Amount taxed by Settlement Commission in the hands of directors of assessee company cannot be taxed again in assessee’s hands

B. Nanji Enterprise Ltd.Vs DCIT (Gujarat High Court)

From the material on record,it can be seen that the sum of Rs.74 lakhs was offered to tax by Bhikhubhai N. Padsala in his settlement application. Such application has been granted by the Settlement Commission by passing order of settlement. By very statutory scheme of provisions, acceptance of such income in the hands of Bhikhubhai N. Padsala would have to be preceded by payment to tax. We have therefore proceeded on the basis that the Settlement Commission accepted the said sum as income of Bhikhubhai N. Padsala and the department has already received the tax and interest on such income. That being the position, it would not be possible for the department to tax the same income once again in the hands of the present assessee. This would be for multiple reasons. Firstly, there is nothing on record to suggest that before the Settlement Commission, the declaration of Bhikhubhai N. Padsala in this respect was opposed by the Revenue. Secondly, the Settlement Commission having accepted such settlement, with or without the opposition by the Revenue, finality of the conclusions of the Settlement Commission would attached in terms of section 245I of the Act. Thirdly, the department concedes that the order of Settlement Commission has not been challenged further. Under the circumstances, allowing the department’s appeal, levying tax on the same amount from the assessee would be wholly impermissible.

FULL TEXT OF THE HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS

1. These Tax Appeals involved two assessees but the facts being closely similar, the Income Tax Appellate Tribunal had dealt with the department’s appeals by a common judgment, which is impugned in these Tax Appeals. In Tax Appeal No.276 of 2017, notice was issued on 02.05.2017. Looking to the similar question arising in Tax Appeal No.277 of 2017, though no such formal notice was issued, facts being similar, we have heard learned advocate for the Revenue in both the appeals and propose to dispose of the Tax Appeals finally on following substantial question of law:

“Whether the Income Tax Appellate Tribunal committed an error in taxing the undisclosed income in the hands of the assessee company when the same amount was disclosed by the Director of the Company in his application for settlement filed before the Settlement Commission and which application was also allowed by the Settlement Commission passing final order under section 245D(4) of the the Income Tax Act, 1961 which has become final ?”

2. Brief facts may be noted from Tax Appeal No.276 of 2017. This appeal is filed by the assessee which is a limited company, to challenge the judgment of the Income Tax Appellate Tribunal dated 08.03.2016 allowing the department’s appeal. For the assessment year 201011, the Assessing Officer had passed the order of assessment in case of the assessee on 30.12.2011. In such order, he added a sum of Rs.74,00,000/­ by way of unaccounted cash receipt which was found and seized from the bank locker of the assessee company during a search action. The stand of the assessee was that the bank locker was opened and its Director one Bhikhubhai N. Padsala had filed a settlement application before the Settlement Commission, in which, he had owned up such amount as his unaccounted income and also paid the tax on such income. In this context, the Assessing Officer in his order of assessment, made following observations:

“Shri Bhikhubhai N. Padsala has owned up all the financial Implications, if any, in the case of the assessee vide his letter dated 05.12.2011. Further Shri Bhikhubhai N. Padsala has filed petition for the A.Y. 200405 to 201011 with Hon’ble Settlement Commission. In view of this fact it is stated that in case of any income found to belonging to the Assessee but not offered to tax to Hon’ble Settlement Commission, then this order will be modified in respect of that income to arrive at correct working of income after receiving order of Hon’ble Settlement Commission.”

3. The Assessing Officer thus while making such addition, provided a rider that in case such amount is offered to tax before the Settlement Commission, the order of assessment would be modified. At the time when this order was passed, the proceedings of the Settlement Commission were pending and not yet finalized.

4. The assessee company went in appeal before the Commissioner. By the time the Commissioner decided this appeal, the settlement proceedings of Shri Bhikhubhai N. Padsala were over. The Settlement Commission passed its order on 14.02.2012. Before the Appellate Commissioner, the assessee submitted that said Bhikhubhai N. Padsala had disclosed such amount in his income. The department had not objected to the same and the Settlement Commission had ultimately passed the order of settlement, in which, this amount was accepted as the income of Bhikhubhai N. Padsala.

5. The Commissioner (Appeals) called for a remand report, in which, the Assessing Officer had confirmed that said Bhikhubhai N. Padsala had incorporated the said sum of Rs.74 lakhs in the cash flow statement filed by him before the Settlement Commission. In that view of the matter, the Commission deleted the said sum of Rs.74 lakhs from the income of the assessee.

6. The department carried the issue in appeal before the Tribunal and contended that the cash was seized from the bank lockers of the company and should therefore be taxed in the hands of the company. The Tribunal accepted the contention. Before the Tribunal also, it was pointed out by the assessee that the same amount was disclosed by Bhikhubhai N. Padsala in his settlement application. The Tribunal was however of the opinion that the income should be taxed in the hands of the assessee to whom it belongs. For the purpose of income tax, it is important that the correct assessee should be taxed. On such basis the assessee’s contention that there was no difference in tax slab, in case of the assessee and Bhikhubhai N. Padsala therefore, the issue being revenue neutral, was rejected. However, since the same amount already been offered to tax by Bhikhubhai N. Padsala in the settlement application, the Tribunal while allowing  the Revenue’s appeal, provided the following rider:

“…

We accept Revenue’s arguments seeking to revive Assessing Officer’s action. It is made clear that the assessing authority shall ensure that the same amount is not taxed twice. Revenue’s appeal IT(SS)A 446/Ahd/2012 is accepted.”

7. It is this judgment the assessee has challenged in the present appeal. From the material on record,it can be seen that the sum of Rs.74 lakhs was offered to tax by Bhikhubhai N. Padsala in his settlement application. Such application has been granted by the Settlement Commission by passing order of settlement. By very statutory scheme of provisions, acceptance of such income in the hands of Bhikhubhai N. Padsala would have to be preceded by payment to tax. We have therefore proceeded on the basis that the Settlement Commission accepted the said sum as income of Bhikhubhai N. Padsala and the department has already received the tax and interest on such income. That being the position, it would not be possible for the department to tax the same income once again in the hands of the present assessee. This would be for multiple reasons. Firstly, there is nothing on record to suggest that before the Settlement Commission, the declaration of Bhikhubhai N. Padsala in this respect was opposed by the Revenue. Secondly, the Settlement Commission having accepted such settlement, with or without the opposition by the Revenue, finality of the conclusions of the Settlement Commission would attached in terms of section 245I of the Act. Thirdly, the department concedes that the order of Settlement Commission has not been challenged further. Under the circumstances, allowing the department’s appeal, levying tax on the same amount from the assessee would be wholly impermissible. In fact, it also would be opposed to the observations of the Assessing Officer and those of the Tribunal that under no circumstances, the same income would be subjected to tax twice.

8. If the stand of the Revenue was that the income belong to the assessee and not Bhikhubhai N. Padsala and that therefore the assessee must pay tax and would also be exposed to penalty proceedings, such stand should have been taken before the Settlement Commission in the Settlement Application filed by Bhikhubhai and despite such objection if the Settlement Commission had accepted the declaration, ought to have challenged such an order.

9. Facts in the connected appeal are similar. Both the appeals are therefore allowed answering the question in favour of the assessees. Both Tax Appeals are disposed of accordingly.