The court clarified the necessity for the Settlement Commission to redo assessments and ensure fair disclosure proceedings upon the High Court's intervention.

ORDER :

1.This Civil Appeal has been filed assailing the judgment of the High Court of Gujarat dated 23.08.2016 passed in SCA No.14239/2015, whereby the High Court has allowed the writ petition filed by the respondent (Principal Commissioner of Income Tax) and has consequently set aside the order of the Settlement Commission.

2. In substance, the High Court has stated that disclosures revised by the Assessee during the course of settlement proceedings were substantial and, in fact, greater than the initial disclosure made, which aspect the Settlement Commission completely ignored and since there was difficulty in ascertaining the accuracy of the undisclosed income on the basis of the impounded documents, the order of the Settlement Commission was flawed.

3. The facts in brief are that the appellant herein being a partnership firm constituted w.e.f. 01.05.2009 is in the business of real estate. The Department conducted a survey under Section 133A of the Income Tax Act, 1961 (hereinafter referred to as the `Act’ for the sake of brevity) at the project site of the appellant and found incriminating material during the course of survey. It was the case of the respondent/Department that the appellant had not disclosed certain income to the Assessing Officer. During the course of survey a Diary-BR1, (being incriminating material) was impounded and thereafter a statement of one of the partners of the firm was recorded. It appears that he had stated that there was a practice of receiving undisclosed amounts but they had been offered as additional income to an extent of Rs.3 crores for taxation over and above the disclosed income/normal income as such; that it was only a case of a tentative disclosure or non-disclosure and took time to make a complete disclosure.

4. The survey was conducted on 11.01.2013. Thereafter, on 21.01.2014, the appellant moved the Settlement Commission in respect of Assessment years 2011-12, 2012-13 and 2013-14 by way of an application seeking settlement of its case. The appellant estimated the additional income for the AY 2011-12 at Rs.10 lacs, AY 2012-13 at Rs.13 lacs and AY 2013-14 at Rs.11 lacs totalling Rs.34 lacs, which was offered for taxation and additional amount of income tax payable on the said amount was stated to be Rs.10,65,600/- and interest at Rs.2,85,935/-.

5. The Settlement Commission passed an order under Section 245 (D) (1) of the Act allowing the case to proceed further. Subsequently, order was passed under D(2C) of the Act. In response to the application filed by the appellant herein, the Department sent its report under Rule 9 of the Income Tax Settlement Commission(Procedure) Rules, 1997 on 16.06.2014. The Department objected to the offer of settlement of Rs,.34 lacs being offered as additional income and contended that there was no full disclosure of the material particulars. The Department sought for closure and dismissal of the settlement application.

6. The Settlement Commission, however, considered the contentions of the respective parties at length and ultimately the representative of the appellant offered Rs.56 lacs as additional income, which has been recorded during the course of the order of the Settlement Commission. Accepting the said amount as additional income, over and above the declared income of Rs.34 lacs, the Settlement Commission passed its order on 04.02.2015.

7. Being aggrieved by the said order, the respondent/Department preferred the aforesaid writ petition. The Division Bench of the High Court of Gujarat by its reasoning given in para 17 of the impugned order, concluded that the Settlement Commissio