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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI D.T. GARASIA & SHRI N.K. PRADHAN
Per D.T. Garasia, Judicial Member:
The above titled appeals of different assessees but are related to one another have been preferred against the separate orders of Commissioner of Income Tax (Appeals) [hereinafter referred as CIT(A)] for assessment years 2007-08, 2008-09 & 2009-10. Since the facts and issues involved therein are identical, the same were heard together and are being disposed of by this common order. For the sake of convenience, we take up the facts of the case
3 ITA No.5505/M/2016 & ITA No.5510/M/2016 & Ors. M/s. Anantnadh Constructions and Farms Pvt. Ltd. & Ors. from ITA No.5510/M/2016 for A.Y. 2008-09 in the case of Ashtavinayak Estate Company Pvt. Ltd.
The short facts of the case are as under: Ground No.1 The assessee has filed the return of income for A.Y. 2008-09 on 10.06.2008 declaring loss at Rs.1,39,654/-. The notice dated 09.10.2013 under section 148 was served to the assessee and reasons recorded are as under: “The assessee i.e. M/s. Aasthavinayak Estate Company Private Limited filed Return of income for A.Y. 2008-09 on 10/06/2008, declaring a loss of Rs. 139654. An application for settlement was filed by M/s Aasthavinayak Estate Company Private Limited before the Hon'ble income Tax Settlement Commission u/s 245C of Income Tax Act, 1961 on 30.01.2013 vide application No. MH/MUCC-4/127/2012-13/IT. The application before the Settlement Commission included a prayer made by M/S Aasthavinayak Estate Company Private Limited for A.Y 2008-09 also wherein an additional income of Rs.501,049 was disclosed before the Commission, which was earlier, not disclosed before the assessing officer. The application of M/S Aasthavinayak Estate Company Private Limited before the Settlement Commission for A Y 2008-09 has not been allowed to be proceeded with vide order u/s 245D(1) dated 12.02.2013 of the Hon'ble Settlement Commission. In view of rejection of the application of the assessee for AY 2008-09 by the Hon'ble Commission, and the fact that the declaration of the assessee before the Settlement Commission clearly shows evidence of undisclosed income which has not been declared before the assessing officer, it is aptly clear, that income to the extent of Rs. 501,049 has escaped assessment for A Y 2008-09. This case was not scrutinized u/s 143(3) of the Income Tax Act, 1961. Since no scrutiny was done therefore no assessment has been made to express the correctness of the income as declared in the return of income for A Y 2008-09. Since no scrutiny was done in the case for A Y 2008-09, hence reopening the same within the meaning of section 147 does not need to meet the stringent requirements of proviso to section 147/148. Reliance is placed on the case law in the case of ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd 291 ITR 500(SC). Hence, I have reason to believe that income chargeable to tax has escaped assessment for AY 2008-09 in the case of the assessee within the meaning of section 147 of the Income-tax Act, 1961”
The assessee has filed the writ before the High Court and it was dismissed. The notice was issued and assessee did not object the proceedings initiated under section 147 of the Act. The Assessing Officer (hereinafter referred to as the AO) has reinitiated the proceedings under section 147 of the
4 ITA No.5505/M/2016 & ITA No.5510/M/2016 & Ors. M/s. Anantnadh Constructions and Farms Pvt. Ltd. & Ors. Act. The assessee went in appeal before the Ld. CIT(A) and the Ld. CIT(A) dismissed the objection of the assessee regarding reopening of the assessment.
The Ld. A.R. submitted that assessee filed petition before Settlement Commission offering income of Rs.5,01,059/- out of Rs.5 lakhs was towards land and brokerage income and Rs.1,059/- was towards disallowance under section 35D. The said amount was offered as income before the Settlement Commission for the sake of meeting the threshold limit of maintainability of the petition before the Settlement Commission. The assessee has neither earned the income nor any incriminating material was found during the search relating to the brokerage income. The Ld. A.R. submitted that there is no reason to believe for reopening the assessment under section 148 of the Act, therefore, it may be quashed.
On the other hand, the Ld. D.R. relied upon the order of the AO.
We have heard the rival contentions of both the parties. The AO has recorded the reasons for reopening the case which is reproduced in the order. It is evident that AO had precise and definite information as regard to escapement of income of Rs.5,01,049/- since the said income was declared as additional income before Settlement Commission. The assessee has not disclosed its amount in the return of income. The AO had sufficient information regarding reopening the order and moreover assessee’s writ petition before the High Court was also dismissed and the department was free to initiate the proceedings under section 147 of the Act. Therefore, we are of the view that Revenue is justified in reopening the assessment order. The ground No.1 is dismissed.
Ground No.2 7. This ground relates to addition of Rs.5,01,049/-. By relying on application under section 245C of the Act filed by the assessee before
5 ITA No.5505/M/2016 & ITA No.5510/M/2016 & Ors. M/s. Anantnadh Constructions and Farms Pvt. Ltd. & Ors. Settlement Commission, the AO has made the addition on account of brokerage and disallowance under section 35D on the ground that a search in the case of Lodha Group was conducted by investigation wing of department on 10.01.2011 and during the search proceedings Shri Abhinandan Lodha, the key person of Lodha made a declaration of additional income on 12.10.11 in the hands of various entities of the group amounting to Rs.199.80 crores. Assessee company is connected to Lodha Group. Assessee has declared loss in original return filed on 06.01.08. In the course of assessment proceedings under section 147 assessee has submitted that assessee had no brokerage income, therefore he did not offer to tax in the original return, though this was offered before Settlement Commission. The AO, relying upon the application made by the assessee before the Settlement Commission, has made this addition. The assessee has taken the contention that the proceedings before Settlement Commission have been abated and there is no evidence for earning such undisclosed income. The Ld. A.R. relied upon the decision of Hon’ble Gujarat High Court in the case of Maruti Fabrics (2014) 47 taxmann.com 298. But the AO did not accept the decision and made the addition of Rs.5,01,049/- in the hands of the assessee.
The Ld. CIT(A) also dismissed the appeal. Therefore, assessee is in appeal before us.
The Ld. A.R. has firstly argued that before Settlement Commission the assessee had offered Rs.5 lakhs as land brokerage and Rs.1059/- under section 35D on the ground that for the maintainability of application before Settlement Commission. The assessee, though, has not earned such income, has offered this income before Settlement Commission. The Ld. A.R. submitted that assessee has neither earned such income nor any incriminating document was found suggesting that assessee had earned such income. The Ld. A.R. submitted that the AO solely relying upon the petition filed before the Settlement Commission and more particularly there is neither any direct
6 ITA No.5505/M/2016 & ITA No.5510/M/2016 & Ors. M/s. Anantnadh Constructions and Farms Pvt. Ltd. & Ors. evidence nor any corroborative proof that assessee has earned such undisclosed income. The Ld. A.R. has submitted that the assessee has filed the application under section 245C before Settlement Commission and that application is rejected under section 245D(I) of the Act. Section 245HA is the section which relates to abatement of proceedings before Settlement Commission and as per section 245HA(2) where a proceedings before Settlement Commission abates the AO or as the case may be any other income tax authority before whom the proceeding at the time of application was pending shall be disposed in accordance with the provisions of Act as if no application under section 245 has been made. Section 245HA(3) imposed the restriction and AO or any authority shall be entitled to use this material or information produced by the assessee before the Settlement Commission or the result of inquiry held or evidence recorded by Settlement Commission in the course of proceeding before it as if such material or information has been produced before AO. That amendment has come from 01.06.15. Therefore, the AO has no authority to use this material. Therefore, this reopening is not justified. The Ld. A.R. has relied upon the decision of Hon’ble Gujarat High Court in the case of CIT vs. Maruti Fabrics47 taxman.com 298 (Guj) wherein the Hon’ble Gujarat High Court has considered the evidence which was filed before the Settlement Commission. The Settlement Commission is in respect of 32L of the Custom & Excise Act but the sub section 2 of Section 32L of Settlement Commission and the Settlement Commission in the Income Tax Act are similar and the proceeding before the Settlement Commission are as per section 245C are similar. Therefore, the judgment of Hon’ble Gujarat High Court is applicable and the Hon’ble Gujarat High Court has held that if any admission made before Settlement Commission is not binding to the assessee. The Ld. A.R. has also relied upon the decision of Hon’ble Bombay High Court in the case of Dolat Investment vs. Dy. Commissioner of Income Tax (2010) 38 SOT 123 (Mum) and Ld. A.R. submitted that whatever admission made before the Settlement Commission is not binding to the assessee and whatever the
7 ITA No.5505/M/2016 & ITA No.5510/M/2016 & Ors. M/s. Anantnadh Constructions and Farms Pvt. Ltd. & Ors. information disclosed by the assessee in such proceedings it cannot be used against the assessee for making the assessment. The Ld. A.R. submitted that there is no iota of evidence which proves that assessee has not earned such income, therefore addition may be deleted in full.
The Ld. D.R. submitted that in this case, the assessment is reopened under section 147 of the Act and when it is reopened under section 147, the provisions of section 245HH sub section 234 of Section 245HH did not apply. The Ld. D.R. further submitted that assessee has admitted the income before Settlement Commission that is the best evidence and when he has declared he is abide by the declaration before the Settlement Commission.
We have heard the rival contentions of both the parties. Looking to the facts and circumstances of the case, we find that assessee has declared additional brokerage income before Settlement Commission under section 145D of the Act. The Settlement Commission has rejected the application of the assessee and thereafter the AO reopened the assessment under section 147 of the Act. After reopening the assessment order, the AO has not brought any material or information but relied only on the basis of declaration made by the assessee before Settlement Commission and made the addition of Rs.5 lakhs. We find that similar issue had come up before Hon’ble Gujarat High Court in the case of Maruti Fabrics wherein the assessee in that case has gone before the Hon’ble Gujarat High Court against the addition made by the AO on the basis of declaration made by the assessee before Settlement Commission of Central Excise and Customs Act and the Hon’ble Gujarat High Court decided the matter in favour of the assessee.
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
8 ITA No.5505/M/2016 & ITA No.5510/M/2016 & Ors. M/s. Anantnadh Constructions and Farms Pvt. Ltd. & Ors. 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 Commissioner vs. Maruti Fabrics 47 Taxmann.com 297 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
9 ITA No.5505/M/2016 & ITA No.5510/M/2016 & Ors. M/s. Anantnadh Constructions and Farms Pvt. Ltd. & Ors. proceedings and show cause notice and Hon’ble Gujarat High Court has held as under: “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 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.”
Respectfully following the same, we hold that Hon’ble Gujarat High Court’s judgment in the case of Maruti Fabrics 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
10 ITA No.5505/M/2016 & ITA No.5510/M/2016 & Ors. M/s. Anantnadh Constructions and Farms Pvt. Ltd. & Ors. 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.”
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
11 ITA No.5505/M/2016 & ITA No.5510/M/2016 & Ors. M/s. Anantnadh Constructions and Farms Pvt. Ltd. & Ors. 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 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: “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;
12 ITA No.5505/M/2016 & ITA No.5510/M/2016 & Ors. M/s. Anantnadh Constructions and Farms Pvt. Ltd. & Ors. (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. (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." 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.”
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
13 ITA No.5505/M/2016 & ITA No.5510/M/2016 & Ors. M/s. Anantnadh Constructions and Farms Pvt. Ltd. & Ors. 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.
In the result, all the appeals of the assessee are allowed.
Order pronounced in the open court on 17.05.2017.
Sd/- Sd/- (N.K. Pradhan) (D.T. Garasia) ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 17.05.2017. * Kishore, Sr. P.S.
Copy to: The Appellant The Respondent The CIT, Concerned, Mumbai The CIT (A) Concerned, Mumbai The DR Concerned Bench //True Copy// [ By Order
Dy/Asstt. Registrar, ITAT, Mumbai.