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I-T - Repudiations by assessee in settlement application by regularly revising income is sufficient to doubt declarations and merits rejection: HC


By TIOL News Service

AHMEDABAD, MAY 15, 2018: THE ISSUE IS - Whether repudiations made by taxpayer in settlement application by consistently revising the additional income, is sufficient to doubt the declarations and hence merits rejection of application. YES IS THE ANSWER.

Facts of the case

The assessee is an individual. Pursuant to a search action carried out at the residence and office premises of assessee, the assessment proceedings for the block period commenced. The assessee therefore applied for settlement of the cases before the Settlement Commission by filing an application. During the pendency of such proceedings, Section 243D was amended by virtue of which a person, who had applied for settlement, was required to pay tax with interest. Since the Department raised dispute about the assessee having discharged such liability, the Settlement Commission accepted the Department's stand and dismissed the application for settlement. This action of Settlement Commission was challenged before the High Court, wherein the assessee's contention was accepted that after adjustment of the accounts of assessee, there was no shortfall in paying the tax with interest as per the declaration made in the settlement application. The High Court therefore, placed the proceedings back before the Settlement Commission for further hearing. The Settlement Commission thereupon resumed hearing and after detailed consideration of all the materials on record, passed the order rejecting the offer of settlement for all the A.Ys.

On Writ, the HC held that,

Whether repudiations made by taxpayer in settlement application by consistently revising the additional income, is sufficient to doubt the declarations and hence merits rejection of settlement application - YES: HC

++ the limited jurisdiction of judicial review while examining the correctness of the order of the Settlement Commission is a well settled principle. In brief, the Supreme Court as well as this Court has reiterated that the order of Settlement Commission would be subject to interference only if it suffers from any malafides or is opposed to the principles of natural justice or is passed against the provisions of the Income Tax Act. A perusal of the order of Settlement Commission shows that the assessee was found to be engaged in various land deals, from which, the Department contends, that he had earned sizable unaccounted income. In the settlement application, the assessee had stated that he along with one N.K. Patel would negotiate with agriculturists, who are land owners or those who are Banakhat right holders for purchase of agricultural lands, which would have commercial potential. After getting such agricultural lands converted into nonagricultural use by obtaining necessary permissions and approvals from the Government authorities, buyers for the lands would be identified. The land owners would directly transfer the lands to such buyers. If there are any Banakhat right holders or other intermediaries, they would be shown as confirming parties. In this background, the assessee had made disclosures in the settlement application and had offered different amounts to tax for the four A.Ys. The Settlement Commission noted that during the search action, the assessee had disclosed an amount of Rs.43.00 Lakhs having been invested in the AOP. As against that the assessee had filed the settlement application disclosing additional income of Rs.32.97 Lakhs. The Department had all along opposed the theory of existence of the AOP. In this context, the Settlement Commission recorded that there was no documentary evidence regarding holding of the lands or any other property in the name of the AOP. The reference made by the assessee in his statement u/s.132(4) to such AOP was not backed by any other evidence. The Settlement Commission, therefore, agreed with the suggestion of the Department that the assessee had not made true and full disclosures in his application for settlement made to the Settlement Commission;

++ additionally, the Settlement Commission also noted that the assessee had made several disclosures for two out of the four Assessment Years. The Settlement Commission noted that against the total additional income of Rs.84.76 Lakhs for the A.Y. 1991-92 to 1994-95 disclosed in the application for settlement, the assessee revised the disclosure to Rs.1.20 Crores. This additional disclosure of Rs.84.76 Lakhs comprised of Rs.7.70 Lakhs for A.Y. 1991-92 and Rs.77.06 Lakhs for A.Y. 1992-93. Subsequently, the assessee made further disclosure of additional income of Rs.13.25 Lakhs for A.Y. 1992-93 on account of unexplained expenses in the purchase of land. This was pursuant to the Department pointing out the discrepancies in the investments and expenditures. The assessee came up with yet another revised disclosure, which was based on the cash flow chart prepared on the basis of seized documents. The assessee owned up the entire amount of Rs.3,05,500/- for A.Y 1991-92 and Rs.24.81 Lakhs for A.Y 1992-93. The assessee filed yet another letter before the Settlement Commission and sought to distance himself from the income of the AOP, which he had earlier agreed to show proportionately on the ground that the other member of the AOP, i.e. N.K. Patel, had not agreed to that modality. Under the said letter, the assessee made final offer of additional income of Rs.68.02 Lakhs by way of settlement for the said four Assessment Years. The Settlement Commission, therefore, recorded that all throughout the settlement proceedings, the assessee had made a flip flop in his stand and also in the disclosures made from time to time. These are the main grounds which persuaded the Settlement Commission to dismiss the application. Therefore, there seems no reason to interfere. As noted, the order of Settlement Commission is founded on primary facts; (i) that the AOP was found to be nonexistent and the assessee had, therefore, not made true disclosure in this respect and (ii) that all throughout the petitioner shifted his stand on his correct undisclosed income;

++ multiple disclosures made by assessee during the settlement proceedings, as noted by the Settlement Commission and referred to in the earlier portion of this judgment, would clearly show that he had scant regard for truth. Several revised settlement offers were made by the assessee. Each time he shifted his stand, either on the quantum of undisclosed income or its source. On certain occasions, the Department brought out discrepancies in the disclosures, which forced the assessee to make further revised offers for settlement. After making such revised offers on multiple attempts, the assessee took a complete ‘U' turn and sought to delete certain income from his disclosures on the ground that, till then, he had taken into account his share of the AOP in question. However, the other member of the AOP refused to accept such a formula. If the assessee is permitted to revise his disclosure, it would, in a sense, mean making a fresh application in relation to the said case by withdrawing the earlier application. Thus, the assessee cannot revise the application. The assessee had challenged the order of Settlement Commission on merits, by which his request for continuing with the settlement offer for the years during which full tax with interest was already paid, was also rejected by the Settlement Commission on the ground that no such dissection could be made. The Court rejected the challenge to the constitutionality of the statutory provisions to upheld the assessee's contention that for the Assessment Years for which tax with interest was paid, the application for settlement should have been proceeded further. Said case, unlike in the present case, did not contain block assessment proceedings. The question of separate applications/proceedings of settlement for each year was, therefore, not examined in the context of block assessment. Further, in the present case, the Settlement Commission has held that there was lack of true and full disclosure and total flip flop on the part of the petitioner while making multiple disclosures.

(See 2018-TIOL-909-HC-AHM-IT)