ITSC Empowered To Make Income Tax Addition: Delhi High Court

The Delhi High Court has held that the Income Tax Settlement Commission (ITSC) does not lack jurisdiction to make an addition, which has also been duly recorded in the terms of settlement.

The bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav has observed that the objective of the settlement provisions is to strike a balance between the voluntary disclosure of income by the assessee and the income escaping assessment in order to expedite the closure of tax disputes.

The dispute in question appears to have been triggered by the initiation of a search under Section 132 of the Income Tax Act, 1961, in the case of the petitioner-assessee and other family members.

The proceedings under Section 153/147 of the Income Tax Act were initiated for the assessment years 2010–11 to 2015–16. While the assessment proceedings were carried out by the department, the petitioner approached the ITSC with the settlement application dated December 26, 2017, disclosing additional income.

In the application, it was admitted by the petitioner that it entered into certain off-market transactions, commonly referred to as Dabba trading, through a family friend and was facilitated by a family member, which resulted in additional income beyond the regular books of accounts.

The ITSC passed an order accepting the disclosure of additional income and further making an addition of Rs. 1,45,09,098 on the pretext of commission and margin money alleged to have been paid to Raj Kumar Kedia for carrying out off-market transactions.

The assessee has challenged the ITSC's order of addition of Rs. 1,45,09,098.

The assessee contended that the ITSC has erred in making additions on account of commission and margin money, as it has failed to strictly adhere to the provisions of the Income Tax Act. The mandate of law envisaged in Chapter XIX-A does not confer unbridled authority upon the ITSC to make any addition that is not permissible as per the regular assessment under the normal provisions of the Act.

The department contended that a perusal of Section 245BA of the Act would suggest that the ITSC is required to consider the material brought on record before passing the order under Section 245D(4) of the Act. He also submitted that the remedy under Section 245C is only concessional in nature, and once an assessee adopts such an option, it is bound by the provisions of Chapter XIX-A of the Income Tax Act.

The court, while dismissing the appeal of the assessee, contended that an applicant cannot assert an indefeasible right to accept the income disclosed by him. The ITSC has meticulously exercised its power, taking into consideration the underlying intent of the settlement process.

Counsel For Petitioner: Ajay Vohra

Counsel For Respondent: Puneet Rai

Case Title: Harsh Dhanuka HUF Versus PCIT

Citation: 2024 LiveLaw (Del) 752

Case No.: W.P.(C) 10864/2019

Click Here To Read The Order