Case Law Details
R. J. Williams Vs ACIT (Kerala High Court)
In a recent ruling, the Kerala High Court upheld the decision of the Income Tax Settlement Commission in rejecting an application filed by R. J. Williams, the Proprietor of multiple firms, including M/s Multitech Engineering and Partner in several others, under Section 245-C of the Income Tax Act 1961.
The petitioner’s application was dismissed on the grounds of inadequate disclosure of income. Despite being provided with opportunities to present his case, the petitioner failed to provide a comprehensive and accurate account of his income and its sources.
The High Court emphasized the importance of full disclosure when approaching the Settlement Commission, as mandated by Section 245-C(1) of the Act. The Commission’s role is pivotal in resolving disputes, but this can only be achieved when applicants adhere to the requirement of presenting all relevant information transparently.
The Court further elucidated the elaborate provisions of Chapter XIX-A of the Income Tax Act, which outline the procedural framework for settlement applications. These provisions ensure a fair and thorough assessment of cases, granting the Commission authority to reopen proceedings if necessary and providing immunity from penalty and prosecution under certain conditions.
Crucially, the Court emphasized that the Settlement Commission’s orders are conclusive, barring reopening of matters covered therein unless specified otherwise. This underscores the significance of approaching the Commission with utmost sincerity and diligence.
In this case, the petitioner’s failure to provide a satisfactory explanation for the apportionment of income and expenses between himself and the concerned company led to the rejection of his application. The Court concurred with the Commission’s decision, affirming that the petitioner had not acted with clean hands.
In conclusion, the ruling highlights the imperative for taxpayers to adhere to statutory requirements and disclose all relevant information accurately when seeking settlement of disputes. Compliance with these standards ensures the integrity of the tax settlement process and upholds the principles of fairness and accountability in taxation matters.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The petitioner, a Proprietor of M/s Multitech Engineering, Partner in Baba Engineering Works, Capital Equipment and Spares, Scree World, Siva Pipes and Hindustan Fabricators, has filed the present writ petition impugning Ext.P8 order passed by the Interim Board for Settlement-II, New Delhi on an application filed by the petitioner under Section 245-C of the Income Tax Act 1961 (for short, ‘the Act’).
1.1 All these firms, in which the petitioner is positioned as the Proprietor or the Partner, allegedly were supplying machinery parts, spares and components to Hail Stone Innovations Pvt Ltd, a Company registered under the Companies Act 1956. Under the Finance Act 2021, the Income Tax Settlement Commission had been discontinued with effect from 01.02.2021.
2. Notice for assessment under Section 153-A of the Act was issued to the petitioner on 03.2020 for the Assessment Years 2015-16 to 2019-20. The assessment for all the years was completed under Section 143(3) read with 153-A of the Act vide order dated 28.09.2021 with ‘nil’ demand. Though the decision was taken to discontinue the Income Tax Settlement Commission with effect from 01.02.2021, the 2nd respondent issued notification No.F.No.299/22/2021-Director (Inv. III)/174 dated 28.09.2021 under Section 119(2)(b) of the Act extending the time limit for filing of the application before the Interim Board for Settlement till 30.09.2021 under conditions prescribed therein.
2.1 The petitioner had filed an application within the extended time before the 3rd respondent under Section 245-C. The 3rd respondent was pleased to call for a report from the Commissioner in terms of Rule 9 of the Income Tax Settlement Commission (Procedure) Rules 1997. The Commissioner submitted a report in Ext.P5. The Commissioner, in its report, took note of the fact that during the search, the total unaccounted sale by the petitioner for the Financial Years 2013-14 to 2019-20 was worked out to be Rs.61,27,92,924/- and the total unaccounted income worked out was Rs.42,37,13,070/-. The figures were compared and it was noticed that there was a difference of Rs.27,19,091/- and Rs.14,30,160/- in the case of the petitioner and M/s Hailstone Innovations Pvt Ltd respectively in the computation of tax and interest by the petitioner and by the Department which was due to the difference in adopting number of months for interest calculation under Section 234-A. It was also said that the petitioner had not made full and true disclosure in the application. The report, which is quite detailed, has been placed on record as Ext.P5.
2.2 The petitioner filed his objection to the said The petitioner was heard, and several opportunities were granted to the petitioner. Thereafter, the application got rejected vide impugned order in Ext.P8.
3. The Commission, while rejecting the application of the petitioner, has held that the petitioner is the Director and Promotor of M/s Hailstone Innovations Private Limited. The petitioner is also the Proprietor of M/s Multi-Tech Engineering/Manufacturers Integra/Part and Components for Hailstone. He is also the Partner in M/s Baba Engineering Works, M/s Capital Equipment and Spares, M/s Screen World, M/s Siva Pipes and M/s Hindustan Fabricators.
3.1 During the course of search and seizure under Section 132, in the case of the petitioner/group, incriminating material evidencing unaccounted sales by the under-invoicing of sales receipts and collecting a part in cash was The Principal Income Tax Commissioner, in his report submitted under Rule 9, had computed the total unaccounted sales for the period for the Assessment Years 2014-15 to 2020-21 to Rs.61,27,92,924/- and the total unaccounted income to the tune of Rs.42,37,13,070/-. Whereas the petitioner had worked out the total unaccounted sale to Rs.22,44,21,599/- and the total unaccounted income to Rs.10,01,64,503/- in the SOF, respectively. No bifurcation for various entities, including the petitioner, had been given by the Principal Commissioner of Income Tax. The total of unaccounted expenses was worked out by the applicant to the tune of Rs.12,42,57,097/- and the same was apportioned in different ratios ranging from 20:80 to 70:30 in the hands of the Company and the petitioner, respectively. The unaccounted income apportioned in the hands of the petitioner comes to Rs.5,93,77,372/-. The same has been tabulated in the Order impugned in the present writ petition.
3.2 The petitioner is held to be the key technical brain behind the machine fabrication, who also operates in his individual capacity and under the name and style ‘Multitech Engineering’ which manufactures integral parts and components for the Company to reduce the cost of production and to maintain uninterrupted supply of parts and As the undisclosed income determined was on a project basis, a portion of the undisclosed income had to be apportioned to the sole proprietorship of the petitioner.
3.3 The Commission was of the view that the petitioner had not adduced any reason or basis for apportioning the undisclosed income in the hands of the petitioner and the Company M/s Hailstone Innovations Private Limited during the course of the hearing, and no explanation came forward to explain the difference between the unaccounted sales calculated by the Principal Commissioner of Income Tax on the basis of the seized material and the unaccounted sale computed by the petitioner.
3.4 Considering the aforesaid, the Commission concluded that the petitioner had not come before the Board with clean hands and had not offered full and true particulars of his Section 245C(1) provides disclosure of full and true particulars of the income and the manner in which that income had been derived and apportioned in order to get the settlement. As the conditions prescribed in the provisions of Section 245C(1) have not been fulfilled in the case, the application was rejected by the impugned order.
4. Learned Counsel for the petitioner submits that the petitioner had filed an objection to the report, and it was not considered by the Settlement Commission. The detailed reply has been placed on This Court has gone through the reply, but this Court has been unable to discern the basis for apportionment of unaccounted sales, unaccounted expenditures and unaccounted income between the petitioner and the Company. I, therefore, find that the petitioner has not approached the Settlement Commission, with his application under Section 245-C, with clean hands and has failed to disclose true and correct facts.
5. The provisions of Chapter XIX-A of the Income Tax Act 1961 are elaborate and provide a detailed mechanism for filing the application for settlement and its disclosure. The assessee is required to file an application under Section 245-C for settlement of disputes by the Income Tax Settlement Section 245-D prescribes the procedure to be followed by the Commission on the receipt of the application under Section 245-C. Section 245-E empowers the Commission to reopen the completed proceedings in appropriate cases, whereas Section 245F confers all the powers of an Income Tax Authority upon the Commission. Section 245-H empowers the Commission to grant immunity from penalty and prosecution, with or without conditions, in cases where it is satisfied that the assessee has made full disclosure of his income and its sources. Under Section 245-HA, the Commission can send back the matter to the Assessing Officer when it finds that the applicant is not cooperating with it. Every order of settlement passed under sub-section (4) of section 245-D is conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in Chapter XIX-A, be re-opened in any proceedings under the Act or under any other law for the time being in force. Section 245-L declares that any proceedings under Chapter XIX-A before the Settlement Commission shall be deemed to be a judicial proceeding within the meaning of Sections 193 and 228 for the purposes of Section 196 of the Indian Penal Code. Thus, Section 245 provides a complete code and prescribes finality in the orders passed by the Settlement Commission.
6. As mentioned above, it is incumbent upon the assessee to approach the Settlement Commission with true and full disclosure of income and its The Principal Commissioner of Income Tax, in his report, has held that the petitioner did not have any basis for apportionment of expenditure and undisclosed income between him and the Company. Despite the opportunity having been granted to the petitioner during the hearing, the petitioner did not explain the basis for apportionment of unaccounted sales, expenditure and income between the petitioner and the Company.
6.1 Considering the aforesaid fact, I am of the view that the Commission has taken a correct view that the petitioner failed to disclose true and correct facts before the Commission in his application and did not approach the Commission with clean hands. I find no grounds to interfere with the reasoned order of the Commission.
The writ petition lacks merit and hence is dismissed.
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