2007 (2) TMI 178 - HC - Income Tax

Challenging the order passed by the Income-tax Settlement Commission u/s 245D(1) - lack of full and true disclosure - applications filed by the petitioner in respect of its own assessments and the assessments of the two merging companies - business of banking and related financial activities including leasing - HELD THAT - The bare reading of section 245D(1) clearly indicates that there are three circumstances under which the Commission can entertain such applications viz. (1) on the basis of the materials contained in the Commissioner s report (2) having regard to the nature and circumstances of the case or (3) the complexity of the investigation involved therein. In any event we are clearly of the view that the Commissioner of Income-tax by his report when called for by the Settlement Commission u/s 245D(1) has categorically held that the complexities of investigation are involved. Over and above as pointed out by learned senior counsel for the petitioner that the assessment is spread over 15 assessment years; involving approximately 1, 900 lease transactions; that the case requires examination and cross examination of multiple parties who are spread out across the length and breadth of the country; that the case involves nearly Rs. 420 crores in disputed additions and disallowances and that the documents are admittedly lost owing to fire etc. It would clearly indicate that the complexities of investigation are involved in the case. Hence the Settlement Commission had committed an error thereby coming to the conclusion that there are no complexities of investigation. As far as full and true disclosure is concerned as pointed out by the Supreme Court in the judgment of Calcutta Discount Co. Ltd. v. ITO 1960 (11) TMI 8 - SUPREME COURT merely remarking that there was no full and true disclosure by the petitioner would not be sufficient. It has to be justified on what basis and what particulars have not been disclosed etc. In the instant case the Settlement Commission has merely observed that the petitioner has not made full and true disclosure. Even otherwise if that be so the Assessing Officer would not have been able to complete the assessment. Thus rule is made absolute in terms of prayer clauses (a) and (b-ii). Respondent No. 3 is refrained from giving effect to and/or proceeding further by way of assessment/reassessment recovery of demand or otherwise in any manner in respect of assessment years which are the subject-matter of the said settlement applications filed by the petitioner in respect of its own assessments and the assessments of the erstwhile 20th Century Finance Corporation Limited and 20th Century Capital Corporation Limited. Needless to say that all the applications moved by the petitioner before the Settlement Commission are restored to the file of the Settlement Commission with the direction to proceed further beyond the stage of section 245D(1) of the said Act. Rule is made absolute in terms of the above however with no order as to costs.

Summary

Issues:
Challenge to order of Income-tax Settlement Commission under section 245D(1) of the Income-tax Act, 1961 regarding admission of settlement applications and full and true disclosure by petitioner.

Analysis:
1. The petitioner, a banking company, challenged the Settlement Commission's order dated December 27, 2005, rejecting its settlement applications on grounds of lack of complexity and full disclosure. The petitioner contended that despite no complexity, the Commission can entertain applications based on the report of the Commissioner and nature of the case. The petitioner highlighted the complexities involved, including numerous lease transactions, disputed amounts, lost documents, and prolonged litigation.

2. The Settlement Commission's order was based on the lack of complexity and full disclosure by the petitioner. The petitioner argued that the assessment was completed based on disclosed facts, citing the Supreme Court's stance on full disclosure. The Commission's observation of inadequate disclosure without specifics was challenged, emphasizing that the petitioner fulfilled its duty of disclosure.

3. The Commissioner's report acknowledged the complexities in the case, involving multiple assessment years, lease transactions, lost documents, and extensive verifications. Both parties agreed on the complexities, with the Revenue recommending admission of the petition due to apparent investigation complexities. The Settlement Commission erred in dismissing the application based on complexity criteria, as indicated by the Commissioner's report and case details.

4. The Court ruled in favor of the petitioner, directing the Settlement Commission to proceed with the applications beyond section 245D(1) and treat them as admitted for settlement. The order restrained the Revenue from further assessment or recovery actions and emphasized the need for the Commission to address the applications in line with the law. The judgment highlighted the importance of factual disclosure and the Commission's obligation to consider complexities beyond mere investigation criteria.

5. The ruling clarified the Commission's discretion to entertain applications based on various factors, including the nature of the case and disclosed materials. The judgment underscored the significance of detailed disclosure and the Commission's duty to assess complexities comprehensively. The Court's decision favored the petitioner's contentions regarding complexity and disclosure, ensuring a fair consideration of the settlement applications.