Madras HC rules on settlement of Income tax disputes

Madras High Court Law InsiderMadras High Court Law Insider

Soni Satti

The Madras High Court has ruled that the Income Tax Settlement Commission (ITSC) cannot compel the Income Tax Department to resolve disputes with assessees if the latter has not declared absolute and real income at any point of the assessment proceedings.

The court also ruled that complete and truthful accounting of profits is a sine qua non for a settlement and that the Department should be satisfied with it before settling.

According to Justice S.M. Subramaniam, Section 245C of the Income Tax Act is a special clause that allows assessees to resolve disputes in a peaceful manner provided they have complete and correct disclosure of income.

This statute was implemented to allow the assessee to correct any omissions, commissions, or errors that could have occurred during the filing of Income Tax returns.

The Judge noted, “Thus, an application for the settlement of cases cannot be construed as an absolute right… The very concept of a settlement depends on mutual consensus and in the absence of the element of mutual consensus between the parties, the settlement by the settlement commission cannot be unilateral, and in such an event, the settlement commission will be usurping the powers of the assessing officer,”

The Court accepted the submission of A.P. Srinivas who is the Senior Standing Counsel for the Income Tax Department.

Srinivas contended that the Department had undertaken a search and discovered an unaccounted stock of gold, diamond jewellery, and cash totalling Rs. 70.65 crore in the current case and the assessee went to the ITSC under Sections 14 along with Section 245 C of the Act, but he hadn’t reported his real and absolute income.

It was called to the Commission’s attention that the difference in income had exceeded Rs. 25 lakhs. Although the body had approved the application for settlement, the Commissioner of Income Tax had filed a writ petition with the High Court.

The petition was granted, and the commission’s order was overturned.

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