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Volume - I
October,2016
No. of Pages - 13
Editorial Board:
Founder editor:
CA.MOHIT GUPTA
Coordinating editors:
CA.SUMIT BANSAL
CA.MOHAN JOSHI
CA.SANJAY BANSAL
PRABHAT RANJAN
Relevant Provisions:-
1.
III.
2.
3.
4.
Judicial Precedents:
(i) Delhi High Court in Anil Kumar Bhatia (2013)
352 ITR 493 (Del)
Before the Delhi High Court in Anil Kumar Bhatia
(2013) 352 ITR 493 (Del) the question whether in
order to frame an assessment in terms of the first
proviso to section 153A(1) in respect of those
assessment years for which the assessments had
already been completed, there was a requirement
that some incriminating material should be
unearthed during the search was left open. In that
case the Tribunal had concluded that "if no
incriminating material is found in respect of such
completed assessments then the total income in
the proceedings under section 153A(1) shall be
computed by considering the originally
determined income. If some incriminating
material is found in respect of such assessment
years for which assessment is not pending, then
the total income would be determined by
considering the originally determined income plus
(+)income emanating from the incriminating
material found during the course of search".
The Delhi High Court in CIT v. Anil Kumar Bhatia
(supra) posed the question as under:
The Court then explained that the concept of timelimit for completion of assessment or
reassessment under section 153 had been done
away with in a case covered by section 153A and
5.
6.
7.
8.
(b)
IV.
(ii)
Conclusion:-
9.
LEGAL BROWSER
A guide to Legal Updates and Landmark Rulings on Income Tax Search and
Seizure and related sections under the Income Tax Act'1961
Section 132(4)
DCIT V. Narendra Garg & Ashok Garg [2016] 72 taxmann.com 355 (Gujarat)
Where assessee retracted from disclosure made in statement under section 132(4) which was
not accepted by revenue, and if no undisclosed income was found during search, revenue could
not make addition on bare suspicion and presumption.
FACTS
A search operation under section 132 was carried out at the business and residential
premises of the assessee and various documents were found disclosing undisclosed
income of the assessee.
The Assessing Officer made the additions to the declared undisclosed income of the
assessee
On appeal, the Commissioner (Appeals) deleted all the additions made by the Assessing
Officer and only upheld part addition on account of undisclosed household expenses.
On cross appeal, the Tribunal partly allowed the appeal of the assessee and dismissed
the appeal of the revenue.
On appeal before the High Court, the revenue submitted that once disclosure statement
under section 132(4) during the search proceedings was given, the same could not be
retracted as the same was an admissible evidence against the person making the
disclosure. On contrary, the assessee submitted that no undisclosed income was found
during the search and, therefore, no addition could be made.
HELD
It is true that the addition was made by the Assessing Officer pursuant to the statement
recorded under section 132(4). The assessee has retracted from the said disclosure which
has not been accepted by the revenue. It is required to be borne in mind that the revenue
ought to have collected enough evidence during the search in support of the disclosure
statement. It is a settled position of law that if an assessee, under a mistake,
misconception or on not being properly instructed, is over assessed, the authorities are
required to assist him and ensure that only legitimate taxes are collected. The Assessing
Officer cannot proceed on presumption under section 132(4) and there must be
something more than bare suspicion to support the assessment or addition. In the
present case, though the revenue's case is based on disclosure of the assessee stated to
have been made during the search under section 132(4), there is no reference to any
undisclosed cash, jewellery, bullion, valuable article or documents containing any
undisclosed income having been found during the search. [Para 5]
10.
There is no infirmity in the Tribunal's order. The revenue is not in a position to produce
any material on record so as to warrant interference by this Court. The deletion of addition
on account of household expenses and cloth transaction has been rightly confirmed by the
Tribunal.The Tribunal has rightly applied the principles of telescoping for reducing
additions made by the Assessing Officer. [Para 6]
The questions raised for consideration in the present appeals are answered in favour of
the assessee and consequently, the impugned judgment and order passed by the
Tribunal is confirmed. Hence, the present Tax Appeal are dismissed. [Para 7]
Section 153C
Commissioner of Income-tax, Kolkata-III V. Veerprabhu Marketing Ltd. [2016] 73
taxmann.com 149 (Calcutta)
Existence of incriminating material which may be found during
search/requisition/survey of third party is a prerequisite for assessment of a person
other than person searched
FACTS
Before the High Court the assessee-company submitted that the assessment under
section 153C, read with section 153A was altogether without jurisdiction because such
assessment was made on the basis of survey conducted under section 133A upon other
person during which no incriminating material was found in respect of the assessee.
On the other hand, the revenue submitted that there was a search as also a requisition;
and there was survey in addition thereto, so, it could not be said that exercise of power
was bad:
HELD
In CIT v. IBC Knowledge Park (P.) Ltd. [2016] 69 taxmann.com 108 (Kar.), the High
Court held that materials such as books of account, documents or valuable assets found
during a search should belong to a third party which would lead to an inference of
undisclosed income of such third party. Such an inference should be recorded by the
Assessing Officer having jurisdiction over the searched persons and communicated to the
Assessing Officer having jurisdiction over such third party along with the seized
documents and other incriminating materials on the basis of which the Assessing Officer
having jurisdiction over such third party would issue notice under section 153C. On
receipt of the aforesaid material, the Assessing Officer having jurisdiction over such third
party would proceed against the said third party. Thus, where no material belonging to a
third party is found during a search, but only an inference of an undisclosed income is
drawn during the course of enquiry, during search or during post-search enquiry, section
153C would have no application. Thus, the detection of incriminating material leading to
an inference of undisclosed income is a sine qua non for invocation of section 153C. [Para
5]
The views expressed by the Karnataka High Court that incriminating material is a
prerequisite before power could have been exercised under section 153C, read with
section 153A is correct. [Para 8]
There is no infirmity in the aforesaid act of the Tribunal. The appeal is, therefore,
dismissed. [Para 10]
11.
Section 245D, read with section 245C, of the Income-tax Act, 1961
Commissioner of Income-tax-I v. Income Tax Settlement Commission [2016]
72 taxmann.com 168 (Gujarat)
Where assessee at time of settlement raised/revised offers of tax marginally in
order to put an end to entire dispute through settlement, it could not be said that
original or initial declaration was not true and full disclosure
FACTS
The petition was filed by department challenging the order of the Settlement Commission by
which it accepted offer of settlement made by respondent-assessee for three years 2011-12 to
2013-14. Upon the assessee paying tax as per computation of income-tax made by the
Settlement Commission in said order, the assessee had been offered immunity from penalty
and prosecution.
It was submitted that the Settlement Commission had not recorded proper reasons for
accepting offer of settlement by the assessees. Further, no proper basis or yardstick had been
provided for estimating income of the assessee and the assessee had been allowed to revise
their offers which would indicate that initially the disclosures made by the assessee were not
full and true disclosures.
However, the respondent assessee opposed the petitions contending that the Settlement
Commission had given detailed reasons for passing the order and the consideration could not
be stated to be contrary to the provisions of the Act. Further, the High Court had limited
jurisdiction to interfere with the orders passed by the Settlement Commission.
HELD
The fact that the scope of inquiry by the High Court in exercise of writ jurisdiction under
article 226 of the Constitution of India against an order passed by the Settlement Commission
is quite restricted, is no longer a new or unknown proposition. It is held by series of judgments
by the Supreme Court as well as by High Courts that though finality given to an order of
Settlement Commission would not bar a writ petition before High Court, the scope of judicial
review would be restricted to considering whether order is contrary to any provisions of the
Income-tax Act. The scope of inquiry, whether by the High Court under article 226 or by the
Supreme Court under article 136 is to see whether the order of the Commission is contrary to
any of the provisions of the Act and if so, apart from the ground of bias and malice which
constitute a separate and independent category as it prejudices the applicant. [Para 5]
The Settlement Commission had in the impugned order examined material on record in the
context of the declarations made by the applicants for settlement including certain
transactions of the applicants of lending their on-money on short-term basis. The Settlement
Commission has examined material on record, given its own findings and made observations
and come to conclusions which cannot be said to be perverse or that the order was contrary to
any of the provisions of the Act. Recognising the limitation of judicial review by the High Court
in exercise of writ jurisdiction against the order of Settlement Commission, no justifiable
grounds are found for interference in this respect. [Para 6]
As regards disclosures, it is noticed that under section 245C, an assessee at any stage of a
case relating to him is allowed to make application for settlement in a prescribed form which
would require a full and true disclosure to be made by him of his income which has not been
disclosed before Assessing Officer and the manner in which such income has been derived.
While processing such application under section 245D, it would be open for the Settlement
Commission to reject an application for settlement if it is found that the applicant has not made
true and full disclosure of his income in the application for settlement. [Para 7]
The issue of true and full disclosure, stage at which such disclosures should be made and the
effect of making further disclosures by revising initial offers of settlement was examined by the
Supreme Court in the case of Ajmera Housing Corpn v. CIT [2010] 326 ITR 642/193 Taxman
193. The ratio of the judgment of the Supreme Court judgment is that the true and full
disclosure of the income must be made at the initial stage and large scale remissions in such
disclosure itself would show that the initial disclosures were not true. [Para 10]
12.
However, in the instant case, the applicants had initially offered on money rotation of Rs. 25
lakhs, Rs. 21 lakhs and Rs. 30 lakhs respectively and income at the rate of 12.5 per cent
thereof by way of interest earned which during the course of assessment proceedings was
revised to Rs. 50 lakhs, Rs. 50 lakhs and Rs. 75 lakhs respectively with rate of return at 15 per
cent. With respect to revised rate of return, even revenue would not be in a position to argue
that the same would form part of declaration of two incomes since whether rate of return
should be estimated to 12.5 per cent or 15 per cent would be substantially in the realm of
estimation of not profit. He would however, strenuously contend that revised declaration of on
money should be enough to establish that initial disclosures made by the assessees were not
full or true disclosures of such income. In this context, in the letter written by the applicants
making such revised offers, it was conveyed that the applicants had filed a petition for
settlement in which offered a sum of Rs. 7.75 lakhs at the rate of 12 per cent on peak balance
of funds deployed in money lending activity. It was further stated that the applicant during the
course of hearing under section 245D(4), in the spirit of settlement, agreed to further
additional income of Rs. 39.13 lakhs which is computed on the basis stated hereinbelow:
(a) interest in money lending activity at the rate of 15 per cent per annum.;
(b) Amount deployed in money lending activity Rs. 50 lakh
(C)Income out of on money receipt at the rate of 15 per cent [Para 11]
Similar declarations were made in the case of other applicants as well. It can thus be seen
that these revised offers of tax was in the nature of spirit of settlement and cannot be seen in
strict sense of abandoning initial disclosures and replacing the same by fresh disclosures on
the basis of such revised offers. What in essence the assessee did was to raise their offers
marginally to put an end to the entire dispute through settlement or in the spirit of settlement
as is referred to in the said letter. This cannot be seen as accepting that original or initial
declaration was not true and full disclosure thereby paving way for the application of
judgment in the case of Ajmera Housing Corpn. (supra). [Para 12]
In the result, the petitions are dismissed. [Para 13]