The Delhi High Court has ruled that the Income Tax Settlement Commission ( ITSC ) is not devoid of jurisdiction to make an addition during settlement proceedings, as clearly stated in the settlement terms.
The dispute arose following a search under Section 132 of the Income Tax Act, 1961, involving the petitioner-assessee and their family members. Proceedings under Section 153/147 were initiated for the assessment years 2010–11 to 2015–16. The petitioner submitted a settlement application to the ITSC on December 26, 2017, disclosing additional income.
In the application, the petitioner acknowledged engaging in off-market transactions, known as Dabba trading, facilitated by a family friend and relative, which resulted in additional income beyond the regular accounts.
The ITSC accepted the disclosure and added Rs. 1,45,09,098 to the assessment, citing commission and margin money paid to Raj Kumar Kedia for the off-market transactions. The assessee has challenged this addition.
The dispute was triggered with the initiation of search under Section 132 of the Income Tax Act, 1961 in the case of the petitioner and other family members. In pursuance of the same, proceedings under Section 153/147 of the Act were initiated for the Assessment Years [“AYs”] 2010-11 to 2015-16.
While the assessment proceedings were carried out by the Revenue, the petitioner approached the ITSC with the settlement application dated 26.12.2017 disclosing additional income of Rs.10,36,36,417/-. In the said application, it was admitted by the petitioner that it entered into certain off-market transactions commonly referred to as Dabba trading, through a family friend namely, Raj Kumar Kedia and the same was facilitated by a family member namely, M.K. Dhanuka, which resulted in additional income beyond the regular books of accounts.
The assessee argued that the Income Tax Settlement Commission ( ITSC ) erred in adding the commission and margin money, claiming it did not follow the Income Tax Act’s provisions strictly. They asserted that Chapter XIX-A does not grant the ITSC unchecked power to make additions outside the scope of regular assessment.
The department argued that Section 245BA of the Income Tax Act requires the ITSC to consider all material before making an order under Section 245D(4). They maintained that Section 245C provides a concessional remedy, binding the assessee to Chapter XIX-A once opted.
The court, dismissing the assessee’s appeal, stated that an applicant does not have an absolute right to accept their disclosed income. The ITSC, the court noted, has exercised its authority with careful consideration of the settlement process’s intent.
It was noted that, “In the facts of the case at hand and bearing in mind the plenitude of powers assigned to the ITSC, it cannot be said that the ITSC lacked jurisdiction to make such an addition, which has also been duly recorded in the terms of settlement, to put a quietus to the litigation. Afterall, the objective of the settlement provisions is to strike a balance between the voluntary disclosure of income by the assessee and the income escaping assessment in order to expedite the closure of tax disputes.”
The High Court of Delhi also found itself unable to hold that the said addition made by the ITSC is manifestly erroneous as the ITSC has meticulously exercised its power taking into consideration the underlying intent of the settlement process.
It was thus held that the dispute was essentially relating to the waiver of interest chargeable under Section 234A, 234B and 234C of the Act which was held to be mandatory in nature. Thus, the reliance placed by the petitioner on the said case was held to be misplaced and inapplicable in the factual scenario of the present matter.
Justices Yashwant Varma and Purushaindra Kumar Kaurav noted that the settlement provisions aim to balance voluntary income disclosure by the assessee with the assessment of income that has escaped.
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