2000 (7) TMI 29 - HC - Income Tax

Summary

Issues involved:

1. True and full disclosure of income u/s 245C(1).
2. Compliance with procedural requirements u/s 245D(1) and 245D(4).
3. Principles of natural justice and non-application of mind.
4. Immunity from prosecution and penalty u/s 245H.

Summary:

1. True and full disclosure of income u/s 245C(1):

The Revenue contended that the assessee did not make a "true and full disclosure" of income as required u/s 245C(1). The initial disclosure was Rs. 1.94 crores, which was later supplemented by additional disclosures totaling Rs. 23.11 crores. The court found that the Settlement Commission failed to address whether the application contained a full and true disclosure of income and the manner in which it was derived, which is a fundamental requirement for maintainability under section 245C(1).

2. Compliance with procedural requirements u/s 245D(1) and 245D(4):

The court observed that the Settlement Commission did not call for an additional report from the Commissioner after the assessee made subsequent disclosures of Rs. 11.41 crores, Rs. 2.76 crores, and Rs. 7 crores. This omission violated the procedural requirements of section 245D(1) and section 245D(4), which mandate considering the Commissioner's report at multiple stages. The court held that the Settlement Commission's failure to follow these procedures rendered its order void.

3. Principles of natural justice and non-application of mind:

The court found that the Settlement Commission's order dated November 17, 1994, allowing the application to be proceeded with, was in breach of the principles of natural justice. The Commission did not provide the Commissioner an opportunity to object to the additional disclosures, nor did it address the conduct of the assessee's accountant, who attempted to abscond with crucial documents. The court concluded that the decision-making process was flawed due to non-application of mind to these vital issues.

4. Immunity from prosecution and penalty u/s 245H:

The Settlement Commission granted immunity from prosecution and reduced the penalty from Rs. 562.87 lakhs to Rs. 55 lakhs, citing the assessee's cooperation. However, the court noted that section 245H(1) requires both cooperation and a full and true disclosure of income. The court found that the Settlement Commission failed to consider whether the assessee had made a full and true disclosure, thereby rendering the grant of immunity and penalty reduction improper.

Conclusion:

The court declared the Settlement Commission's order dated November 17, 1994, as void and the subsequent order dated January 29, 1999, as illegal. The matter was remitted to the Settlement Commission to decide afresh within six months, ensuring compliance with legal procedures and principles of natural justice. The court stayed its order for four weeks, allowing time for any further legal steps.