# Commissioner Of Income Tax, Central Circle, Kanpur v. Income Tax Settlement Commissioner, IV Floor & Anr

- **Citation:** (2016) 8 ILRA 662
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2016-08-29
- **Bench:** Sudhir Agarwal, Dr. Kaushal Jayendra Thaker
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/commissioner-of-income-tax-central-circle-kanpur-v-income-tax-settlement-44370
- **Pages:** 25

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662 INDIAN LAW REPORTS ALLAHABAD SERIES

(2016) 8 ILRA 662
ORIJINAL JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 29.08.2016

BEFORE

THE HON'BLE SUDHIR AGARWAL, J.
THE HON'BLE DR. KAUSHAL JAYENDRA THAKER, J.

Writ Tax No.- 773 Of 2013

Commissioner Of Income Tax, Central Circle, Kanpur ...Petitioner
Versus
Income Tax Settlement Commissioner, IV Floor & Anr. ...Respondents

Counsel for Petitioner:
Ashok Kumar(S.S.C.in.Tax), Bharat Ji Agarwal, S. Chopra, Manish Goel

Counsel for Respondents:
S.D. Singh, Ashish Bansal, Nishant Mishra, S.K. Garg

Legislation referred to : Income Tax Act, 1961 - Ss. 132(1), 145, 153A, 153B, 153C, 245B, 245C,
245C(1), 245C(1A)-(1E), 245D, 245D(1), 245D(2B), 245D(2C), 245D(4), 245F, 271(1)(a), 273; Income Tax
Rules, 1962 - R. 9; Finance Act, 2007; Constitution of India - Art. 226.

NATURE OF PROCEEDINGS :

Writ petition under Article 226 of the Constitution of India filed by the Commissioner of Income Tax (Central),
Kanpur, challenging the order dated 20.12.2012 passed by the Income Tax Settlement Commission (ITSC),
New Delhi, whereby the ITSC settled the income tax dispute of the respondent-assessee - Salimuddin,
Proprietor of M/s Akbar International, Agra - at a total income of Rs. 12,36,96,506/- for Assessment Years
2004-2005 to 2011-2012, on the ground that the assessee had not made a 'full and true disclosure' of his
income in the application under Section 245C(1) of the Income Tax Act, 1961, and that the ITSC had no
jurisdiction to settle at a figure higher than that disclosed in the original application.

FACTS :

The respondent-assessee, Salimuddin, is a proprietor of M/s Akbar International, Agra, engaged in the
manufacture and sale of handicraft items primarily of marble. He was assessed to tax by the Assistant
Commissioner of Income Tax (ACIT), Central Circle, Agra. A search and seizure/survey operation was
conducted under Section 132(1) of the Income Tax Act, 1961 on 10.03.2010. Pursuant thereto, notices were
issued under Section 153A for Assessment Years 2004-2005 to 2011-2012. The assessee filed returns
disclosing an aggregate additional income of Rs. 1,76,50,000/- outside the books of accounts.

Income declared by the assessee in original returns and in returns filed under Section 153A for each
assessment year is tabulated below:
8 All. Commissioner Of Income Tax, Central Circle, Kanpur Vs Income Tax Settlement
 Commissioner, IV Floor & Anr.
663

Assessment
Year
Income as per Original Return (Rs.)
Income as per Return u/s 153A (Rs.)
2004-2005
1,69,52,775
2,25,46,910
2005-2006
3,85,15,060
4,25,15,060
2006-2007
3,97,16,743
4,32,16,740
2007-2008
4,14,96,340
4,30,96,713
2008-2009
4,78,27,710
4,88,77,710
2009-2010
2,95,03,950
3,20,03,950
2010-2011
2,46,68,100
2,46,68,100
2011-2012
2,92,29,380
2,92,29,380

Thereafter, the assessee filed an application under Section 245C(1) before the ITSC on 06.06.2011, disclosing
additional income (over and above income disclosed before the AO) of Rs. 3,21,85,040/- for Assessment Years
2004-2005 to 2011-2012, year-wise as follows:

Assessment Year
Additional Income disclosed before ITSC (Rs.)
2004-2005
10,00,000
2005-2006
15,00,000
2006-2007
25,00,000
2007-2008
50,00,000
2008-2009
65,00,000
2009-2010
75,00,000
2010-2011
68,10,040
2011-2012
13,75,000
Total
3,21,85,040

The ITSC passed an order under Section 245D(1) on 14.06.2011 allowing the application to proceed. A report
was called from the CIT under Section 245D(2B). The CIT failed to file his report within the prescribed period
under Section 245D(2C) and the ITSC accordingly proceeded treating the application valid. The CIT
subsequently filed a report dated 05.11.2011 (with a covering letter dated 05.11.2011) disclosing a colossal
estimated undisclosed income of approximately Rs. 155,91,66,555/- (Rs. 155 crores) - comprising uncounted
salary payments, estimated gross profit, unexplained advances/investments, and excessive stock of Rs.
7,30,01,487/- - and raised an objection that the application was not eligible as the assessee had offered Rs.
17 crores as undisclosed income during the search but disclosed only Rs. 3.21 crores in the application before
ITSC.
The ITSC found the Revenue's figure of Rs. 155 crores to be artificial and unfeasible, particularly noting that
the gross profit computed by the CIT exceeded the total turnover, which was plainly incorrect. Regarding the
664 INDIAN LAW REPORTS ALLAHABAD SERIES

disputed stock, the CIT had valued it at tag price claiming excess stock of Rs. 7,30,01,487/-, whereas the
assessee had calculated commission at 32% of tag price. During hearing, the ITSC suggested that the stock
dispute be settled by treating Rs. 7,26,28,670/- as additional income (based on commission at 8.5% instead
of 32%), to which the assessee agreed in the spirit of settlement and to buy peace. Taking the average gross
profit rate at 45% of sale price, the ITSC finally settled the total income at Rs. 12,36,96,506/-.
The petitioner-CIT challenged this order on the sole ground that the assessee's acceptance of the higher
income figure (Rs. 7,26,28,670/- towards stock valuation) during hearing amounted to a revision of the
income disclosed in the application under Section 245C(1), thereby proving that the original application did not
contain a 'full and true disclosure' of income, rendering the application invalid and the ITSC's order without
jurisdiction.
QUESTIONS OF LAW :
(i) What constitutes 'full and true disclosure of income which has not been disclosed before the Assessing
Officer' within the meaning of Section 245C(1) of the Income Tax Act, 1961, and whether the disclosed
amount in the application is the final and immutable figure for settlement proceedings before the ITSC?
(ii) Whether acceptance by an assessee, during the course of proceedings before the ITSC, of a higher
income figure suggested by the ITSC - in the spirit of settlement and to buy peace - amounts to a 'revision'
of the original application and constitutes proof of non-disclosure of full and true income in the application
under Section 245C(1), so as to oust the jurisdiction of the ITSC?
(iii) Whether the Income Tax Settlement Commission, being a statutory body with wide jurisdiction under
Chapter XIX-A of the Income Tax Act, 1961, can proactively suggest adjustments to income during
proceedings and whether such adjusted income, if accepted by the assessee, can be included in the final
settlement order under Section 245D(4)?
(iv) Whether enhanced valuation of stock-in-trade accepted by an assessee before the ITSC, where the
method of valuation adopted by Revenue (tag price) has never been recognized under any commercial
accounting system or under the Income Tax Act, 1961, can ipso facto be treated as 'income' not disclosed in
the original application?
(v) What is the scope of judicial review by the High Court under Article 226 of the Constitution against a final
settlement order passed by the ITSC under Section 245D(4) of the Income Tax Act, 1961?

HELD :
(i) Meaning of 'full and true disclosure' under S. 245C(1) - Nature and scope - Section 245C(1) of
the Income Tax Act, 1961 requires an assessee to make a 'full and true disclosure' of income not disclosed
before the Assessing Officer, the manner in which such income was derived, and the additional tax payable
thereon. The word 'disclosure' under Section 245C is in the nature of voluntary disclosure of concealed
income. An application under Section 245C(1) is not a device to frustrate income discovered suo motu by
Revenue Authorities. The disclosure must relate to income neither previously disclosed before the AO nor
already discovered by the Income Tax Authorities, nor in respect of which material establishing the
concealment has already been gathered by such authorities. However, the requirement of 'full and true
disclosure' does not mean that the figure disclosed in the application will be the ultimate and immutable
income. During proceedings before the ITSC, the amount of undisclosed income may increase, depending on
the views of the Revenue, the submissions of the assessee, and other relevant facts and circumstances.
[Relied upon: CIT v. Express Newspapers Ltd., (1994) 206 ITR 443 (SC)]
(ii) Acceptance of higher income suggested by ITSC during hearing - Not equivalent to revision
of application or non-disclosure - An assessee accepting an enhanced income figure during the course of
proceedings before the ITSC, pursuant to a suggestion or proposal made by the ITSC in the spirit of
settlement, cannot be equated with a suo motu revision of the original application. Such acceptance does not
prove that the original application did not contain a full and true disclosure of income. The term 'settlement'
by its very nature implies a process of give and take between two disputing parties before an independent
third party, with scope for negotiation. The ITSC is not designed to act as a passive spectator; it is
empowered to proactively gather evidence and make suggestions. An assessee accepting a ITSC suggestion,
8 All. Commissioner Of Income Tax, Central Circle, Kanpur Vs Income Tax Settlement
 Commissioner, IV Floor & Anr.
665
in a bonafide manner to buy peace and expeditiously conclude the dispute, cannot be treated at par with a
case where the assessee suo motu files a revised application disclosing higher income. It is only where an
assessee suo motu and unilaterally revises his original disclosure that his application may be rendered invalid.
[Relied upon: Major Metals Ltd. v. Union of India, (2014) 303 ELT 380 (Bom HC); CIT v. ITSC, (2016) 65
taxmann.com 40 (Bom HC); CIT v. K.T.P. Mohammed Mazhar, (2015) 58 taxmann.com 315 (Ker HC); Director
of IT (International Taxation) v. ITSC, (2014) 365 ITR 108 (Bom HC)]
(iii) Ajmera Housing Corpn. - Distinguished - The decision of the Supreme Court in Ajmera Housing
Corpn. v. CIT, (2010) 326 ITR 642, is distinguishable on facts. In that case: (a) the assessee had suo motu
filed a second application disclosing additional income of Rs. 11.41 crores after having initially disclosed only
Rs. 1.94 crores, after the CIT's report was submitted; (b) the revised disclosure was voluntary and not
pursuant to any suggestion by the ITSC; and (c) the ITSC had failed to seek a fresh report from the CIT upon
the second disclosure in violation of natural justice. In the present case, no revised application was ever filed
by the assessee. The enhanced income arose during hearing from a suggestion by the ITSC relating to
valuation of stock, which the assessee accepted in a bonafide spirit of settlement. The CIT had itself not filed
its report within the prescribed time. The factual matrix being entirely different, Ajmera Housing Corpn.
(supra) does not apply.
(iv) ITSC - Wide jurisdiction; not confined to figures in original application - By virtue of Section
245F of the Income Tax Act, 1961, the ITSC has, until an order is passed under Section 245D(4), the powers
and functions of an Income Tax Authority under the Act in relation to the case. The ITSC is empowered to
pass an order providing for 'terms of settlement' on matters covered by the application and on any matter
relating to the case referred to in the CIT's report, including demands of tax, penalty, interest and all matters
to make the settlement effective. Settlement is intended to be final, comprehensive and conclusive. ITSC is
not required to act mechanically upon the exact figure disclosed by the assessee in the application; it is vested
with wide discretion to achieve a just and final settlement. The Statute mandates that ITSC be manned by
persons of integrity and outstanding ability with special knowledge of direct taxes and business accounts.
[Relied upon: CIT v. Express Newspapers Ltd., (1994) 206 ITR 443 (SC); Major Metals Ltd. v. Union of India,
(2014) 303 ELT 380 (Bom HC); Shreeram v. Settlement Commission, 118 ITR 169]
(v) Valuation of stock-in-trade - Not per se 'income'; recognized principles of commercial
accounting - Valuation of closing stock at tag price - as adopted by Revenue in its report - is not
recognized under any system of commercial accounting or under the Income Tax Act, 1961. The recognized
principle is that closing stock should be valued at cost or market price, whichever is lower. The true purpose of
crediting the value of unsold stock is to cancel out the cost of that stock entered on the other side so as to
show only actual profits realised on the year's trading. Anticipated loss is taken into account but anticipated
profit in the shape of an appreciated value of unsold stock is not brought to charge. Valuation of stock-intrade is not per se 'income' taxable under the Act; it is the correct computation of profit and gains that is the
object. The colossal figure of approximately Rs. 155 crores computed by Revenue was rightly found by the
ITSC to be artificial, imaginary and based on unfeasible estimation. [Relied upon: CIT v. British Paints India
Ltd., (1991) 188 ITR 44 (SC); Chainrup Sampatram v. CIT, (1953) 24 ITR 481 (SC); Shakti Trading Co. v. CIT,
(2001) 250 ITR 871 (SC); CIT v. Bannari Amman Sugars Ltd., (2012) 349 ITR 708 (SC); CIT, Delhi v.
Woodward Governor India Pvt. Ltd., (2009) 13 SCC 1 (SC)]
(vi) Scope of judicial review against ITSC orders - Extremely limited - The scope of judicial review
by the High Court under Article 226 of the Constitution against a final settlement order passed by the ITSC
under Section 245D(4) of the Income Tax Act, 1961 is extremely limited. The High Court would not be
justified in re-appreciating findings of the ITSC based on the record. Interference is permissible only if the
order of the ITSC is contrary to any provision of the Act, or is vitiated by bias, fraud, malice, or a breach of
natural justice. Where no contravention of any statutory provision is made out and no manifest error is
demonstrated, the writ court shall not interfere with the order of the ITSC. [Relied upon: Jyotendrasinji v. S.I.
Tripathi, (1993) 201 ITR 611 (SC); Union of India v. Ind-Swift Laboratories Ltd., (2011) 4 SCC 635 (SC)]

RESULT :
666 INDIAN LAW REPORTS ALLAHABAD SERIES

Writ petition dismissed. The order dated 20.12.2012 passed by the Income Tax Settlement Commission, New
Delhi, settling the income tax dispute of the respondent-assessee at a total income of Rs. 12,36,96,506/- does
not suffer from any manifest error or contravention of any provision of the Income Tax Act, 1961. The
acceptance by the assessee of the enhanced income figure suggested by the ITSC during hearing in respect of
stock valuation, in a bonafide spirit of settlement, does not constitute non-disclosure of full and true income in
the original application under Section 245C(1). No order as to costs.

Cases Referred:
CIT v. Express Newspapers Ltd., (1994) 206 ITR 443 (SC)
Jyotendrasinji v. S.I. Tripathi, (1993) 201 ITR 611 (SC)
 Ajmera Housing Corpn. v. CIT, (2010) 326 ITR 642 (SC)
Union of India v. Ind-Swift Laboratories Ltd., (2011) 4 SCC 635 (SC)
Shreeram v. Settlement Commission, 118 ITR 169
Chainrup Sampatram v. CIT, (1953) 24 ITR 481 (SC)
Shakti Trading Co. v. CIT, (2001) 250 ITR 871 (SC)
CIT v. British Paints India Ltd., (1991) 188 ITR 44 (SC)
 CIT v. Bannari Amman Sugars Ltd., (2012) 349 ITR 708 (SC)
 CIT, Delhi v. Woodward Governor India Pvt. Ltd., (2009) 13 SCC 1 (SC)
 CIT v. Ponni Sugars and Chemicals Ltd., (2008) 306 ITR 392 (SC)
 Major Metals Ltd. v. Union of India, (2014) 303 ELT 380 (Bom HC - DB)
 CIT v. ITSC, (2016) 65 taxmann.com 40 (Bom HC)
 Director of IT (International Taxation) v. ITSC, (2014) 365 ITR 108 (Bom HC - DB)
CIT v. K.T.P. Mohammed Mazhar, (2015) 58 taxmann.com 315 (Ker HC)
ACE Investment Ltd. v. Settlement Commission, (2004) 186 CTR 486 (Mad HC)
V.M. Shaik Mohammed Rowther v. Settlement Commission, (1999) 236 ITR 581 (Mad HC)
Rasik Ramji Kamani v. S.K. Tripathi, (1993) 203 ITR 848
Dr. C.M.K. Reddy v. Settlement Commission, (2008) 306 ITR 403
Mohanlal S. Doppa v. CIT, (2002) 253 ITR 33 (Guj HC)
Azmera Housing Corpn. v. CIT, (2000) 246 ITR 63 (Bom HC)
Whimster & Co. v. CIR, (1925) 12 Tax Cases 813.

(Delivered by Hon'ble Sudhir Agarwal, J.
&
Hon'ble Dr. Kaushal Jayendra Thaker, J.)

1. Heard Shri Manish Goel learned counsel for the petitioner and Shri S.D.Singh, learned
Senior Advocate assisted by Shri Nishant Mishra, learned counsel for the respondent.

2. This writ petition has been filed by Commissioner of Income Tax (Central) Kanpur
(hereinafter referred to as "CIT") being aggrieved by order dated 20.12.2012 passed by Income Tax
Settlement Commission, New Delhi (hereinafter referred to as "ITSC").

3. Salimuddin, Prop.M/s Akbar International, Agra is an individual Assessee and assessed
to Tax by Assistant Commissioner of Income Tax, Central Circle, Agra (hereinafter referred to as
"ACIT"). Assessee commenced its business as partnership concern which subsequently became
Proprietarship with effect from 1.6.1990. Assessee is engaged in the business of manufacture and
sale of Handicraft items, mainly of Marble.
8 All. Commissioner Of Income Tax, Central Circle, Kanpur Vs Income Tax Settlement
 Commissioner, IV Floor & Anr.
667
4. A search and seizure/survey operation was conducted under section 132(1) of Income
Tax Act 1961 (hereinafter referred to as "Act 1961") on 10.3.2010. Pursuant to seizure memo and
survey report, notices were issued by Assessing officer (hereinafter referred to as 'AO') to Assessee
under section 153-A for assessment years 2004-2005 to 2011-2012.

5. Pursuant thereto return of income was filed by Assessess disclosing aggregate income to
Rs.1,76,50,000/- as income from outside of books of accounts, not disclosed in regular books of
accounts. Thereafter, Assessee submitted an application under section 245-C(1) before ITSC
disclosing total additional income to Rs.3,21,85,040/-.

6. In accordance with Section 245D(2B), ITSC called for a report from CIT. Report dated
2.11.2011 was submitted under Rule 9 with a covering letter dated 5.11.2011. Besides other, CIT
stated that Assessee during course of search & seizure, offered 17 crores as undisclosed income for
Assessment Year 2010-2011 while in the application filed before ITSC he has disclosed additional
income of only Rs.3,21,85,040/-, hence, application is not eligible to be proceeded with. Thereafter
Assessee (respondent 2) further disclosed additional income of Rs.7,26,28,670/- and ITSC settled
the matter finally on a total income of Rs.12,36,96,506/- vide order dated 20.12.2012.

7. Shri Manish Goel, learned counsel for petitioner submitted that the additional income of
Rs.7,26,28,670/- disclosed by Assessee, subsequently before ITSC, after report under Rule 9 was
submitted by CIT, shows that application under section 245-C(1) did not contain full and true
disclosure of his income which had not been disclosed before AO and since there was non
compliance of Section 245-C(1), application was not eligible to be proceeded with and liable to be
rejected. ITSC has committed manifest error in passing impugned order accepting additional
income of Assessee to the extent of Rs. 12.36 crores in all, though in the application Assessee
disclosed only Rs. 3.21 crores. He urged that a valid application under section 245-C(1) needs
disclosure of full and true particulars of undisclosed income, hence, application not being consistent
to the requirement of Section 245 C(1), was not eligible to be proceeded.

8. He further contended that Assessee has no right to revise an application, and relied on
Azmera Housing and another versus CIT 2010 326 ITR 642. He further contended that
application, if inconsistent with Section 245-C(1), was not maintainable and if ITSC has proceeded
and passed order, such order of ITSC shall be invalid and liable to be set aside. To buttress above
submission, Shri Manish Goel, learned counsel for petitioner relied on a Madras High Court
judgment in ACE Investment Ltd.versus Settlement Commission (2004) 186 CTR (Madras) 486
and Kerala High Court in Jyotendrasinghji versus S.I.Tripathi & others in (1993) 201 ITR 611 .

9. Shri S.D.Singh, learned Senior Counsel however, submitted that initially CIT took an
objection that additional income disclosed was less than Rs.50 lacs, hence, application was not
eligible and liable to be rejected. Reason being that additional income of Rs.3,21,85,040/- was
inclusive of income of Rs.1,76,50,000/- shown in regular returns filed under section 153-A but this
fact was not found correct by ITSC as additional income of Rs.3.21 crores and odd was not
inclusive of additional income of Rs.1,76,50,000/- crores disclosed in the return filed under section
668 INDIAN LAW REPORTS ALLAHABAD SERIES

153-A. Shri Singh pointed out that CIT raised an objection with regard to stock valued at
Rs.7,30,01,487/-. The inventory of stock was prepared at tag price. In the application filed before
ITSC, while calculating stock valuation, Assessee took element of commission at 32% based on tag
price but CIT said that actual commission paid was only 8.33% in financial years i.e 2007-2008 to
2010-2011. Meaning thereby that there was a difference of stock to the tune of Rs.7,30,01,487/-.
ITSC during hearing observed that value of stock i.e Rs.7,26,28,670/-, in view of the discussion
made above, be treated additional income, to which suggestion, Assessee aggreed and that is how
additional income of Rs.12.24 crores in all has been finalised by ITSC. Learned counsel for
respondent Assessee pleaded that such surrender or acceptance, during proceedings of ITSC, cannot
be faulted and it will not amount to non disclosure of full and correct facts in the application under
section 245-C(1). Learned counsel for respondent-2 further contended that as a matter of fact
'valuation of stock' cannot be said to be income and could not have been taxed but in order to
purchase peace and avoid any harassment or prolong litigation, Assessee agreed to suggestion of
ITSC during proceedings and such conduct of Assessee cannot be treated as if he had not made
disclosure of correct facts in the application. He also placed reliance on certain authorities which
we propose to discuss while discussing merits, later on.

10. We have heard learned counsel for parties and perused record and relevant authorities.

11. The first question is, "what an Assessee has to disclose in the application under section
245-C(1)", and, second, "what is the meaning of words "full and true disclosure of his income
which has not been disclosed before Assessing Officer".

12. When application was filed by Assessee before ITSC it is not in dispute that cases of
Assessment Years 2004-2005 to 2011-2012 were pending before Assessing Officer. In the returns
filed under section 153-A of Act 1961, Assessee had disclosed additional inocme of
Rs.1,76,50,000/-. A chart showing income as per original income and shown in returns filed under
section 153-A for assessment years 2004-2005 to 2011-2012 reads as under:

Asstt.Year

Income as per original return

Income as per return u/s
153A/142(1)/139

2004-2005

1,69,52,775

2,25,46,910

2005-2006

3,85,15,060

4,25,15,060

2006-2007

3,97,16,743

4,32,16,740

2007-2008

4,14,96,340

4,30,96,713

2008-2009

4,78,27,710

4,88,77,710
8 All. Commissioner Of Income Tax, Central Circle, Kanpur Vs Income Tax Settlement
 Commissioner, IV Floor & Anr.
669
2009-2010

2,95,03,950

3,20,03,950

2010-2011

2,46,68,100

2,46,68,100

2011-2012

2,92,29,380

2,92,29,380

13. However, before ITSC, Assessee disclosed additional income of Rs.3,21,85,040/-. It is
not disputed before us that said income disclosed before ITSC was not inclusive of income
disclosed before AO. Chart showing disclosure of additional income before ITSC in relevant
assessment years reads as under:-

A.Y
Additional Income disclosed before Hon'ble
Income Tax Settlement Commission

2004-2005

Rs.10,00,000

2005-2006

Rs.15,00,000

2006-2007

Rs.25,00,000

2007-2008

Rs.50,00,000

2008-2009

Rs. 65,00,000

2009-2010

Rs. 75,00,000

2010-2011

Rs. 68,10,040

2011-2012

Rs. 13,75,000

Total

Rs.3,21,85,040

14. Thus total income disclosed by Assessee before AO under section 153-A and before
ITSC in application under section 245-C(1) comes to Rs.49835040/-. The said income included
stock also. CIT in report submitted that as per his compuation, tentative undisclosed income comes
to Rs.155,91,66,555/- crores which included stock worth Rs.7,30,01,487/- in the assessment year
2010-2011. CIT report also included and estimated gross profit to the tune of Rs.12,03,72,096/- for
assessment years 2004-2005 to 2011-2012. The break up of this amount of Rs.155 crores and odd,
is broadly in the following heads:
670 INDIAN LAW REPORTS ALLAHABAD SERIES

(i)

Uncounted/unexplained
payment of salary

Rs. 6,27,37,344/-

(ii)

Estimated gross profit

Rs.1,20,99,72,094/-

(iii)

Unexplained
advanced
expenditure/investment etc.

Rs. 21,34,55,630/-

Excessive stock

Rs. 7,30,01,487/-

15. ITSC found that in computing gross profit vis-a-vis valuation of stock entry, there was
a huge gap in as much as Revenue has determined gross profit at 125% of tag price and for that
reason report disclosed a colossal figure which was not justified. It also found that even gross profit
worked out by CIT resulted in a figure which was more than turvover which cannot be correct since
gross profit is embedded in turnover.

16. Assessee explained lesser rate of gross profit but ITSC after considering submissions of
both sides took average rate of gross profit as 45% of sale-price.

17. On the question of unexplained stock of Rs.,7,30,01,487/- which was highlighted by
Revenue before ITSC, in paragraph 7 of order it has observed that though in the inventories
prepared by Department, there were several deficiences yet Assessee, in the spirit of settlement and
to buy peace of mind, made an offer of 90 lacs on account of stocks. Assessee had claimed that they
used to pay commission to agents who bring customers to showroom and that was claimed at 32%.
During proceedings before ITSC, Assessee however, agreed to a suggestion of ITSC for addition of
income by treating commission to 8.5% only instead of 32%.

18. Hence, ITSC neither accepted version of Revenue nor that of Assesse as such, instead
followed a middle path, made certain suggestions to Assessee to accept some increased undisclosed
income which was admitted by Assessee.

19. Shri Manish Goel however, contended that after filing application before ITSC under
section 245-C(1) and submission of report by CIT, Assessee if made a further declaration, meaning
thereby, he has revised his undisclosed income mentioned in the application though such revision
was not permissible. It also shows that Assessee had not disclosed full and true disclosure of his
income in the application filed initially.

20. In order to test above submission, we may first examine Section 245-C. It reads as
under:

Application for settlement of cases.
8 All. Commissioner Of Income Tax, Central Circle, Kanpur Vs Income Tax Settlement
 Commissioner, IV Floor & Anr.
671
245C. (1) An assessee may, at any stage of a case relating to him, make an
application in such a form and in such manner as may be prescribed,and containing a full and
true disclosure of his income which has not been disclosed before the A.O, the manner in which
such income has been derived, the additional amount of income -tax payable om such income and
such other particulars as may be prescribed, to the Settlement Commission to have the case settled
and any such application shall be disposed of in the manner hereinafter provided:

Provided that no such application shall be made unless,-

(i) in a case where proceedings for assessment or reassessment for any of the
assessment years referred to in clause (b) of sub-section (1) of section 153A or clause (b) of subsection (1) of section 153B in case of a person referred to in section 153A or section 153C have
been initiated, the additional amount of income-tax payable on the income disclosed in the
application exceeds fifty lakh rupees,

(ia) in a case where-

(A) the applicant is related to the person referred to in clause (i) who has filed an
application (hereafter in this sub-section referred to as "specified person"); and

(B) the proceedings for assessment or re-assessment for any of the assessment
years to in clause (b) of sub-section (1) of section 153A or clause (b) of sub-section (1) of section
153B in case of the applicant , being a person referred to in section 153A or section 153C, have
been initiated,

the additional amount of income-tax payable on the income disclosed in the
application exceeds ten lakh rupees,

(ii) in any other case,the additional amount of income-tax payable on the income
disclosed in the application exceeds ten lakh rupees,

and such tax and the interest thereon, which would have been paid under the
provisions of the Act had the income disclosed in the application been declared in the return of
income before the Assessing Officer on the date of appliction, has been paid on or before the date
of making the application and the proof of such payment is attached with the application.

Explanation.-For the purpose of clause (ia),-

(a) the applicant, in relation to the specified person referred to in clause (ia),
means,-

(i) where the specified person is an individual, any relative of the specified person;
672 INDIAN LAW REPORTS ALLAHABAD SERIES

(ii) where the specified person is a company, firm,association of persons or Hindu
undivided family,any director of the company,partner of the firm,or member of the association or
family, or any relative of such director,partner or member;

(iii) any individual who has a substantial interest in the business or profession of
the specified person, or any relative of such individual;

(iv) a company, firm, association of persons or Hindu undivided family having a
substantial interest in the business or profession of the specified person or any director, partner or
member of such company, firm,association or family, or any relative of such director, partner or
member;

(v) a company, firm, association of persons or Hindu undivided family of which a
director, partner or member,as the case may be, has a substantial interest in the business or
profession of the specified person; or any director, partner or member of such company, firm
association or family or any relative of such director, partner or member;

(vi) any person who carried on a business or profession,-

(A) where the specified person being an individual, or any relative of such
specified person, has a substantial interest in the business or profession of that person;or

(B) where the specified person being a company, firm, association of persons or
Hindu undivided family, or any director of such company, partner of such firm or member of the
association or family, or any relative of such director, partner or member, has a substantial interest
in the business or profession of that person;

(b) a person shall be deemed to have a substantial interest in a business or
profession, if -
(A) in a case where the business or profession is carried on by a company, such
person the date of search], the beneficial owner of shares (not being shares (not being shares
entitled to a fixed rate of dividend, whether with or without a right to participate in profits)
carrying not less that twenty per cent of the voting power; and

(B) in any other case, such person is, [on the date of search], beneficially entitled
to not less that twenty per cent of the profits of such business or profession.]

(1A) For the purposes of sub-section (1) of this section, the additional amount of
income-tax payable in respect of the income disclosed in an application made under sub-section (1)
of this section shall be the amount calculated in accordance with the provisions of sub-sections
(1B) to (1D).
8 All. Commissioner Of Income Tax, Central Circle, Kanpur Vs Income Tax Settlement
 Commissioner, IV Floor & Anr.
673
(1B) Where the income disclosed in the application related to only one previous
year,-

1. if the applicant has not furnished a return in respect of the total income of that
year ,then, tax shall be calculated on the income disclosed in the application as if such income were
the total income;

2. if the applicant has furnished a return in respect of the total income of that year,
tax shall be calculated on the aggregate of the total income returned and the income disclosed in
the application in the application as if such aggregate were the total income.

(1C) The additional amount of income-tax payable in respect of the income
disclosed in the application relating to the previous year referred to in sub-section (1B) shall be,-

a) in a case referred to in clause (i) of that sub-section, the amount of tax
calculated under that clause;

(b) in a case referred to in clause (ii) of that sub-section, the amount of tax
calculated under that clause as reduced by the amount of tax calculated on the total income
returned for that year;

(c) [***]

(1D) Where the income disclosed in the application related to more that one
previous year, the additional amount of income -tax payable in respect of the income disclosed for
each of the years shall first be calculated in accordance with the provisions of sub-section (1B) and
(1C) and the aggregate of the amount so arrived at in respect of each of the years for which the
application has been made under sub-section (1) shall be the additional amount of income-tax
payable in respect of the income disclosed in the application.

(1E)[***]

(2)Every application made under sub-section (1) shall be accompanied by such
fees as may be prescribed.

(3) An application made under sub-section (1) shall not be allowed to be
withdrawn by the appl
icant.

(4) An assessee shall, on the date on which he makes an application under subsection (1) to the Settlement Commission, also intimate the Assessing Officer in the prescribed
manner of having made such application to the said Commission.
674 INDIAN LAW REPORTS ALLAHABAD SERIES

(quote is only relevant part of Section 245C).

21. Assessee filed application dated 6.6.2011 in respect to assessment years 2004-2005 to
2011-2012 showing additional income of Rs.32185040/-. He also explained the manner in which
such income has been derived and on this aspect we have not been addressed at all that this
condition has not been complied by Assessee. ITSC passed order under section 245D(1) on
14.6.2011 directing to proceed on the said application and sent copy of order to Assessee as well as
CIT. It also called upon CIT to send a report as provided under section 245-D(2B) within the period
prescribed under section 245D(2C). CIT did not furnish report, hence, ITSC vide order dated
28.7.2011 proceeded further treating application valid under section 245D(2C).

22. CIT then furnished report along with covering letter dated 5.11.2011 and during course
of proceedings before ITSC, when objection was raised with respect to stock of Rs.73001487/-, it
(ITSC) made a suggestion to Assessee to accept valuation as Rs.7,26,28,670/- as additional income
which was accepted by Assessee and thereafter ITSC proceeded to determine tax liability of
Assessee and question of waiver of penalty etc. and passed impugned order.

23. This acceptance of additional income by way of increased valuation of stock is on the
proposal made by ITSC, during the course of hearing, as is evident from following findings
recorded in paragraph 7.3 of impugned order of ITSC.

"The applicant agreed to the suggestion of the Commission for increasing
valuation of stock by Rs.7,26,28,670/- and submitted as under:

"During the course of the hearing, Hon'ble Commission propsoed to settle the issue
related to stocks at Rs.7,26,28,670/- over and above what has already been offered in this regard at
Rs.90 lakhs thereby making a proposal of additional income at Rs.12,24,63,710/- i.e 7,26,28,670/-
+ 4,98,35,040/- additional income offered while filing returns in response to notice u/s 153A of the
Act for Assessment Years 2004-2005 to 2009-2010 and as per the statement of facts."

(emphasis added)

24. The argument of Shri Goel that it amounts to revision of income disclosed by Assessee
before ITSC, in our view, is not acceptable. From the report of CIT, it is evident that an
extraordinary colossal figure was disclosed therein to the tune of Rs.155 crores and odd which
could not be substantiated before ITSC at all. Figures were imaginary, artificial and founded on
unfeasible estimation. This has been castigated by ITSC itself and learned counsel for petitioner
could not show anything wrong on the part of ITSC in making such observations against colossal
imaginary figure worked out by Revenue and mentioned by CIT in its report dated 5/11/2011.

25. The entire dispute has centered around valuation of stock which Assessee had disclosed
to worth Rs.90 lacs while CIT claimed more than 7 crores.
8 All. Commissioner Of Income Tax, Central Circle, Kanpur Vs Income Tax Settlement
 Commissioner, IV Floor & Anr.
675
26. Scope of Section 245C(1) and the procedure presecribed in Section 245D of Act 1961
was considered by a three judges Bench in Commissioner of Income Tax versus Express
Newspapers (1994) 206 ITR 443 (SC). Court observed, when an application is filed before ITSC
by an Assessee, CIT had an opporutnity to submit report and raise objection regarding eligibility of
application. Thereafter ITSC shall decide, whether application is valid and it should proceed or not.
In the present case within prescribed time under section 245-D(2B) , CIT did not raise any
objection by submitting report. Hence, ITSC after scrutinizing application on its own held
application valid and proceeded.

27. Court in Commisisoner of Inocme Tax versus Express Newspaper (Supra) also
observed, when ITSC decide to allow application to be proceeded with or not, may have to consider
several aspects of the matter. It may be a complex one. It may involve prolonged or cumbersome
investigation or may be where having regard to the nature of case and other circumstances, ITSC
may feel, in the interest of Revenue and in the interest of justice, that it is better to give a quietus to
the case, once for all, instead of allowing it to be faught through the usual channels. The decision
has to be taken by ITSC having regard to all the facts and circumstances before it, in the light of the
object, purpose and scheme of enactment. A wide discretion has been given to ITSC under
Act,1961 and for that reason, provisions relating to appointments of members of ITSC, make it
evident that ITSC should be manned by men of integrity and outstanding ability, having special
knowledge of direct taxes and business accounts.

28. The only conditions necessary to exist are that Assessing Officer has not already
discovered it or has either gathered material to establish particulars of such income or fraud, to
enable an Assessee to file application under section 245-C. Court in Commissioner of Income Tax
versus Express News Papers Ltd.(Supra) said that for a proper delineation of jurisdiction of ITSC,
language of Section 245C(1) must be kept in mind. It provides that an Assessee, at any stage of
case relating to him, may make an application to ITSC disclosing fully and truly income which has
not been disclosed before Assessing Officer. He must also disclose how said income was derived
by him besides certain other particulars.