Facts of the Case

The case arose from a search and seizure operation conducted on 20.01.2012 at the premises of the assessee group (Jakhotia group) and related entities. During the search:

  • Cash of ₹35 lakhs and an incriminating register reflecting cash loan transactions were seized.
  • The assessee, Om Prakash Jakhotia, made a statement under Section 132(4) admitting undisclosed income and offering approximately ₹16.5 crores (later ₹21.5 crores) as income.

Subsequently:

  • Notices under Section 153A were issued for multiple assessment years.
  • Instead of completing assessment, the assessee filed an application before the Income Tax Settlement Commission (ITSC) under Section 245C, declaring substantially lower income (~₹2.27 crores).
  • The assessee also retracted the earlier statement claiming it was made without proper records and was ad hoc.

The Settlement Commission accepted the revised disclosure and granted relief, which was challenged by the Revenue before the Delhi High Court.

Issues Involved

  1. Whether the assessee made a “full and true disclosure” as required under Section 245C of the Income Tax Act.
  2. Whether a retraction of statement under Section 132(4) after a long delay is valid.
  3. Whether the Settlement Commission can accept revised/additional disclosure during proceedings.
  4. Whether unexplained cash credits without proof of identity, genuineness, and creditworthiness can be accepted.

Petitioner’s Arguments (Revenue)

  • The disclosure before the Settlement Commission was not full and true, which is mandatory under Section 245C.
  • The assessee’s retraction after nearly two years was an afterthought and legally untenable.
  • Statement under Section 132(4) has evidentiary value and cannot be casually discarded.
  • The assessee failed to prove:
    • Identity of creditors
    • Creditworthiness
    • Genuineness of transactions
  • Therefore, such credits must be treated as undisclosed income under Section 68.

Respondent’s Arguments (Assessee)

  • The earlier statement was not reliable and made without proper records or professional assistance.
  • The loans were claimed to be genuine, though difficult to prove.
  • The Revenue failed to independently verify entries in the seized register.
  • Reliance placed on case laws stating that retracted statements require corroboration.

Court’s Findings

The Delhi High Court made strong observations:

1. Invalid Retraction

  • Retraction after nearly two years without alleging coercion is not acceptable.
  • The statement under Section 132(4) carries presumptive evidentiary value.

2. Failure to Prove Credits

  • The assessee failed to prove:
    • Identity of creditors
    • Creditworthiness
    • Genuineness of transactions
  • Thus, requirements under Section 68 were not satisfied.

3. Full and True Disclosure is Mandatory

  • The Court emphasized that Section 245C requires complete and truthful disclosure at the initial stage itself.
  • Any attempt to revise or enhance disclosure later is impermissible.

4. Settlement Commission’s Error

  • The ITSC wrongly accepted:
    • Reduced disclosure initially
    • Subsequent enhancement of ₹5.55 crores during proceedings
  • This violated settled law that revision of disclosure is not allowed.

5. Reliance on Precedents

The Court relied on:

  • Principles under Section 68 (burden of proof)
  • Supreme Court ruling on mandatory full disclosure in settlement proceedings

Court Order / Final Decision

  • The Delhi High Court set aside and quashed the order of the Settlement Commission.
  • The matter was remanded back to the Assessing Officer for regular assessment proceedings.
  • Time spent before the Settlement Commission was excluded for limitation purposes.

Important Clarifications

  • Full and true disclosure is the foundation of settlement proceedings.
  • Retraction of statements must be prompt and justified, not delayed and strategic.
  • Burden of proof under Section 68 lies entirely on the assessee.
  • Settlement Commission cannot accept revised disclosures during proceedings.
  • Statements under Section 132(4) have significant evidentiary value unless proven otherwise.

Sections Involved

  • Section 132(4) – Statement during search
  • Section 68 – Unexplained cash credits
  • Section 153A – Assessment in case of search
  • Section 245C – Application for settlement
  • Section 245D – Procedure before Settlement Commission
  • Section 142(1), 127(2) – Assessment procedure provisions

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2019:DHC:2110-DB/SRB15042019CW118592016.pdf

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