commission has clearly held that the assessee for assessment year 2005-06 does not satisfy the criteria of offering income on which at least an income-tax payable should exceed Rs. 1 lakh. The Settlement Commission has further held that when admitting the petition of the assessee for assessment year 2005-06, this aspect was overlooked and that they are rectifying the apparent error by excluding assessment year 2005-06 of the assessee from the process of settlement. Thus, the case of the assessee for assessment year 2005-06 cannot be considered to have been admitted for the process of settlement under section 245D(1) of the Act. Consequently, the confidential information disclosed in the Annexure to the Settlement application could not have been used by the Assessing Officer against the assessee to make the impugned addition. Therefore, the addition to the income made by the Assessing Officer in assessment year 2005-06 which is based only on the disclosure made in the Annexure to the Settlement Commission is not valid in law. Consequently, the imposition of penalty on the basis of such invalid addition cannot be sustained. In view of the above conclusion, we do not wish to go into the other alternate argument of the learned counsel for the assessee regarding abatement of proceedings before Settlement Commission and use of confidential information disclosed by the assessee in such proceedings by the Assessing Officer in making assessment."
We find from the above proposition of law by Hon'ble Gujarat High Court and Tribunal that simply relying upon the declaration made before the Settlement Commission no addition can be made.
15 HK Enterprises, Mumbai In this group case, the search was conducted in the business premises of Lodha Group and subsequent to search action assessee company along with other companies of Lodha Group filed a petition under section 245C(1) of the Act before Settlement Commission. The assessee has offered additional income of Rs.5 lakhs towards the land brokerage income. This offer was made for maintainability of petition before Settlement Commission as stated in clause (i) and clause (ia) of section 245C(1) of the Act. We are of the view that after reopening of the assessment order no addition can be made on the basis of income offered by the assessee before Settlement Commission. We find that no incriminating material was found during the course of search action substantiating that assessee has actually earned undisclosed income. Therefore, just because assessee has offered additional income before Settlement Commission, no addition can be made without basis. Hence, the addition made by the AO and Ld. CIT (A) is deleted."
Similar view has been taken by Hon'ble Mumbai Tribunal in the case of Dolat Investments Ltd. v. DCIT [38 SOT 123] wherein the court held that where assessee's disclosure was not admitted u/s. 245D(1) of the Act, confidential information disclosed to Settlement Commission in that regard, cannot be used by Assessing Officer to make additions. The relevant extract of the decision is reproduced as below: "19. It can be seen from the aforesaid provisions that the confidential portion of the application for settlement remained confidential from the Incometax Department till the time of its admission by an order under section 245D(1); if the application was not admitted, the very occasion for the Settlement Commission to send a copy of its confidential portion to the commissioner did not arise and, therefore, there was no question for the Income-tax Department to have access to it, far less to make use of it; since the Income-tax Department could have access to the confidential portion of the application only after the application was admitted and since the scheme of the provisions ensured that once an application for settlement was admitted, it would culminate into the Settlement Commission passing an order of settlement under section 245D(4) and into the applicant being granted immunity from penalty and prosecution, the applicant was 16 HK Enterprises, Mumbai assured about the confidentiality of the secrets parted with by him by way of disclosure before the Settlement Commission for the purpose of settlement of his case.
21. Thus, when a proceedings before the Settlement Commission abates, it reverts to the income-tax authority before whom it was pending at the time of making the application for settlement and the income-tax autho-rity has to dispose of the case in accordance with the provisions of the Act as if no application for settlement had been made and for that purpose, it is entitled to use all the material and other information produced by the assessee before the Settlement Commission or the results of the inquiry held or evidence recorded by the Settlement Commission in the course of the proceedings before it.
The first issue is whether the case of the assessee for assessment year 2005-06 was admitted by the Settlement Commission under section 245D(1) of the Act? On this issue, we have already seen that in the order dated 30- 11-2007 under section 245D(4) of the Act, the Settlement Commission has clearly held that the assessee for assessment year 2005-06 does not satisfy the criteria of offering income on which at least an income-tax payable should exceed Rs. 1 lakh. The Settlement Commission has further held that when admitting the petition of the assessee for assessment year 2005-06, this aspect was overlooked and that they are rectifying the apparent error by excluding assessment year 2005-06 of the assessee from the process of settlement. Thus, the case of the assessee for assessment year 2005-06 cannot be considered to have been admitted for the process of settlement under section 245D(1) of the Act. Consequently, the confidential information disclosed in the Annexure to the Settlement application could not have been used by the Assessing Officer against the assessee to make the impugned addition. Therefore, the addition to the income made by the Assessing Officer in assessment year 2005-06 which is based only on the disclosure made in the Annexure to the Settlement Commission is not valid in law. Consequently, the imposition of penalty on the basis of such invalid addition cannot be sustained. In view of the above conclusion, we do not wish to go into the other alternate argument of the learned counsel for the assessee regarding abatement of proceedings before Settlement Commission 17 HK Enterprises, Mumbai and use of confidential information disclosed by the assessee in such proceedings by the Assessing Officer in making assessment."
29. Reliance is next placed on the decision of Hon'ble Mumbai Tribunal in the case of Lodha Estate India Limited v. DCIT [ITA No. 5465/Mum/2016] dated 25.04.2017. The relevant extract of the decision is reproduced as below: "7. On hearing both the parties with reference all the nine appeals, I find the core facts are identical but for the figures involved are different. The provisions of section 32L of Central Excise Act are para materia with the provisions of section 245HA of the Income tax Act. Therefore, the ratio of the judgment (supra) is applicable to the nine appeals under consideration. "245HA... (5) For the purposes of section (2), the assessing officer, or as the case may be, other income tax authority, shall be entitled to use all the material and other information produced by the assessee before the Settlement Commission or the result of the inquiry held or evidence recorded by the Settlement Commission in the course of the proceedings before it, as such material, information, inquiry and evidence had been produced before the Assessing Officer or other income tax authority or held or recorded by him in the course of the proceedings before him. "
8. The above provisions of sub-section (5) are found to be para materia with the provisions of section 32L of The Central Excise Act. CIT (A) extracted the said provisions in his order. There is no dispute on the fact of abetment of the Applications before the ITSC in all these nine cases. Further, there is no dispute on the absence of any additional information or evidence supporting the addition of income offered by the assessee in the said Applications by nine assessees before the ITSC. Considering the same, I am of the view that the orders of the AO and CIT (A) are required to be reversed. Consequently, all the additions of income made by the AOs merely relying on the assessees disclosures in the Application before the ITSC stand deleted. Accordingly, the grounds of appeal
s in all these nine appeals of the Lodha group are allowed."
30. Reliance is also placed on the decision of Hon'ble Mumbai Tribunal in the case of Lodha Estate India Limited v. DCIT [ITA No. 18 HK Enterprises, Mumbai 5466/Mum/2016] dated 27.02.2018. The relevant extract of the decision is reproduced as below: "4.6 We have given a careful consideration to the rival submissions and perused the materials available on record, we note that assessee has filed petition before the ITSC and offered an income of Rs.10,00,000/- being alleged land brokerage income by the assessee, Rs.5,33,334/- on account of disallowance u/s 37 and Rs.16,18,395/- being disallowance of expenditure u/s 40(a) of the Act, aggregating Rs.31,51,729/-. The assessee submitted that the above amount has been offered as income before the ITSC for the sake of meeting the threshold limit of maintainability of the petition before the ITSC in spite of the fact that the assessee has neither earned such income nor any income belonged to him. Thus, in the absence of any material proving that the assessee has really earned any undisclosed income, it is not justifiable to make addition to the returned income of the assessee solely relying on the petition of the assessee filed before the ITSC, more particularly when neither there was any direct evidence nor any corroborative proof that assessee has earned the income which has escaped assessment. We also note that this issue is squarely covered by the judgment of Hon'ble Mumbai ITAT in the assessee's own case in dated 25.04.2017, wherein it was held that the provisions of sub-section (5) are found to be para materia with the provisions of section 32L of the Central Excise Act. There is no dispute on the fact of abetment of the Applications before the ITSC in all these nine cases. Further, there is no dispute on the absence of 6 any additional information or evidence supporting the addition of income offered by the assessee in the said Applications by nine assessees before the ITSC. Considering the same, the orders of the AO and CIT (A) were required to be reversed. Consequently, all the additions of income made by the AOs merely relying on the assessees disclosures in the Application before the ITSC were deleted. As the issue is squarely covered in favour of the assessee by the decision of the coordinate bench, in assessee's own case in ITA No.5465/M/2016, dated 25.04.2017 (supra) and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings therefore, we delete the additions of Rs.10,00,000/- being alleged land brokerage income by the assessee, Rs.5,33,334/ on account of disallowance 19 HK Enterprises, Mumbai u/s 37 and Rs.16,18,395/- being disallowance of expenditure u/s 40(a) of the Act, aggregating Rs.31,51,729/-."
31. Similar view has also been taken by Hon'ble Mumbai Tribunal in the case of Lodha Land Developers Pvt. Ltd. v. DCIT [ITA No. 5509/Mum/2016] dated 27.05.2019.
32. Thus, as it can be seen from the above, additional income disclosed in settlement application cannot be used to make addition in the assessment proceedings moreso when such income is offered on adhoc basis and that there is no incriminating material found at the time of search. In view of the above, it is prayed that the addition of 32,00,000/- made in the present case be kindly deleted.
Ground of appeal
no. 5, is not pressed.
34. In ground of appeal no. 6, the appellant has challenged the initiating of penalty proceedings u/s. 271(1)(c) of the Act. The same is premature in nature and hence not pressed.
35. Your Honour may grant any other relief as deem fit."
5. It was also submitted by Ld. AR that the additional income was offered by the assessee before the Hon’ble ITSC in order to buy peace of mind and to avoid ruinous litigation, more particularly when no incriminating material was found with respect to the additional income so offered by the assessee. Therefore, it was submitted that no addition with respect to additional income offered before the Hon’ble ITSC could have been made to the income of the assessee.
6. On the contrary, the Ld. DR relied upon the orders passed by the revenue authorities and also submitted that since assessee has admitted the additional income suo-moto, therefore, this additional income was assessee’s concealed income. It was also submitted that Sec. 254HA(3) clearly 20 HK Enterprises, Mumbai mentions that AO is entitled to use all the materials filed by the assessee in front of Hon’ble ITSC for the purpose of completing the assessment. Therefore, even without the incriminating material addition to the income of the assessee could be made. It was argued that the grounds raised by the assessee are without any merits and thus deserves dismissal.
We have heard the counsels for both the parties and we have also perused the material placed on record, judgments cited before us and also orders passed by the revenue authorities. From the records we noticed that assessee is a partnership firm and is dealing in trading of bulk import of commodities comprising majorly coal etc, and had filed original return of income on 16.09.2014 declaring total income at Rs. 29,48,060/-. The case was selected for scrutiny and in due consideration to the facts of the case, the assessment was completed u/s. 143(3) vide order datęd 25.02.2015, accepting the returned income.
8. Later the appellant filed an application U/s. 245D(1) of the Act before the Hon'ble Income Tax Settlement Commission, Additional bench Mumbai (ITSC) for the A.Y. 2012-13 to 2018-19 on 27.12.2019 disclosing the following incomes:-
A.Y Adhoc Disallowance Further adhoc Total Additional of business disallowance of Income expenses expenses 2012-13 32,00,000 --- 32,00,000 2013-14 32,00,000 50,000 32,50,000 21 HK Enterprises, Mumbai 2014-15 32,00,000 --- 32,00,000 2015-16 32,00,000 50,000 32,50,000 2016-17 32,00,000 50,000 32,50,000 2017-18 32,00,000 50,000 32,50,000 2018-19 32,00,000 50,000 32,50,000 Total 2,24,00,000 2,50,000 2,26,50,000 9. However, the said application was rejected by the Hon'ble Settlement Commission as the conditions prescribed u/s.245C(1) were not fulfilled and the matter was returned to the AO.
10. Subsequently, a search & seizure action u/s. 132 was conducted on ‘Hisaria Group’ on 16.11.2017. Assessee is one of the flagship concerns of this group. Shri Sandeep Kumar Hisaria (share of 50%) and Shri Sawarmal Hisaria (share - 50%) are partners of the assessee firm. Subsequent to search, a notice u/s.153A of the Act was issued and in response the assessee filed return of income u/s.153A of the Act on 14.02.2019 for A.Y 2012-13 declaring total income at Rs. 29,48,060/-. The AO completed assessment u/s. 153A r.w.s 143(3) on 06.03.2019 determining total income at Rs. 61,48,060/-. In the said order, the AO made an addition of Rs. 32,00,000/- being additional income offered before Hon. ITSC.
11. We also noticed that the present proceedings were carried out u/s 153A of the Act and therefore in our view the assessment has to be guided by the said provision.
22 HK Enterprises, Mumbai
As per Sec. 153A of the Act, any assessment or reassessment pending on the date of initiating of search shall abate and merge into the assessment proceedings initiation u/s 153A of the Act, and in respect of non-abated assessment year, the assessment can be made only on the basis of incriminating material found in the course of search. Admittedly in the present case no incriminating material was found during the course of search, and thus it is a settled law that in case of non-abated assessment the addition can be made only on the basis of incriminating material found during the course of search. Since the present year i.e A.Y 2012-13 is a non-abated assessment year as the assessment was already completed vide assessment order u/s 143(3) of the Act dated 23.03.2015 as on date of initiation of search. Therefore addition could have only be made with respect to ‘incriminating material found’ at the time of search.
13. Since under the facts of the present case, the AO had made additions during the year under consideration on account of ‘mere disclosure’ before the Hon’ble ITSC of Rs. 32,00,000/-, whereas, it was specifically submitted that in the application filed before Hon’ble ITSC dated 27.12.2019, the assessee had offered income of Rs. 32,00,000/- on ad-hoc basis to cover up any discrepancies and to buy peace of mind. Later the application of the assessee got rejected vide order dated 06.01.2020. 23 HK Enterprises, Mumbai
14. As the assessee had offered such income, therefore Ld.AO proceeded to make addition of the same in the hands of the assessee.
It was also submitted by the assessee that the additional disclosure of income before ITSC was not towards any particular unaccounted income, which had escaped assessment or for which any evidence found at the time of search. We also noted that no evidence at the time of search was found relating to additional disclosure of income before the Hon’ble ITSC and thus the addition was made without any incriminating material found at the time of search. In this regard our attention was drawn to the decision of Hon’ble Special Bench of the Mumbai Tribunal in the case of All Cargo Global Logistics Ltd. Vs. DCIT [137 ITD 287], wherein on the identical issue it was held as under:
58. Thus, question no. 1 before us is answered as under: In assessments that are abated, the AO retains the original jurisdiction as well as jurisdiction conferred on him u/s. 153A for which assessments shall be made for each of the six assessment years separately; In other cases, in addition to the income that already been assessed, the assessment u/s. 153A will be made on the basis of incriminating material, which in the context of relevant provisions means (i) books of account, other documents found in the course of search, but not produced in the course of original assessment, and (ii) undisclosed income or property discovered in the course of search.
24 HK Enterprises, Mumbai
16. This decision was subsequently affirmed by Hon'ble Bombay High Court in CIT v. Continental Warehousing Corpn (Nhava Sheva) Ltd and others [374 ITR 645) wherein it is held as under:
We are of the view that there is much substance in the contentions of Mr. Dastur that the provisions such as section 153A enabling assessment in case of search or requisition making specific reference to the provisions which enable carrying out of search or exercise of power of requisition that the assessment in furtherance thereof is contemplated.
24. His reliance upon the Division Bench judgment of this Court in that context is, therefore, well placed. ………… ………… 37. We do not see as to how while allowing the appeal of the assessee and setting aside the order of the Commissioner under section 263 could the judgment be said to be laying down a proposition and as canvassed by Mr. Pinto. True it is that the assessment which has to be made in pursuance of the notice is in relation to the six years. An order will have to be made in that regard. While making the order the income or the return of income filed for all these assessment years is to be taken into account. A reference will have to be made to the income disclosed therein. However, the scope of enquiry, though not confined as held by the High Court of Karnataka, it essentially revolves around the search or the requisition under section 132A as the case may be. We do not find anything in these observations and reproduced above which would enable us to conclude that the Division Bench judgment of this Court in the case of Murli Agro requires reconsideration or does not lay down a correct principle of law. We cannot, therefore, accede to the submissions of Mr. Pinto and revisit any of the conclusions rendered by the Division Bench of this Court."
25 HK Enterprises, Mumbai
17. The SLP filed against this decision of the High Court has been dismissed by Hon'ble Supreme Court in the case of CIT v. Continental Warehousing Corpn (Nhava Sheva) Ltd [SLP (C) 18446/2018] dated 09.07.2018, 18. Reliance was also placed on the decision of Hon'ble Bombay High Court in the case of PCIT v. Jignesh P. Shah [99 taxmann.com 111] wherein the court confirmed the order of the Tribunal that where assessment for relevant years had already attained finality and no incriminating material was found during the search relating to addition made, the addition was held to be invalid. 19. Reliance was also placed on the decision of the Hon'ble Delhi High Court in the case of CIT v. Kabul Chawla [380 ITR 573] wherein it was held that ‘completed assessments can be interfered with by the Assessing Officer while making the assessment under s. 153A of the Act only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment’. 20. As can be seen from the above decisions, that it is now a settled law that in cases where assessments are not abated, the provisions of s. 153A can be invoked only in respect of the income which is found to have escaped assessment as a result of incriminating material found during the course of 26 HK Enterprises, Mumbai search. In fact, the very scheme of s. 153A of the Act itself suggests that it is an assessment in case of search or requisition. Moreover, the provisions of s. 153A are also operative notwithstanding anything contained in s. 139, 147,149,151 and 153 of the Act. Thus, the assessments in the present case can be completed only based on the evidences found as a result of search and the past assessments completed cannot be disputed or disturbed unless any evidence is found as a result of search. 21. In view of our above discussion and also taking into consideration the judicial precedents, we are of the view that since no evidences to prove that the additional income was earned were found during the course of search, therefore no addition on account of the same could have been made in the hands of the assessee. 22. Since as per the facts of the present case the disclosure made by the assesseee before the settlement proceedings were used as ‘only basis’ to make additions in assessment proceedings in this regard, we have already taken into consideration that during scrutiny assessment no additions were made in the case of the assessee and the return of income was accepted. However the additions were made on the basis of declaration made by the assessee before the Hon’ble ITSC. As we have already discussed in the submissions of the assessee in the earlier part of our order, but for the sake of brevity we once again analyzes the 27 HK Enterprises, Mumbai statement of facts forming part of the application filed before the Hon’ble ITSC, which is reproduced as below: 38. In the course of business carried on by the applicant, several expenses are incurred and claimed the deduction in the returns filed for various years. Although, all the expenses are genuine and that no evidences have been found as a result of search, with a view to buy peace of mind and to cover any possible deficiency and/or omission in any of these evidences with respect to these expenses incurred, the applicant has quantified the disallowance of business expenses for A.Y. 2012-13 to A.Y. 2018-19 on estimated basis. The applicant seeks to offer following disallowance of business expenses as income in the respective assessment years as income 23. As per assessee, the additional income offered was only to buy peace of mind and avoid litigation and thus the same cannot be the basis to make additions by the AO without any incriminating material found with respect to such additional income and for this proposition reliance is on the decision of Hon'ble Gujarat High Court in the case of CIT v. Maruti Fabrics (47 taxmann.com 298] wherein the Gujarat High Court has held that whatever material is produced along with application by assessee before Settlement Commission or result of inquiry held or evidence recorded by Settlement Commission in course of proceedings before it can be used by adjudicating authority against the appellant as if same had produced before such Central Excise Officer provided there is incriminating material for the same. If no evidences are found for such disclosure made, addition of said amount cannot be made. The relevant extract of the decision is reproduced below: "3. The aforesaid cannot be accepted as the same has 28 HK Enterprises, Mumbai no substance. Considering sub-section (2) of section 32L of the Act, in a case where an order is passed by the Settlement Commission under sub-section (1) of section 32L and thereafter adjudicating authority is required to adjudicate the case, the Central Excise Officer shall be entitled to use all the materials and other information produced by the assessee before the Settlement Commission or the result of inquiry held or evidence recorded by the Settlement Commission in the course of the proceedings before it as if such materials, information, inquiry and evidence have been produced before such Central Excise Officer or held or recorded by him in the course of the proceedings before him on fair reading of sub- section (2) of Section 32L of the Act whatever is admitted by the assessee while submitting the application before the Settlement Commission submitted under Section 32E(1) of the Act straightway cannot be said to be admission on behalf of the assessing accepting the liability. Whatever the material is produced alongwith the application and/or any material and/or other information produced by the assessee before the Settlement Commission or the result of the inquiry held or evidence recorded by the Settlement Commission in the course of the proceedings before it can be used by the adjudicating authority as if such materials, information, inquiry and evidence has been produced before such Central Excise Officer, while adjudicating the show cause notice and the proceedings. If the contention on behalf of the appellant is 29 HK Enterprises, Mumbai accepted, in that case, there is no question of further adjudication by the Central Excise Officer with respect to the amount admitted by the assessee while submitting the application before the Settlement Commission submitted under Section 32E(1) of the Act. Once the application or proceedings before the Settlement Commission fails, the Central Excise Officer is required to adjudicate the entire proceedings and show cause notice. Under the circumstances, so far as proposed question of law No.1 is concerned, the present Tax Appeals deserve to be dismissed and are, accordingly, dismissed by answering the proposed question of law No.1 against the Revenue."
Based on this decision of the Hon'ble Gujarat High Court, the Hon'ble Tribunals in various decisions have held that the section of 32L(2) of the Central Excise Act is parallel to section 245HA(2) and 245HA(3) of the Income Tax Act. Thus, the Hon'ble Tribunals in various decisions have deleted the addition made by the Assessing Officer of additional income offered in Settlement Commission for want of evidences. The same are as follows: 25. Reliance was also placed on the decision of Hon'ble Mumbai Tribunal in the case of Anantnadh Constructions and Farms (P.) Ltd. v. DCIT [166 ITD 83] wherein the Hon'ble Tribunal held that no addition can be made on the basis of income offered by assessee before Settlement 30 HK Enterprises, Mumbai Commission in absence of incriminating material. Relevant extract of the decision is reproduced as below:
We find that assessee has made declaration and filed some information before Settlement Commission admitted under section 245D of the Act and it can be used only for limited purpose for settlement of tax dispute and passing an order under section 245D(4) of the Income Tax Act and not for other purpose. The assessee has made a disclosure and such disclosure ultimately ended in settlement order under section 245D(4) of the Act. The disclosure came to the possession of AO. The fact that the disclosure made under section 245D(1) of the Act even if constructed as if no order under section 245D(4) has been passed it will not give a license to the AO to use the confidential information disclosed in an annexure to the application of the Settlement Commission. If the application is treated as not admitted under 245D(1) of the Act, then the provisions are clear that confidential information can never be passed on to the AO nor can it be used in evidence against the assessee. Section 245D(4) has clearly held that admission of assessee's application under section 245(1) was incorrect. We find that any confidential information disclosed in annexure to the settlement application before Income Tax Settlement Commission can never be the basis to make the addition. We find that in the instant case, the AO has reopened the assessment under section 147. Thereafter, AO has not brought any evidence or made any inquiry that assessee has earned additional income of Rs.5 lakhs as brokerage income. In the instant case, after reopening the assessment order, the AO had not made any inquiry and not examined the material which was before him that how this income was declared by the assessee and addition has been made simply relying upon the declaration made in the application before the Settlement Commission under section 245D. The AO was in possession of the paper relating to the income but in absence of any material no addition can be made. The Hon'ble Gujarat High Court in the case of Maruti Fabrics (supra) has held that whatever material is produced along with application by the assessee before Settlement Commission or result of inquiry held or evidence recorded by the Settlement Commission in course of proceedings before it can be used by the adjudicating authority as if same had been produced 31 HK Enterprises, Mumbai before such Central Excise Officer. Once application or proceedings before Settlement Commission fails, Central Excise Officer is required to adjudicate entire proceedings and show cause notice and Hon'ble Gujarat High Court has held as under: 14. Respectfully following the same, we hold that Hon'ble Gujarat High Court's judgment in the case of Maruti Fabrics (supra) pertains to Central Excise but if we compare central excise under section 32E of the Central Excise Act this section is parallel to section 245C of the Income Tax Act. One primary condition mentioned in section 32E for filing central excise settlement petition is "a show cause notice for recovery of duty issued by Central Excise Officer has been received". In Income Tax Act section 245C requires some pendency of proceedings. The Central Excise application is allowed or rejected vide order under section 32F(1). This section is parallel to section 245D(1). Section 32L gives the powers and procedure of Central Excise Settlement Commission. This section is similar to section 245F of the Income Tax Act. Section 32L gives the powers of the Settlement Commission to send the case back to the Central Excise Officer. Section 32L reads as under: "32L(1) The Settlement Commission may, if it is of opinion that any person who made an application for settlement under section 32E has not co- operated with the Settlement Commission in the proceedings before it, send the case back to the Central Excise Officer having jurisdiction who shall thereupon dispose of the case in accordance with provisions of the Act as if no application under section 32E had been made. 32L(2) For the purpose of sub-section (1), the Central Excise Officer shall be entitled to use all the materials and other information produced by the assessee before the Settlement Commission in the course of the proceedings before it as if such materials, information, inquiry and evidence had been produced before such Central Excise Officer or held or recorded by him in the course of the proceedings before him."
After having gone through the above judgments, we found that Hon'ble Gujarat High Court has held that if the 32 HK Enterprises, Mumbai petition filed before the Settlement Commission wherein assessee has made declaration but proves that assessee has neither earned such income nor any incriminating material was found during the search relating to undisclosed income then no addition can be made.
Even in our view as per the facts of the present case, in the order of assessment the AO had cited that as additional income was suo-moto declared by the assesseee, hence as per Sec. 245HA(3) of the Act, which states that all the material filed before the Hon’ble ITSC can be used for completion of assessment, accordingly he has proceeded to made addition of additional income declared before Hon’ble ITSC amounting to Rs. 32,00,000/-, whereas time and again it was vehemently argued by assessee that assessee had disclosed income in its settlement application before the Hon’ble ITSC and said application was rejected vide order dated 06.01.2020 u/s 245(1) of the Act and all the information submitted in the said settlement application was confidential in nature and further no incriminating material had been found relating to earning of aforesaid income. It was also reiterated that the additional income was offered only to buy peace of mind and avoid ruinous litigation and the said amount was offered as ad-hoc disallowance of business expenditure.
33 HK Enterprises, Mumbai
More over, Ld. AR also submitted that the issue in question is squarely covered and relied upon and drawn our attention to the decision of Coordinate Bench of ITAT in assessee’s group case for the same assessment years in the case of Sangeetkumar Sawarmal Hisaria in 870, 509, 508, 869, 786 & 1029/Mum/2021, wherein, identical issue pertaining to the same search and similar were discussed and were decided and the relevant portion of the decision is reproduced herein below:
The next issue contested by the assessee relates to the addition of Rs.25.50 lakhs made by the AO relying on the application filed before Income tax Settlement Commission. We notice that an identical issue has been examined by the co- ordinate bench in the case of A.T Trade Overseas P Ltd vs. DCIT (ITA No.325/Mum/2021 dated 23.03.2022) and it has been decided in favour of the assessee as under:-
“8. Considered the rival submissions and material placed on record, we observed that subsequent to search action assessee has disclosed additional income before ITSC and as per the information available on record assessee has agreed for adhoc disallowance relating to business expenses to the extent of ₹.50 Lakhs. We observed that assessee has agreed for adhoc addition in order to buy peace and to cover if there is any possible deficiency in any of the evidences with respect to the business expenditure incurred by the assessee. Further, assessee agreed for additional expenses of ₹.1.5 Lakhs over and above the above business expenditure. It is fact on record Assessing Officer relied on the informations submitted before ITSC which in fact is only voluntary disclosure of adhoc expenses in order to avoid unnecessary verification and cumbersome exercise of following up with the Tax Authorities. Since settlement commission has rejected the application of the assessee, now assessee retracts the submissions made before settlement commission. The Assessing Officer now 34 HK Enterprises, Mumbai relying on the adhoc disclosure before settlement commission in order to make additions, which in our considered opinion is not proper. As Assessing Officer can use all the material which is submitted before settlement commission and Assessing Officer can make the addition based on the proper evidences on concealment of income or any evidences which proves that assessee has not disclosed its proper income. In the given case, it is also fact on record that in the search, no incriminating material was found and no other material available before the Assessing Officer to sustain the addition except relying on the voluntary disclosure before ITSC. We observe that the Coordinate Bench in Anantnadh Constructions and Farms (P.) Ltd., v. DCIT (supra) held as under:
“15. We find that section 245HA(1) of the income Tax Act lists several circumstances in which the case before the Settlement Commission would abate; whereas in section 32L(1) non - cooperation of the petitioner is the only ground. The Central Excise Officer derives its power its power to assess such abated proceeding vide section 32L(2) of the Central Excise Act. This is identical to powers vested with an AO under section 245HA(2) and 245HA(3) under the Income Tax Act. It is therefore very clear that the provisions of Central Excise Settlement Commission and that for Income Tax settlement Commission are identical. Therefore, the judgment of Hon’ble Gujarat High Court in the case of Maruti Fabrics although pertaining to Central Excise should be applied to cases abated under section 245HA of the Income Tax Act also.
Therefore, we are of the view that the judgment of Hon’ble Gujarat High Court is applicable to the facts of the assessee’s case. We find that Hon’ble Gujarat High Court has held that if the petition filed before the Settlement Commission wherein assessee has made declaration but proves that assessee has neither earned such income nor any incriminating material was found during the search relating to undisclosed income then no addition can be made.
35 HK Enterprises, Mumbai
17. We have also gone through the judgment of ITAT, Mumbai in the case of Dolat Investment vs. Dy. Commissioner of Income Tax wherein the ITAT has specifically held in para 22 which reads as under:
22. The first issue is whether the case of the assessee for assessment year 2005-06 was admitted by the Settlement Commission under section 245D(1) of the Act? On this issue, we have already seen that in the order dated 30-11-2007 under section 245D(4) of the Act, the Settlement Commission has clearly held that the assessee for assessment year 2005- 06 does not satisfy the criteria of offering income on which at least an income-tax payable should exceed Rs. 1 lakh. The Settlement Commission has further held that when admitting the petition of the assessee for assessment year 2005-06, this aspect was overlooked and that they are rectifying the apparent error by excluding assessment year 2005-06 of the assessee from the process of settlement. Thus, the case of the assessee for assessment year 2005-06 cannot be considered to have been admitted for the process of settlement under section 245D(1) of the Act. Consequently, the confidential information disclosed in the Annexure to the Settlement application could not have been used by the Assessing Officer against the assessee to make the impugned addition. Therefore, the addition to the income made by the Assessing Officer in assessment year 2005-06 which is based only on the disclosure made in the Annexure to the Settlement Commission is not valid in law. Consequently, the imposition of penalty on the basis of such invalid addition cannot be sustained. In view of the above conclusion, we do not wish to go into the other alternate argument of the learned counsel for the assessee regarding abatement of proceedings before Settlement Commission and use of confidential information disclosed by the assessee in such proceedings by the Assessing Officer in making assessment.
From the above decision of the Tribunal where they have discussed the section 245C(1) and section 245D(i) and 245HA by following observation:
36 HK Enterprises, Mumbai “20. The Finance Act, 2007 made changes to the provisions for settlement of cases contained in Chapter XIX-A of the Income- tax Act 1961. One change involves introduction of a new concept of abatement of proceedings before the Settlement Commission for which provisions has been made in the newly inserted section 245HA relevant portion whereof reads thus :— "245HA. Abatement of proceeding before Settlement Commission.—(1) where....
(i) an application made under section 245C on or after the 1st day of June, 2007 has been rejected under sub-section (1) of section 245D;
(ii) an application made under section 245C has not been allowed to be proceeded with under sub-section (2A) or further proceeded with under sub-section (2D) of section 245D;
(iii) an application made under section 245C has been declared as invalid under sub-section (2C) of section 245D;
(iv) in respect of any other application made under section 245C, an order under sub-section (4) of section 245D has not been passed within the time or period specified under sub- section (4A) of section 245D, the proceedings before the Settlement Commission shall abate on the specified date.
Specified date would be (i) in respect of an application referred to in sub-section (2A) or sub-section (2D), on or before the 31st day of March, 2008; (ii) in respect of an application made on or after 1st day of June, 2007 within nine months from the end of the month in which the application was made.
(2) Where a proceeding before the Settlement Commission abates, the Assessing Officer or as the case may be any other income-tax authority before whom the proceeding at the time of making the application was pending, shall dispose of the case in accordance with the provisions of this Act as if no application under section 245C had been made.
37 HK Enterprises, Mumbai
(3) For the purposes of sub-section (2), the Assessing Officer or as the case may be, other income-tax authority, shall be entitled to use all the material and other information produced by the assessee before the Settlement Commission or the results of the inquiry held or evidence recorded by the Settlement Commission in the course of the proceedings before it, as if such material, information inquiry and evidence had been produced before the Assessing Officer or other income-tax authority or held or recorded by him in the course of the proceedings before him."
Thus, when a proceedings before the Settlement Commission abates, it reverts to the income-tax authority before whom it was pending at the time of making the application for settlement and the income-tax authority has to dispose of the case in accordance with the provisions of the Act as if no application for settlement had been made and for that purpose, it is entitled to use all the material and other information produced by the assessee before the Settlement Commission or the results of the inquiry held or evidence recorded by the Settlement Commission in the course of the proceedings before it.”
19. We find from the above proposition of law by Hon’ble Gujarat High Court and Tribunal that simply relying upon the declaration made before the Settlement Commission no addition can be made. In this group case, the search was conducted in the business premises of Lodha Group and subsequent to search action assessee company along with other companies of Lodha Group filed a petition under section 245C(1) of the Act before Settlement Commission. The assessee has offered additional income of Rs.5 lakhs towards the land brokerage income. This offer was made for maintainability of petition before Settlement Commission as stated in clause (i) and clause (ia) of section 245C(1) of the Act. We are of the view that after reopening of the assessment order no addition can be made on the basis of income offered by the assessee before Settlement Commission. We find that no incriminating material was found during the course of search action substantiating that assessee has actually 38 HK Enterprises, Mumbai earned undisclosed income. Therefore, just because assessee has offered additional income before Settlement Commission, no addition can be made without basis. Hence, the addition made by the AO and Ld. CIT(A) is deleted.”
Respectfully following the above said decision, we are inclined to delete the additions made by the Assessing Officer by solely relying on the information submitted before ITSC without there being any material in support of proposed addition. Accordingly, ground No. 1 and 2 are allowed.”
After having gone through the entire facts, circumstances and the legal proposition put forth before us, we found that the identical issue has already been examined by the Coordinate Bench in the assesse’s group case Sangeetkumar Sawarmal Hisaria in 870, 509, 508, 869, 786 & 1029/Mum/2021 (supra), wherein also subsequent to the search action, assessee had disclosed the additional income before Hon’ble ITSC and the said declaration was made the only basis for making the additions. Since as per record the assessee in that case had agreed for ad-hoc disallowance relating to business expenses but the said additions were deleted by following the decision of catena of cases as mentioned in the orders in the case of SangeethKumar Sawarmal Hisaria (supra), therefore we find from the above proposition of law by Hon'ble Gujarat High Court and Tribunal that simply relying upon the declaration made before the Settlement Commission, no addition can be made.
39 HK Enterprises, Mumbai
In the present case which is also of ‘Hisaria Group’, the search was conducted on the business premises of Hisaria Group and subsequent to search action assessee company along with other companies of Hisaria Group filed a petition under section 245C(1) of the Act before Settlement Commission. The assessee has offered additional income of Rs.32 lakhs on ad-hoc basis to cover up any discrepancies and buy Pease of mind and it was not towards any particular unaccounted income which had escaped assessment or for which any evidence found at the time of search and this offer was made for maintainability of petition before Settlement Commission as stated in clause (i) and clause (ia) of section 245C(1) of the Act.
32. Therefore, after considering the entire facts and circumstance and also keeping in view the binding decisions of the judicial authorities, more particularly in the case of Sangeet kumar Sawarmal Hisaria Vs. DCIT (supra) which pertains to the same search and exactly on the same issue, therefore, keeping in view the principle of judicial consistency, we are of the view that after search no addition can be made merely on the basis of income offered by the assessee before Settlement Commission. Since no incriminating material was found during the course of search action substantiating that assessee has actually earned undisclosed income. Therefore, just because assessee has offered additional income before Settlement Commission, no 40 HK Enterprises, Mumbai addition can be made without basis. Hence, the addition made by the AO and sustained by Ld. CIT(A) are directed to be deleted. Accordingly, ground No. 1 and 2 are allowed.
ITA Nos. 267, 268, 314, 315, 316 & 317/Mum/2021, A.Ys: 2013-14 to 2018-19 33. As the facts and circumstances in these appeals are identical to for the A.Y 2012-13 (except variance in figures) and the decision rendered in above paragraph would apply mutatis mutandis for these appeals also. Accordingly, we allow the grounds of appeal of the assessee.
In the result, all the eight appeals filed by the assessee are allowed.