C/SCA/15653/2019 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 15653 of 2019 With R/SPECIAL CIVIL APPLICATION NO. 15658 of 2019 PRINCIPAL COMMISSIONER OF INCOME TAX, SURAT-1 Versus M/S SHREYANSH CORPORATION Appearance: MRS KALPANAK RAVAL(1046) for Petitioner(s) No. 1 for Respondent(s) No. 1 CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE MS. JUSTICE SANGEETA K. VISHEN Date : 07/10/2019 COMMON ORAL ORDER (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. Both these petitions arise out of common order dated 17.7.2018 passed by Income Tax Settlement Commission and hence, same were taken up for hearing together and are decided by this common judgment. 2.By these petitions under article 226 of Constitution of India, petitioner, viz. Principal Commissioner of Income Tax, Surat 1 has challenged order dated 17.7.2018 passed by Income Tax Settlement Commission with respect to assessment year 2004 2005 in case of both respondents/assessees. 3.The facts stated briefly are that, respondent in Special Civil Application No.15653 of 2019 viz. M/s. Shreyansh Corporation made Page 1 of 15 Downloaded on : Thu Nov 14 14:38:05 IST 2019 C/SCA/15653/2019 ORDER application under sub-section (1) of section 245C of Income Tax Act, 1961 (hereinafter referred to as 'the Act') wherein it offered Rs.22,04,620/- as additional income for year under consideration viz. assessment year 2004- 2005. In terms of report made by Principal Commissioner of Income Tax under rule 9 of Settlement Commission Procedure Rules, 1997 (hereinafter referred to as 'the rules') after Settlement Commission allowed application to be further proceeded with under sub-section (2D) of section 245D of Act, Assessing Officer had proposed following additions: Asst. Amount of Nature of addition Yr. addition 2004-05 1,51,50,052 Unexplained Capital Introduced 3,35,477 Unexplained Purchases @25% 1,29,328 Disallowance of administrative expenses @ 10% 12,94,622 Disallowance of interest on capital 2,07,498 Disallowance of trading expenses @ 5% Total 1,71,16,977/- 4.The respondent applicant gave its comments to contents of above report by reply as contemplated under rule 9A of rules on Page 2 of 15 Downloaded on : Thu Nov 14 14:38:05 IST 2019 C/SCA/15653/2019 ORDER 27.11.2017, wherein it had dealt with additions proposed by Assessing Officer as follows: 4.1 As regards addition on account of introduction in capital account of Rs.1,51,50,052/-, it was pointed out that such amount had duly been considered in combined cash flow of Shri M.D. Patel and settlement petition of group. details of addition to capital account of Rs.1,51,50,052/- are set out in paragraph 4.1.1 of impugned order. 4.2 As regards expenditure of Rs.22,04,622/- on account of salary, interest payment to respondent-applicant and other salary expenses, applicant had already offered same as additional income in its settlement petition. details whereof are tabulated in paragraph 4.1.2 of impugned order. 4.3 As regards disallowance of purchases of Rs.3,35,477/-, applicant explained that disallowance is of 25% of total expenses of Rs.13,41,909/-. This amount is basically opening stock of grey cloth after bifurcation of opening stock between yarn and grey cloth. 4.4 As regards disallowance of administrative expenses at 10% amounting to Rs.1,29,328/- and trading expenses @ 5% amounting to Rs.2,07,498/-, it was submitted that out of Rs.12,93,280/- applicant had suo motu disallowed Rs.7,85,000/- Page 3 of 15 Downloaded on : Thu Nov 14 14:38:05 IST 2019 C/SCA/15653/2019 ORDER in settlement petition and hence, no further disallowance is called for. 4.5 As regards proposal to disallow 5% of trading expenses of Rs.41,49,973/- amounting to Rs.2,07,498/-, by its letter dated 8.6.2018, applicant submitted that said expenses are genuine; however, to put end to issue and to buy peace of mind, applicant offered Rs.2,07,498/-to tax. 4.6 As regards disallowance of interest on capital amounting to Rs.12,94,622/-, it was contended on behalf of applicant that such amount had already been offered to tax by applicant in its settlement petition and would therefore, lead to taxing same income twice. 5.Insofar as respondent in Special Civil Application No.15658 of 2019 viz. M/s. Samarth India is concerned, said assessee in its application made under sub-section (1) of section 245C of Act offered Rs.18,64,228/- as additional income for year under consideration viz. assessment year 2004-2005. In terms of report made by Principal Commissioner of Income Tax under rule 9 of rules after Settlement Commission allowed application to be proceeded further under sub- section (2D) of section 245D of Act, Assessing Officer had proposed following additions: Page 4 of 15 Downloaded on : Thu Nov 14 14:38:05 IST 2019 C/SCA/15653/2019 ORDER Asst. Amount of Nature of addition Yr. addition 2004-05 1,12,06,467 Unexplained Capital Introduced 3,69,690 Unexplained Purchases @25% 1,21,413 Disallowance of administrative expenses @ 10% 10,11,348 Disallowance of interest on capital 1,94,664 Disallowance of trading expenses @ 5% Total 1,29,03,582/- 6.On 27.11.2017, respondent applicant gave its comments to contents of above report by reply as contemplated under rule 9A of rules, wherein it had dealt with additions proposed by Assessing Officer as follows: 6.1 As regards addition of Rs.1,12,06,467/- to partner's capital constituting introduction of capital, crediting of salary, interest and profit in capital account, it was pointed out that such amount had been duly considered in combined cash flow of Shri M.D. Patel and settlement petition of group. details of addition to capital account of Rs.1,51,50,052/- are set out in paragraph 4.2.1.1 of impugned order. 6.2 As regards disallowance of purchases of Rs.3,69,690/-, applicant explained that disallowance is of 25% of total expenses of Page 5 of 15 Downloaded on : Thu Nov 14 14:38:05 IST 2019 C/SCA/15653/2019 ORDER Rs.14,78,769/-. This amount is basically opening stock of grey cloth after bifurcation of opening stock between yarn and grey cloth. It was further clarified that actual purchases during year were of Rs.18,857/-. 6.3 As regards disallowance of administrative expenses at 10% amounting to Rs.1,21,413/- and trading expenses @ 5% amounting to Rs.1,94,664/-, it was submitted that Assessing Officer proposes to disallow 10% of administrative expenses of Rs.12,14,136/- which amounts to Rs.1,21,413/-; however, applicant had suo motu disallowed Rs.7,22,880/- in settlement petition and hence no further disallowance is called for. 6.4 As regards proposal to disallow 5% of trading expenses of Rs.38,93,299/- amounting to Rs.1,94,644/-, by its letter dated 8.6.2018, applicant submitted that said expenses were genuine; however, to put end to issue and to buy peace of mind, applicant offered to tax Rs.1,94,644/-. 6.5 As regards disallowance of interest on capital amounting to Rs.10,11,348/-, it was contended on behalf of applicant that such amount had already been offered to tax by applicant in its settlement petition and would therefore, lead to taxing same income twice. Page 6 of 15 Downloaded on : Thu Nov 14 14:38:05 IST 2019 C/SCA/15653/2019 ORDER 7.After considering issues put forth by Principal Commissioner of Income Tax in report under rule 9 of rules and rejoinders of applicant and documents submitted along with statement of facts and submissions of respective parties, Settlement Commission noted that insofar as addition to partner's capital is concerned, applicant had submitted affidavits made by Shri Mohan D. Patel and two applicants and it was further stated that if at any stage these affidavits are found to be false, it may be treated as misrepresentation of facts as per section 245D(6) of Act and consequences as per section 245D(7) of Act may follow in case of two applicants. 8.The Settlement Commission further noted that applicants had offered additional income for bringing quietus to certain issues in spirit of settlement as per letter dated 8.6.2018 viz. Rs.2,07,498/- in case of M/s. Shreyansh Corporation and Rs.1,94,644/- in case of M/s. Samarth India. 9.Taking into account all facts and discussions on record, Settlement Commission was of view that additional income offered during section 245D(4) proceedings vide applicant's letter dated 8.6.2018 added to additional income disclosed in settlement applications can be accepted with reference to income Page 7 of 15 Downloaded on : Thu Nov 14 14:38:05 IST 2019 C/SCA/15653/2019 ORDER disclosed in settlement applications. It further noted that CIT (DR) and Assessing Officer also did not make any further submissions. Settlement Commission accordingly, settled cases of respondents/applicants on terms and conditions set out in impugned order. Being aggrieved, petitioner has filed present petitions. 10.From submissions made on behalf of petitioner, it appears that it is these amounts of Rs.2,07,498/- and Rs.1,94,644/- which respondents/applicants had offered to put end to issue and to buy peace of mind and which came to be accepted by Settlement Commission, which form core of dispute in present petitions. 11.Mr. Nikunt Raval, learned counsel for revenue submitted that offering such amounts by applicants vide their letter dated 8.6.2018, would amount to amending their applications made under section 245C(1) of Act and would also tantamount to applicants not having made full and true disclosure of their unaccounted income in their original applications filed before Settlement Commission and hence, Settlement Commission ought not to have disposed of applications under section 245D(4) of Act. In support of his submission, learned counsel placed reliance upon decision of this Page 8 of 15 Downloaded on : Thu Nov 14 14:38:05 IST 2019 C/SCA/15653/2019 ORDER court in case of Principal Commissioner of Income Tax Vadodara v. Shree Nilkanth Developers, (2016) 73 taxmann.com 76 (Gujarat), wherein it has been observed thus: 15. One of prime requirements for settlement is of filing application under sub section (1) of Section 245C of Act by assessee which would contain full and true disclosure of his income which has not been disclosed before and manner, in which, such income has been derived. If assessee fails in this requirement, application would have to be rejected. In this context, we may refer to decision of Supreme Court in case of Ajmera Housing Corpn. (supra) in which it was observed that full and true disclosure of income which has not been previously disclosed by assessee, being pre-condition for valid application under Section 245C(1) of Act, scheme of Chapter XIX-A does not contemplate revision of income as disclosed in application. If assessee is permitted to revise his disclosure, in essence, he would be making fresh application in relation to same case by withdrawing earlier application. It was further observed that, in scheme of Chapter XIX-A, there is Page 9 of 15 Downloaded on : Thu Nov 14 14:38:05 IST 2019 C/SCA/15653/2019 ORDER no stipulation for revision of application filed under Section 245C(1) and determination of income by Settlement Commission has necessarily to be with reference to income disclosed in application filed under that section. Revision of income would tantamount to revision of application, no contemplated in scheme...... 12.From averments made in memorandum of petition, it further appears that order of Settlement Commission is sought to be challenged on ground that it is non- reasoned order. 13.It is in backdrop of aforesaid facts and contentions that validity of impugned order passed by Settlement Commission is required to be examined. On perusal of impugned order, it can be seen that Settlement Commission has considered additions proposed by Assessing Officer and explanation given by respondents/ applicants and has been satisfied with such explanation. Insofar as addition on account of unexplained capital introduced is concerned, authorised representative had also explained that capital so introduced had been duly considered in combined cash flow of Shri Mohan D. Patel and that all payments and receipts of 154 parties (the two applicants being one Page 10 of 15 Downloaded on : Thu Nov 14 14:38:05 IST 2019 C/SCA/15653/2019 ORDER of them) has been included in cash flow of Shri Mohan D. Patel which formed basis of settlement application filed by him. In this regard, Settlement Commission has considered fact that applicants had submitted affidavits on same lines as submitted by its group members which were accepted by department, based on which those petitions were disposed of vide order dated 8.11.2017 passed under section 245D(4) of Act. Moreover, applicants had also submitted that if at any stage these affidavits are found to be false, it may be treated as misrepresentation of facts as per section 245D(6) of Act and consequences as per section 245D(7) thereof may follow in case of two applicants. Insofar as other proposed additions are concerned, applicants had explained same and Settlement Commission had found same to be acceptable. Considering nature of proposed additions and explanation put forth by applicants, no infirmity can be found in approach of Settlement Commission in accepting such explanation. 14.As noticed earlier, revenue appears to be mainly aggrieved by fact that in respect of proposed additions viz., proposal to disallow 5% of trading expenses of Rs.38,93,299/- amounting to Rs.1,94,664/- in case of Samarth India and Rs.41,49,973/- amounting to Rs.2,07,498/- in case of Shreyansh Corporation, Page 11 of 15 Downloaded on : Thu Nov 14 14:38:05 IST 2019 C/SCA/15653/2019 ORDER applicants, by their letter dated 8.6.2018, had submitted that such expenses are genuine; however, to put end to issue and to buy peace of mind, applicants offered to tax Rs.1,94,664/- and Rs.2,07,498/- respectively; which came to be accepted by Settlement Commission. According to petitioner, acceptance of such liability on part of applicants amounts to non-disclosure of full and true facts in applications filed by them under section 245C of Act, and hence, Settlement Commission ought not to have decided applications under section 245D(4) of Act, but ought to have rejected them for non- disclosure of full and true facts. 15.In considered opinion of this court, stand of petitioner in present petitions is against spirit of settlement as envisaged under section 245D of Act. Proceedings before Settlement Commission are in nature of settlement between parties and are not strictly speaking adjudicatory proceedings. On perusal of impugned order passed by Settlement Commission, it is abundantly clear that both respondents had not accepted liability of 5% of trading expenses, but in spirit of settlement offered to pay amount computed by Assessing Officer with view to bring quietus to matter and buy peace of mind. This court is of view that offer to pay such amounts in addition to amounts Page 12 of 15 Downloaded on : Thu Nov 14 14:38:05 IST 2019 C/SCA/15653/2019 ORDER disclosed in applications under section 245C of Act cannot be said to be disclosure of any further amounts under that section as same have been offered only to bring about settlement. fact that applicants have offered to pay such amounts, liability whereof has not been accepted by them, cannot be termed as non-disclosure of full and true facts in applications under section 245C of Act. Under circumstances, considering amounts so offered by way of settlement which are quite meagre considering overall disclosure made, this court does not find any infirmity in impugned order passed by Settlement Commission warranting interference in exercise of powers under article 226 of Constitution of India. 16.The decision of this court in case of Shree Nilkanth Developers (supra) would not be applicable to facts of present case, inasmuch as in facts of that case as well as in case before Supreme Court in Ajmera Housing Corporation v. CIT, (2010) 326 ITR 642, which finds reference therein, there were revised disclosures which were drastic in nature as compared to initial disclosure made in applications for settlement. Supreme Court has frowned upon any revision in disclosures initially made as same would amount to initial disclosure not being full and true disclosure. In facts of present case, no Page 13 of 15 Downloaded on : Thu Nov 14 14:38:05 IST 2019 C/SCA/15653/2019 ORDER revised application under sub-section (1) of section 245C of Act had been filed by respondents revising initial disclosures. respondents/ applicants have not made any revised disclosures, nor have they accepted liability to pay additional amounts. Nonetheless, in spirit of settlement, respondents- applicants have, offered to pay such amounts to bring quietus to matter and buy peace of mind. Moreover, additional amounts which respondents have agreed to pay are meagre considering overall amounts disclosed in applications under section 245C(1) of Act. Under circumstances, contention that there was no full and true disclosure in applications made under section 245C(1) of Act, does not merit acceptance. 17.Insofar as contention that impugned order is non-reasoned order, from facts noted hereinabove, it is evident that Settlement Commission has applied its mind to nature of disclosures, contentions of revenue and explanation of respondent- applicants and has given its findings thereon. On perusal of impugned order it is not possible to state that it is non-speaking order. Such contention is, therefore, misconceived. 18.In light of above discussion, this court does not find any infirmity in impugned Page 14 of 15 Downloaded on : Thu Nov 14 14:38:05 IST 2019 C/SCA/15653/2019 ORDER order, so as to warrant interference. petitions, therefore, fail and are accordingly, summarily dismissed. (HARSHA DEVANI, J) (SANGEETA K. VISHEN,J) BINOY B PILLAI Page 15 of 15 Downloaded on : Thu Nov 14 14:38:05 IST 2019 Principal Commissioner of Income-tax, Surat-1 v. Shreyansh Corporation