In the case of ITA 964/DEL/2021, Jakhotia Plastics Pvt. Ltd., based in Telangana, appealed against the order of the Assistant Commissioner of Income Tax (ACIT), Circle-26(1), New Delhi. The case pertains to the assessment year 2011-12 and involves significant legal issues surrounding the addition of income declared before the Income Tax Settlement Commission (ITSC).
The appellant, Jakhotia Plastics Pvt. Ltd., is a private limited company engaged in manufacturing polypropylene woven sack bags, which are supplied to cement and sugar companies. The company is managed by three directors: Shri Om Prakash Jakhotia (Managing Director), Smt. Lata Bai Jakhotia, and Shri Balkishan Jakhotia.
A search under Section 132 of the Income Tax Act was conducted at the residential and business premises of the Jakhotia group on 20.12.2012. During the search, the statement of Shri Om Prakash Jakhotia was recorded under Section 132(4), where he admitted to undisclosed income of Rs. 21.42 crores for the assessment years 2011-12 and 2012-13.
Subsequently, the company and its two associated entities, Jakhotia Polymers Pvt. Ltd. and Shri Om Prakash Jakhotia, filed settlement applications under Section 245C(1) of the Act before the ITSC on 31.10.2013, disclosing additional incomes.
The Settlement Commission passed the final order under Section 245D(4) on 26.11.2014, where the undisclosed income was settled at Rs. 7,48,04,200/- by making an addition of Rs. 5.55 crores, being the difference in net assets and the income declared in the settlement application.
However, the Department filed a writ petition before the Delhi High Court challenging the Settlement Commission’s order. The High Court, on 15.04.2019, quashed the Settlement Commission’s order and remitted the matter to the Assessing Officer for completion of the assessments in accordance with the law.
The primary issue raised in the appeal is whether the addition under Section 153A can be made without any inquiry or incriminating material, solely based on the declaration before the Settlement Commission.
Following the High Court’s order, the Assessing Officer (AO) finalized the assessment for the assessment year 2011-12, adding Rs. 55,000/- to the income on the basis of the disclosure made before the ITSC. The AO treated this as undisclosed income.
On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the addition, stating that the disclosure made before the Settlement Commission constituted incriminating material. The CIT(A) referenced Section 245HA(3), which allows the use of material produced before the Settlement Commission by the AO.
The appellant contended that the additional income disclosed before the ITSC was merely to qualify for admission of the settlement application and was not backed by any incriminating evidence found during the search. They argued that the addition was unjustified as it was based solely on the disclosure made for settlement purposes.
The appellant cited various judicial pronouncements to support their argument that additions in a completed assessment under Section 153A can only be made based on incriminating material found during the search.
The Income Tax Appellate Tribunal (ITAT) examined the facts and submissions made by both parties. The ITAT noted that the issue of whether additions can be made under Section 153A based solely on disclosures before the ITSC was already settled by the Hon’ble Gujarat High Court in the case of Commissioner v. Maruti Fabrics [2014] 47 taxmann.com 298.
The ITAT found that similar principles apply to the present case, and no addition can be made merely on the basis of income offered before the Settlement Commission in the absence of any incriminating material. The Tribunal also referenced other decisions, such as Anantnadh Constructions and Farms (P.) Ltd. v. DCIT [2017] 166 ITD 83, which supported this view.
The ITAT concluded that the addition made by the AO under Section 153A, based solely on the disclosure before the Settlement Commission, was not sustainable. The Tribunal set aside the orders of the authorities below and allowed the appeal in favor of Jakhotia Plastics Pvt. Ltd.
The final judgment pronounced on 21.10.2022, by Shri Shamim Yahya, Accountant Member, and Shri Anubhav Sharma, Judicial Member, stated:
“The addition made solely on the basis of declaration before the Settlement Commission de hors any incriminating material or inquiry is not sustainable.”
This decision reinforces the principle that additions under Section 153A must be backed by tangible evidence found during search operations and not merely based on settlement disclosures.
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