2008 (1) TMI 20 - HC - Income Tax

Application before settlement commission - provisions under Wealth Tax Act are different from provisions of Income Tax - Once the Commission found that the application was not bona fide it was open to the said Commission under the Wealth Tax Act to treat the application as invalid

Summary

Issues Involved:
1. Rejection of applications by the Settlement Commission for not containing full and true disclosure.
2. Alleged breach of principles of natural justice.
3. Constitution of Special Bench by the Settlement Commission.
4. Different standards for applications under the Income Tax Act and Wealth Tax Act.

Detailed Analysis:

1. Rejection of Applications by the Settlement Commission:
The petitioners, husband and wife, filed applications for settlement before the Settlement Commission after a search was conducted on their premises. The applications were rejected on the grounds that they did not contain a full and true disclosure of income/wealth. The Settlement Commission's decision was based on the findings from the search and the documents seized, which indicated voluminous dealings in foreign exchange. The petitioners argued that their income was from horse racing, but the Commission found this disclosure insufficient and not credible.

2. Alleged Breach of Principles of Natural Justice:
The petitioners contended that the Settlement Commission violated principles of natural justice by not providing all documents relied upon by the Revenue and denying the opportunity to cross-examine witnesses, specifically Philip Anandraj. The court found that while some documents were made available at the hearing stage, the petitioners did not demonstrate any prejudice due to this. The court also noted that the petitioners were given the opportunity to be heard and had access to the report under Section 245D(2B). The court concluded that the Settlement Commission's actions did not infringe upon the principles of natural justice.

3. Constitution of Special Bench by the Settlement Commission:
The petitioners challenged the constitution of a Special Bench by the Settlement Commission, arguing that the reasons and material for this decision were not disclosed. The court held that the Chairman of the Commission has the discretion to constitute a Special Bench under Section 245BA(5A) and that the petitioners themselves had indicated the complexity of the case in their application. The court found no merit in the argument that the constitution of the Special Bench was prejudicial or without jurisdiction.

4. Different Standards for Applications under the Income Tax Act and Wealth Tax Act:
The petitioners argued that the Settlement Commission applied the same standards to applications under the Income Tax Act and the Wealth Tax Act, which was inappropriate. The court held that the Commission's primary concern was whether the petitioners had made a bona fide disclosure without suppressing material facts. Given the finding that the petitioners' applications were not bona fide, the court found no fault in the Commission's decision to reject the applications under both Acts.

Conclusion:
The court dismissed the petitions, holding that the Settlement Commission acted within its jurisdiction and followed the correct procedures. The applications were rightfully rejected due to the lack of full and true disclosure, and there was no breach of natural justice or error in the constitution of the Special Bench. The court emphasized that the Settlement Commission's decision was based on substantial material evidence and did not suffer from any legal infirmities.