Facts of the Case

A batch of writ petitions was filed by members of the Dhanuka family, including individuals and HUFs, challenging a common order dated 26.06.2019 passed by the Income Tax Settlement Commission (ITSC). The dispute arose following a search under Section 132 of the Income Tax Act, 1961, leading to proceedings under Sections 153A/147 for Assessment Years 2010-11 to 2015-16.

The petitioners approached the ITSC by filing settlement applications disclosing additional income of ₹10.36 crore, admitting involvement in off-market share transactions (commonly known as “Dabba trading”). The ITSC accepted the disclosure but additionally made an enhancement of ₹1.45 crore towards alleged commission and margin money paid for facilitating such transactions. 

Issues Involved

  1. Whether the Income Tax Settlement Commission can make additions beyond the income voluntarily disclosed in the settlement application.
  2. Whether such additions are permissible for unabated assessment years without specific incriminating material.
  3. Whether the ITSC exceeded its jurisdiction under Chapter XIX-A of the Income Tax Act.

Petitioners’ Arguments

  • The ITSC acted beyond its statutory mandate by making additions without incriminating material.
  • For unabated assessment years, additions could be made only based on material found during search.
  • Statements relied upon by the Revenue were general in nature and did not establish payment of commission by the petitioners.
  • Reliance was placed on CIT v. Anjum M.H. Ghaswala to argue that the ITSC cannot pass orders contrary to mandatory provisions of the Act.

Respondents’ Arguments

  • The petitioners failed to make a full and true disclosure of income as required under Section 245C.
  • Statements recorded during search proceedings clearly established receipt of commission for providing accommodation entries.
  • The ITSC has wide powers under Section 245D(4) to consider matters referred to in the Commissioner’s report.
  • Settlement proceedings are concessional in nature, and an assessee cannot insist that only disclosed income be accepted.

Court Order / Findings

  • The ITSC has plenary powers under Section 245D(4) to pass orders on matters covered by the application as well as issues referred to in the Commissioner’s report.
  • Settlement proceedings are distinct from regular assessments, and the ITSC is not bound by limitations applicable to Section 153A assessments.
  • Additions made were supported by statements and material placed before the ITSC and were not based on mere conjectures.
  • An assessee does not have an indefeasible right to restrict settlement to the income voluntarily disclosed. 

Important Clarification

The Court clarified that settlement under Chapter XIX-A is not a mere acceptance of declared income, but a comprehensive resolution mechanism. The Income Tax Settlement Commission is empowered to determine undisclosed income based on the entire record, including reports and evidence produced during settlement proceedings, to ensure finality of tax disputes.

Link to download the order -  https://www.mytaxexpert.co.in/uploads/1772176139_MADHURIDHANUKAVsPRINCIPALCOMMISSIONEROFINCOMETAX8ORS..pdf 

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