2016 (2) TMI 273 - HC - Income Tax

Settlement Commissioner adjudication - whether the Settlement Commission on receipt of an application under Section 245C, and on receipt of the report called for from the Commissioner of Income Tax, adjudicate on the report so filed and assign reasons in order to allow the application to be proceeded with? - Held that - Settlement Commission has satisfied itself that the application of the assessee has made, what is claimed as, a full and true disclosure of the income which has not been disclosed before the Assessing Officer; the manner in which such income has been derived and the additional income tax payable on such income. No procedural violation is caused by the Settlement Commission. It has only taken a prima facie view that the application is not invalid. A final order will necessarily have to be passed under Section 245D(4) only after obtaining the report of the Commissioner under Rule 9 of the 1987 Rules and after being satisfied that there is full and true disclosure by the applicant.

Issues Involved:
1. Jurisdiction of the Settlement Commission under Section 245D of the Income Tax Act.
2. Requirement of "full and true" disclosure by the assessee.
3. Procedural adherence by the Settlement Commission.
4. Validity of the Settlement Commission's decision to proceed with the application.

Issue-Wise Detailed Analysis:

1. Jurisdiction of the Settlement Commission under Section 245D of the Income Tax Act:
The petitioner contended that the Settlement Commission lacked jurisdiction to proceed with the application under Section 245D(2B) of the IT Act without adjudicating the objections raised by the Commissioner of Income Tax (CIT). The court examined the procedural requirements under Section 245D and noted that the Settlement Commission is required to forward a copy of the application to the CIT and call for a report. The CIT must furnish this report within 45 days, and the Settlement Commission, based on this report, may allow or reject the application. The court highlighted that the Settlement Commission's jurisdiction to pass orders is confined to matters covered by the application and the CIT's report.

2. Requirement of "full and true" disclosure by the assessee:
The petitioner argued that the respondent failed to make a "full and true" disclosure of income, which is a prerequisite for a valid application under Section 245C(1) of the IT Act. The court referred to the Supreme Court's interpretation in Ajmera Housing Corporation v. Commissioner of Income Tax, which emphasized that the disclosure of "full and true" particulars of undisclosed income and the manner in which such income was derived are essential for a valid application. The Settlement Commission must record its satisfaction on this aspect to have jurisdiction to pass any order.

3. Procedural adherence by the Settlement Commission:
The petitioner claimed that the Settlement Commission did not properly adjudicate the objections raised by the CIT regarding the lack of full and true disclosure. The court noted that the Settlement Commission had taken a prima facie view that the application was not invalid and allowed it to proceed under Section 245D(1). The court emphasized that the procedure under Section 245D involves multiple stages, including obtaining further reports from the CIT, and that the Settlement Commission can still address the question of full and true disclosure at a later stage. The court concluded that no procedural violation was caused by the Settlement Commission.

4. Validity of the Settlement Commission's decision to proceed with the application:
The petitioner argued that the Settlement Commission's decision to proceed with the application was invalid due to the lack of full and true disclosure. The court examined the Settlement Commission's order, which stated that it could not prima facie infer that the disclosure was not full and true and that other conditions were satisfied. The court concluded that the Settlement Commission had satisfied itself that the application met the requirements for proceeding under Section 245D(1). The court also referred to legislative changes and the Board of Direct Taxes' circular, which aimed to expedite the disposal of applications and removed the requirement for the CIT to file objections against proceeding with the application.

Conclusion:
The court dismissed the petition, stating that the Settlement Commission had followed the prescribed procedure and that the Revenue was not prejudiced. The interim order of stay granted earlier was deemed to have spent itself out.

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