2015 (12) TMI 1508 - HC - Income Tax

Admission made in the statement recorded under Section 132(4) - disclosure of income to be examined in the course of the proceedings under Section 245D(4) - procedure adopted by the Settlement Commission - Held that - The point of maintainability of the application could be raised as a contention by the Department before the Settlement Commission and the Settlement Commission would be entitled to examine that question at the final hearing. On the other hand, if this court were to issue rule and to admit the case to file and take it up for final hearing several years down the line, it would cause prejudice to the Department. Therefore, since the Settlement Commission would be in a position to decide the application along with the point as regards the maintainability in the first instance, there is no prejudice caused to the Department. Since it is also an admitted fact that the respondent has paid the entire tax on a sum exceeding ₹ 300 crore, there is absolutely no prejudice caused to the Department. The petitions are misconceived.

Issues:
1. Validity of the order passed by the Income Tax Settlement Commission.
2. Admissibility of the application before the Settlement Commission.
3. Compliance with the requirement of full and true disclosure of income.
4. Precedent-setting nature of the Settlement Commission's procedure.
5. Payment of tax by the respondent.

Issue 1: Validity of the order passed by the Income Tax Settlement Commission

The petitioner, the Income Tax Department, challenged an order passed by the Income Tax Settlement Commission. The background involved a search conducted under Section 132 of the Income Tax Act, revealing undisclosed income. The Settlement Commission proceeded to declare the application filed by the assessee as not valid, keeping open the issue of full and true disclosure of income for further examination. The petitioner contended that the Settlement Commission's procedure violated the law as laid down by the Supreme Court in a specific case, seeking intervention by the court.

Issue 2: Admissibility of the application before the Settlement Commission

The respondent argued that there was no infirmity in the Settlement Commission's actions, citing a Supreme Court judgment that highlighted the maintainability of the application for settlement. It was emphasized that the Department could raise the issue of maintainability before the Settlement Commission for examination at the final hearing. The respondent contended that admitting the case for final hearing after several years would cause prejudice to the Department, and since the respondent had paid the entire tax on the undisclosed income, there was no harm caused to the Department.

Issue 3: Compliance with the requirement of full and true disclosure of income

The Settlement Commission's decision was questioned based on the requirement of full and true disclosure of income at the initial stage, as per the law laid down by the Supreme Court. The petitioner argued that this precondition was not met in the present case, urging the court to intervene. The respondent, however, maintained that the Settlement Commission's actions were in line with legal principles and that the issue of maintainability could be addressed during the final hearing.

Issue 4: Precedent-setting nature of the Settlement Commission's procedure

The petitioner raised concerns about the Settlement Commission's procedure setting a dangerous precedent, citing a Supreme Court judgment that emphasized the importance of full and true disclosure of income. The respondent countered by stating that the Supreme Court had already addressed similar issues in previous cases, indicating that the Settlement Commission's actions were not irregular.

Issue 5: Payment of tax by the respondent

It was noted that the respondent had paid the entire tax on the undisclosed income, exceeding a significant amount, which the respondent argued demonstrated no prejudice to the Department. The respondent contended that dismissing the petitions would not set a wrong precedent, as the Supreme Court had already established relevant legal principles. Consequently, the petitions were disposed of, and the interim order previously granted was vacated.

This detailed analysis covers the various issues involved in the legal judgment concerning the order passed by the Income Tax Settlement Commission and the arguments presented by both parties regarding the admissibility of the application, compliance with disclosure requirements, procedural concerns, and the payment of tax by the respondent.

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