2014 (12) TMI 179 - HC - Income Tax

Non-compliance of provisions of section 245D(2D) Order passed by Income Tax Settlement Commission Abatement of proceedings u/s 245HA (1)(ii) - Whether the Commission was justified in holding that the proceedings before it abate in view of the non-deposit of the amount of additional tax together with interest as directed by it by the order u/s 245D(1) - Held that - The assessee in the application u/s 245C of the Act, had declared undisclosed income of ₹ 5 lakhs - subsequently, the petitioner filed a revised statement declaring the undisclosed amount at ₹ 7 lakhs instead of ₹ 5 lakhs - in Ajmera Housing Corporation & Anr. v. Commissioner of Income Tax 2010 (8) TMI 35 - SUPREME COURT OF INDIA it has been held that disclosure of full and true particulars of undisclosed income and the manner in which such income has been derived are the pre-requisites for a valid application u/s 245C(1) - it was not permissible for the assessee to revise the application made by it u/s 245C(1) - it was incumbent upon the petitioner to pay the additional tax in terms of the original application made by him under section 245C of the Act, whereby he had declared the undisclosed income at ₹ 5 lakhs assessee has not duly complied with the order made by the Commission u/s 245D(1) of the Act till the Commission fixed the matter for hearing on 25.11.2013 and 3.3.2014 thus, the order of the Settlement Commission is upheld Decided against assessee. Entitlement for alternate relief - Whether the assessee is entitled to the alternate relief prayed for in the petition, namely, for restoration of the appeal filed by it before the Tribunal against the order made by the AO u/s 158BC Held that - At the relevant time when the application u/s 254C(1) of the Act came to be made by the assessee, the assessment proceedings u/s 158BC of the Act were pending before the AO relying upon Commissioner of Income-Tax v. Damani Brothers 2002 (12) TMI 11 - SUPREME Court wherein it has been held that the scheme of Chapter XIX-A shows that the filing of application by the assessee is a unilateral act and the department may not be aware of the same - the liability under order made by the AO u/s 158BC of the Act would exist even after the Settlement Commission passed the order u/s 245D(1) of the Act - despite the fact that the Commission has observed that the AO shall now dispose of the case in accordance with the provisions of sub-sections (2) (3) and (4) of section 245HA of the Act, the order u/s 158BC of the Act would still subsist as there is no automatic setting aside of such order thus, in the light of abatement of the proceedings before the Settlement Commission by operation of the provisions of section 245HA of the Act, the interest of justice requires that the appeal preferred by the petitioner before the Tribunal be restored - The assessee is entitled to the alternate relief prayed for in the petition, namely, for restitution of its appeal before the Tribunal Decided in favour of assessee.

Summary

Issues Involved:
1. Compliance with the provisions of section 245D(2D) of the Income Tax Act, 1961.
2. Abatement of proceedings before the Income Tax Settlement Commission under section 245HA(1)(ii) of the Act.
3. Restoration of the appeal before the Income Tax Appellate Tribunal (Tribunal).

Detailed Analysis:

1. Compliance with the provisions of section 245D(2D) of the Income Tax Act, 1961:
The petitioner, assessed as a company, faced a search under section 132(1) of the Act on 13.12.1995, leading to a notice under section 158BC. The petitioner filed a return and subsequently a settlement application under section 245C, initially declaring undisclosed income of Rs. 5 lakhs, later revised to Rs. 7 lakhs. The Settlement Commission allowed the application to proceed under section 245D(1) and directed the petitioner to pay additional tax within 35 days. However, the petitioner did not make any payment post the order, arguing that the seized cash of Rs. 4,90,000/- should be adjusted against the tax liability. The Commission and the Assessing Officer did not respond to this adjustment request, leading the petitioner to believe the payment was covered. The non-payment of additional tax and interest by the statutory deadline of 31.07.2007 led the Commission to conclude non-compliance with section 245D(2D), resulting in the abatement of proceedings under section 245HA(1)(ii).

2. Abatement of proceedings before the Income Tax Settlement Commission under section 245HA(1)(ii) of the Act:
The Commission held that due to the petitioner's failure to pay the required taxes and interest by 31.07.2007, the proceedings abated as per section 245HA(1)(ii). The petitioner argued that the seized cash should be considered as payment, but the Commission noted that the cash had already been adjusted against an earlier demand under section 158BC. The Commission emphasized that the petitioner should have ensured compliance with the amended provisions of the Finance Act, 2007. The court upheld the Commission's decision, citing the Supreme Court's ruling in Ajmera Housing Corporation v. Commissioner of Income-tax, which prohibits the revision of disclosed income in settlement applications, thus confirming the abatement due to non-compliance.

3. Restoration of the appeal before the Income Tax Appellate Tribunal (Tribunal):
The petitioner sought restoration of its appeal before the Tribunal, which had been withdrawn following the Commission's order under section 245D(1). The court noted that the assessment order under section 158BC continued to subsist and that the petitioner would be left without a remedy if the appeal was not restored. The court referenced the Supreme Court's decision in Commissioner of Income-Tax v. Damani Brothers, which affirmed that the liability under the assessment order persists unless set aside by a higher forum. The court granted the petitioner's alternate relief, restoring the appeal before the Tribunal to ensure justice and prevent prejudice to the petitioner.

Conclusion:
The court upheld the Settlement Commission's decision to abate the proceedings due to non-compliance with section 245D(2D) but granted the petitioner's request to restore the appeal before the Tribunal. This decision ensures the petitioner has a remedy to challenge the assessment order made under section 158BC.