By TIOL News Service

AHEMDABAD, JUNE 29, 2017: THE ISSUE BEFORE THE COURT IS - Whether Additional disclosure of unaccounted income made with a view to end pending assessment, is ground to conclude that initial disclosures made before Settlement Commission were false. NO is the verdict.

Facts of the case:

The assessees are engaged in the business of construction and development of immovable properties. Assessments for the AYs 2012-13 to 2014-15 were pending. Desirous of settling such disputes, the assessees moved different settlement applications seeking to resolve the disputes with the Revenue arising in the said pending assessments. These settlement applications passed through various stages till coming to the stage of the Commission passing an order u/s 245D(4). In the settlement applications, the assessees had made additional disclosures of undisclosed incomes. They had admitted to have received on money through sale of the constructed properties. According to the assessees however, the entire on money receipt was not its unaccounted income. The unaccounted income comprised of the profit element embedded in such cross receipts according to the assessees. The assessees projected 15% profit on the turnover. On the basis of the turnover of unaccounted receipts mentioned above and 15% profit rate claimed by the assessees, the assessees had made disclosures of additional income in the applications for settlement filed by them. Revenue contended that further inquiry was necessary and that 15% rate of profit was on the lower side as in similar business, the rate of return was much higher. The Commission accepted the disclosure of the turnover made by the assessees as it appeared that the Revenue had not brought any contrary material on the record in this respect. The Commission also suggested that 15% rate of profit out of the turnover was reasonable. The Commission while passing the impugned order further recorded that during the course of the proceedings, the representatives of the assessees had made a voluntary disclosure of an additional sum of Rs.2 crores i.e. Rs.50 lakhs in case of each assessee for the assessment year 2014-15 "in a spirit of settlement and to put a quietus to the issue.” Taking note of the materials on record in these further disclosures made by the assessees, the Settlement Commission passed the impugned order and, as noted, accepted the offers of settlement and granted immunity to the assessees from prosecution and penalties. Revenue challenged the said order primarily on the ground that the assessees had failed to make true and full disclosures of their income, which is one of the basic requirements of settlement as provided in section 245C(1). The Revenue also questioned the approach of the Commission in not carrying out further inquiries.

On appeal, the HC held that,

++ it is true that before the Settlement Commission, the assessees indicated that the additional disclosure of Rs.50 lakhs each may be accounted for the assessment year 2014-15. However, we cannot lose sight of the fact that such disclosures were, as noted above, in the spirit of settlement and to put an end to the controversy. The assessees therefore cannot be pinned down to the effect of such disclosures in the year 2014-15 alone. We cannot fragment a larger picture and telescope the additional disclosures for a particular year and taking into account the comparable figures for that year decide whether such disclosures would shake the initial disclosures as to apply the ratio laid down by the Supreme Court in case of Ajmera Housing and to hold that the initial disclosures themselves were untrue projecting the additional disclosures for all years the assessees had sought settlement, we find the Commission committed no error in accepting them and in proceeding to pass final order on such settlement applications.

(See 2017-TIOL-1214-HC-AHM-IT)