The Delhi High Court has held that ITSC cannot grant immunity from Penalty and Prosecution without True Disclosure under section 254C of Income Tax Act, 1961. The ITSC further went on to grant immunity from the penalty and prosecution under Section 245H of the Act, which was contrary to the twin conditions stipulated.
Pankaj Buildwell Ltd & Group, the respondent-assessee group is engaged in the real estate business in Delhi, particularly in the development of commercial complexes. The business activities of the respondent-assessee group involve the purchase of land from the Delhi Development Authority on auction, followed by the development and sale of the same to various customers.
On 11 October 2006, a search and seizure operation was conducted at the business and residential premises of the respondent-assessee group under Section 132(1) of the Act. During the said operation, various incriminating documents including jewellery and cash were found and the same were accordingly seized. Subsequently, the case of the respondent-assessee group was centralized with the Assessing Officer [“AO”], Central Circle-08, New Delhi.
During the pendency of the assessment proceedings, the respondent-assessee group, vide letter dated 30 May 2007, preferred settlement applications under Section 245C (1) of the Act before the ITSC for AYs 2001-02 to 2007-08, thereby, disclosing an additional income of INR 1,53,50,504/- in toto. Consequently, the Commissioner of Income Tax [“CIT”], Central-II, New Delhi, filed a report under Rule 9 of the Income Tax Settlement Commission Procedure Rules, 1997 [“Rule 9”] on 12 February 2008, raising various issues against the respondent-assessee group, inter alia, doubting the genuineness of the transactions with respect to share capital amounting to INR 23.69 crores.
On 09 June 2014, the ITSC admitted all the applications filed by different members of the respondent-assessee group, including business entities and individuals therein, to settle their income tax liability. While deciding the settlement applications, the ITSC passed the impugned order and declared the total additional income to the tune of INR 18 crores, which includes a voluntarily offered amount of INR 1 crore at the instance of the respondent-assessee group.
While passing the impugned order, the ITSC accepted the Revenue’s contention that unaccounted money was introduced as bogus share capital by the respondent-assessee group and thus, it proceeded to make the aforesaid addition.
Out of the total addition of INR 18 crores in the case of the respondent-assessee group, additions amounting to INR 7.51 crores ( includes voluntarily offered sum of INR 1 crore ) and INR 10.49 crores were made in the case of Pankaj Buildwell Ltd. [“Pankaj Ltd.”] and Raghav Buildwell Ltd. [“Raghav Ltd.”], respectively, both of which form part of the respondent-assessee group.
A division bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav observed that the statutory framework of Chapter XIX-A of the Act does not allow for any revision or amendment of an application under Section 245C of the Act, as this would essentially entail submitting a new application in the same case while withdrawing the previous one.
The Court allowed the petition by permitting the revision of the application would indirectly provide the respondent-assessee group with a chance to accomplish something that they could not achieve directly. Furthermore, it would also severely affect the importance of the requirement of full and true disclosure at the first instance.
The court observed that the ITSC has erred in law by approving the application of the respondent-assessee group under Section 245C of the Act. The ITSC further went on to grant immunity from the penalty and prosecution under Section 245H of the Act, which was contrary to the twin conditions stipulated.
While allowing the petition, the court set aside the order.
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