2014 (12) TMI 398 - 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 - 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 - the Settlement Commission committed no error in holding that the application made by the assessee u/s 245C of the Act stands abated - the Settlement Commission has expressly stated what is implied in law, inasmuch as, the abatement is by virtue of the operation of the provisions of sub-section (1) of section 245HA 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 Settlement Commission's order under section 245D(1) of the Income-Tax Act.
2. Abatement of proceedings before the Settlement Commission under section 245HA(1)(ii) of the Act.
3. Restoration of the appeal before the Income Tax Appellate Tribunal.

Issue-wise Detailed Analysis:

1. Compliance with the Settlement Commission's order under section 245D(1) of the Income-Tax Act:
The petitioner initially declared an undisclosed income of Rs. 20 lakhs in the application under section 245C of the Income-Tax Act but later revised it to Rs. 5 lakhs. The Settlement Commission, by its order dated 11.09.1999, directed the petitioner to pay the additional tax on the disclosed income within 35 days. The petitioner contended that the tax payable was covered by the cash seized during the search. However, the Supreme Court in Ajmera Housing Corporation & Anr. v. Commissioner of Income Tax held that the scheme of Chapter XIX-A does not contemplate the revision of the income disclosed in the application. Therefore, the petitioner was required to pay tax based on the original undisclosed income of Rs. 20 lakhs. The petitioner failed to comply with this requirement, leading to the conclusion that the petitioner did not comply with the order under section 245D(1).

2. Abatement of proceedings before the Settlement Commission under section 245HA(1)(ii) of the Act:
Section 245D(2D) mandates that additional tax on the disclosed income must be paid on or before 31.07.2007. The petitioner did not make this payment, resulting in the automatic abatement of proceedings under section 245HA(1)(ii). The Settlement Commission, therefore, held that the proceedings abated due to non-compliance with section 245D(2D). The court upheld this decision, noting that the abatement was by operation of law and there was no infirmity in the Settlement Commission's order.

3. Restoration of the appeal before the Income Tax Appellate Tribunal:
The petitioner had filed an appeal before the Tribunal against the order under section 158BC, which was withdrawn after the Settlement Commission admitted the application under section 245C. With the abatement of proceedings before the Settlement Commission, the petitioner sought the restoration of the appeal. The court noted that the liability under the order passed by the Assessing Officer continues to subsist and does not get automatically set aside. Given that the appeal was withdrawn due to the proceedings before the Settlement Commission, the court found it equitable to restore the appeal to the Tribunal to prevent prejudice to the petitioner. Consequently, the court quashed the Tribunal's order dismissing the appeal and directed the Tribunal to decide the appeal on merits.

Conclusion:
The court rejected the principal relief challenging the Settlement Commission's order but granted the alternative relief of restoring the appeal before the Tribunal. The Tribunal was directed to hear the appeal on merits, ensuring the petitioner had a remedy despite the abatement of proceedings before the Settlement Commission.