2007 (12) TMI 206 - HC - Income Tax

Revenue contend that applications preferred by the assessee before Settlement Commission did not fulfil the requirements of S. 245C - disclosure of their income, stated to be true and had not been disclosed before the AO deduction claimed by assessee on amount shown as loans held that assessee cannot get benefit of section 245C where amount have already been discovered by the assessing authority and added to the total income of assessee - Commission directed to reject assessee application

Issues Involved:
1. Validity of applications under section 245C of the Income-tax Act.
2. Requirement of full and true disclosure of income.
3. Complexity of investigation.
4. Jurisdiction of the Settlement Commission.
5. Non-application of mind by the Settlement Commission.

Detailed Analysis:

1. Validity of Applications under Section 245C of the Income-tax Act:
The core issue in all the writ petitions was whether the applications filed by the assessees under section 245C of the Income-tax Act were valid. The Revenue challenged the orders passed by the Settlement Commission under section 245D, arguing that the applications did not meet the requirements of section 245C. Specifically, the Revenue contended that the assessees had not made a full and true disclosure of their income, as required by the Act. The court examined the facts and the legal provisions, particularly the requirement that the disclosed income must not have been previously disclosed before the Assessing Officer.

2. Requirement of Full and True Disclosure of Income:
The court emphasized the necessity for assessees to make a full and true disclosure of income not disclosed before the Assessing Officer, as mandated by section 245C. The Revenue argued that the assessees had not disclosed the manner in which the income was derived and had made vague statements. The court referred to the Supreme Court's rulings in CIT v. Express Newspapers Ltd. and CIT v. Om Prakash Mittal, which clarified that an application under section 245C is maintainable only if it discloses income not previously disclosed before the Assessing Officer. The court found that in the case of W. P. No. 19772 of 2005, the assessee had not made a full and true disclosure as the income had already been discovered by the Assessing Officer.

3. Complexity of Investigation:
The Settlement Commission had allowed the applications to proceed based on the complexity of the investigation involved. The court noted that the Settlement Commission had considered the nature and circumstances of each case and concluded that there was complexity of investigation. The Revenue argued that the complexity of investigation alone could not justify the acceptance of the applications if the basic requirement of full and true disclosure was not met. The court agreed with this view, particularly in the case of W. P. No. 19772 of 2005, where the income had already been discovered by the Assessing Officer.

4. Jurisdiction of the Settlement Commission:
The Revenue contended that the Settlement Commission had acted without jurisdiction in entertaining the applications that did not meet the requirements of section 245C. The court examined the statutory provisions and the Supreme Court's rulings, concluding that the Settlement Commission's jurisdiction is contingent upon the assessee making a full and true disclosure of income not disclosed before the Assessing Officer. In the case of W. P. No. 19772 of 2005, the court found that the Settlement Commission had exceeded its jurisdiction by allowing the application to proceed.

5. Non-application of Mind by the Settlement Commission:
The Revenue argued that there was gross non-application of mind by the Settlement Commission in accepting the applications. The court scrutinized the orders passed by the Settlement Commission and found that in the case of W. P. No. 19772 of 2005, the Settlement Commission had not properly applied its mind to the requirement of full and true disclosure. The court noted that the Settlement Commission had failed to consider that the income in question had already been discovered by the Assessing Officer.

Conclusion:
The court dismissed the writ petitions W. P. Nos. 42178, 42179, 42180, and 42181 of 2002, W. P. No. 11671 of 2004, W. P. No. 25825 of 2005, and W. P. No. 23365 of 2005, finding no merit in the Revenue's arguments. However, in W. P. No. 19772 of 2005, the court set aside the order dated February 17, 2005, passed by the Settlement Commission and directed the Commission to reject the application. The court emphasized the necessity for the Settlement Commission to ensure that applications under section 245C meet the statutory requirements of full and true disclosure of income not disclosed before the Assessing Officer.

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