ITAT Can Holistically Evaluate Disclosures and Make Additions to Taxpayers’ Declared Income

Harsh Dhanuka HUF Vs PCIT (Delhi High Court)

Conclusion: Income Tax Settlement Commission (ITSC) had authority to make additions to the declared income of taxpayers as ITSC’s role was not confined to regular assessments but extended to holistic evaluations of the disclosures and additional income brought to its notice through settlement proceedings.

Held: Assessee filed a settlement application under Section 245D(2C). During the settlement process, a report was submitted under Rule 9 of the Income Tax Settlement Commission (Procedure) Rules, 1997. Following further inquiries and examination of key individuals, the ITSC concluded that additional income was derived from off-market transactions, also known as Dabba trading. Consequently, the ITSC added Rs. 1,45,09,098 to the disclosed income as commission and margin money purportedly paid to Raj Kumar Kedia for facilitating these transactions. Assessee contended that ITSC exceeded its jurisdiction by making additions not supported by incriminating evidence discovered during the search. It contended that under Chapter XIX-A, the ITSC’s authority was restricted to the income disclosed in the settlement application and any additional income found during the course of the proceedings must be substantiated by concrete evidence. It further emphasized that the statements of M.K. Dhanuka and Raj Kumar Kedia did not corroborate the alleged payments, making the ITSC’s additions baseless. Revenue defended the ITSC’s decision, asserting that the additional income was a result of thorough investigations and corroborated by multiple statements, including those recorded under Section 132(4). They maintained that the ITSC’s powers under Section 245D(4) encompass the authority to pass orders on matters not only covered by the application but also those referred to in the reports from the Principal Commissioner or Commissioner. It was held that ITSC, upon accepting a settlement application, was vested with broad powers to issue orders based on the records, reports, and additional evidence presented during the proceedings. The Court cited precedents such as CIT v. Anjum M.H. Ghaswala and Agson Global Pvt. Ltd. v. ITSC, which elucidate the ITSC’s jurisdiction to address all aspects related to the settlement application to ensure a comprehensive resolution of tax disputes. The Court concluded that the ITSC acted within its statutory authority by making additions based on the findings from its inquiries. It emphasized that the ITSC’s role was not confined to regular assessments but extended to holistic evaluations of the disclosures and additional income brought to its notice through settlement proceedings.

 FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. The present batch of writ petitions have been filed by the individuals of Dhanuka family including HUFs, assailing the common order of the Income Tax Settlement Commission [“ITSC”] dated 26.06.2019. These petitions raise a common question of law and hence, they are being decided by this common judgment. For the sake of brevity, the facts are being extracted from W.P. (C) No.10870/2019.

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