2014 (8) TMI 630 - HC - Income Tax

Power of Income-tax Settlement Commission u/s 245D(2C) Commission postponed to deal with the validity of application - commission held that the objection raised by the petitioner (Revenue) would be considered at a subsequent stage, i.e., at the time of final hearing under section 245D(4) - full and true disclosure of its income by the assessee - Held that - once it is held that the issue of true and full disclosure in the application for settlement is a jurisdictional issue and in the absence of its satisfaction jurisdiction cannot be exercised by the Commission, it follows that mere participation in the proceeding by the parties cannot by itself bestow the jurisdiction on the Commission - The exercise of jurisdiction by an authority when not so vested in it is open to challenge and participation in the proceeding will not confer any jurisdiction as held in Carona Ltd. v. Parvathy Swaminathan and Sons 2007 (10) TMI 606 - Supreme Court of India . There is a statutory change consciously made by Parliament in 2007 in Chapter XIX-A of the Act in respect of application for settlement whose validity has to be decided under section 245D(2C) of the Act and cannot be postponed. Even if the application for settlement is declared to be valid in terms of section 245D(2C) of the Act, yet it would not estop/bar the Commission from rejecting the application for settlement at later date for non-disclosure of true and full information of the income or the manner in which income was derived. As the requirement of full and true disclosure of the income and the manner in which the income is derived is a requirement to be satisfied by the applicants at all times before the Commission. However, this by itself would not permit the Commission not to deal with the validity of the application at the stage of section 245D(2C) of the Act. Matter restored before the Commission to decide the validity of the applications for settlement dated January 31, 2013, filed by the applicants under section 245D(2C) of the Act after taking into consideration the report filed by the Commissioner (petitioner) under section 245D(2B) of the Act read with rule 6 of the Settlement Commission Procedure Rules - Decided in favor of revenue.

Issues Involved:
1. Jurisdictional Pre-conditions for Settlement Applications
2. True and Full Disclosure of Income
3. Validity of Settlement Applications under Section 245D(2C)
4. Participation in Proceedings and Waiver of Rights
5. Delay in Filing the Petition
6. Postponement of Decision on Validity to Section 245D(4)
7. Judicial Review and Decision-Making Process

Detailed Analysis:

1. Jurisdictional Pre-conditions for Settlement Applications:
The petitioner contended that the jurisdictional pre-condition for the Settlement Commission to entertain applications is the full and true disclosure of income and the manner in which such income was derived. This requirement begins from the time the application is made and continues throughout the proceedings. The Commission must ensure this pre-condition is met at the stage of Section 245D(2C) of the Income-tax Act, 1961.

2. True and Full Disclosure of Income:
The petitioner argued that the applicants failed to make a full and true disclosure of income in their applications for settlement. The Commission initially allowed the applications to proceed under Section 245D(1) without the annexures, which were later provided to the petitioner. The petitioner's reports under Section 245D(2B) indicated discrepancies between the income disclosed during search and seizure operations and the income declared in the settlement applications. The Commission's decision to defer this issue to the final hearing under Section 245D(4) was challenged as it should have been addressed at the Section 245D(2C) stage.

3. Validity of Settlement Applications under Section 245D(2C):
The petitioner sought to quash the Commission's order dated April 8, 2013, which allowed the applications to proceed without declaring them invalid under Section 245D(2C). The Commission held that without access to the confidential annexures, it could not determine if full and true disclosure was made. The court emphasized that the Commission must decide on the validity of the applications at the Section 245D(2C) stage and cannot defer this decision.

4. Participation in Proceedings and Waiver of Rights:
The respondents argued that the petitioner, by participating in the proceedings post the impugned order and filing reports under Rule 9, waived the right to question the Commission's jurisdiction. However, the court held that jurisdictional issues cannot be waived by participation, as jurisdiction must be established based on statutory requirements.

5. Delay in Filing the Petition:
The respondents contended that the petitioner's delay of over four months in filing the petition was intended to obtain confidential information. The court found that the delay was not fatal to the petition and that the petitioner did not gain any undue advantage, as the information could be used in assessment proceedings under Section 245HA(3) if the applications were declared invalid.

6. Postponement of Decision on Validity to Section 245D(4):
The court rejected the respondents' argument that the decision on the validity of the applications could be postponed to the Section 245D(4) stage. The court cited the Division Bench decision in CIT v. ITSC (No. 1), which mandated that the Commission must decide on the validity at the Section 245D(2C) stage. The court noted that the impugned order was non-speaking and did not address the petitioner's objections adequately.

7. Judicial Review and Decision-Making Process:
The court emphasized that its role in judicial review is to assess the decision-making process rather than the merits of the decision. The Commission's failure to comply with the statutory mandate of Section 245D(2C) rendered the impugned order invalid. The court quashed the order and directed the Commission to reconsider the validity of the applications, taking into account the petitioner's reports.

Conclusion:
The court quashed the Commission's order dated April 8, 2013, and directed the Commission to decide the validity of the settlement applications after considering the petitioner's reports under Section 245D(2B). The petition was disposed of, and the rule was made absolute in terms of the petitioner's prayer clauses.

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