2017 (5) TMI 1055 - HC - Income Tax

Applications before the Income Tax Settlement Commission (ITSC) under Section 245D(2C) - Held that - A perusal of the applications filed, copies of which have been placed on record, shows that the manner of deriving disclosed and unearned income was indeed disclosed. To what extent this can be verified would be a matter for more detailed examination. There appears to be no rational basis for according a differential treatment to the four Petitioners. As a result of the impugned order, while the regular assessment in respect of the four Petitioners will proceed, the case of the six other companies forming part of the same group would be decided by the ITSC. Obviously, the differential treatment to four of the companies forming part of the same group results in differential treatment which does not appear to be warranted in the instant case. While indeed the scope of this Court under Article 226 of the Constitution is limited, the Court finds that as far as the impugned order of the ITSC is concerned, it does not spell out any rational criteria for distinguishing between six companies of the Bindal Group and the four Petitioners. Further, the ITSC proceeded to reject the settlement application of the four Petitioners on a ground that was not urged by the Revenue viz., the failure to disclose the manner of earning undisclosed income. Merely because the consolidated cash flow was not in respect of four Petitioners could not mean that they had not disclosed the manner of earned undisclosed income. In the considered view of the Court, the impugned order of the ITSC according a different treatment to the four Petitioners does not appear to be justified in the facts and circumstances of the case. If allowed to stand, the impugned order might defeat the very purpose of the companies of the Bindal Group applying to the ITSC for an early settlement of disputes. The Court is unable to sustain the impugned order dated 13th May 2016 passed by the ITSC declining the prayers of the Petitioners that their applications before the ITSC should be proceeded in accordance with law. While setting aside the impugned orders, the Court directs that the applications of the four Petitioners would be entertained and proceeded with by the ITSC on the same basis as the six other companies in the Bindal Group. The Petitioners applications shall be permitted to be proceeded with. Writ petitions are allowed.

Summary

Issues Involved:
1. Validity of applications before the Income Tax Settlement Commission (ITSC) under Section 245D(2C) of the Income Tax Act, 1961.
2. Requirement of "true and full disclosure" of income and the manner of earning it under Section 245C(1) of the Act.
3. Differential treatment of companies within the same group by the ITSC.
4. Scope of judicial review under Article 226 of the Constitution.

Issue-wise Detailed Analysis:

1. Validity of applications before the ITSC under Section 245D(2C):
The four writ petitions were filed by entities whose applications before the ITSC were not allowed to proceed for the Assessment Years (AYs) 2008-09 to 2015-16. The ITSC initially allowed the applications to proceed but later rejected them, stating that the petitioners did not explain the manner of deriving the undisclosed income.

2. Requirement of "true and full disclosure" of income and the manner of earning it under Section 245C(1):
The ITSC initially found that the petitioners had fulfilled all technical requirements under Section 245C(1) and allowed the applications to proceed. However, upon further examination, the ITSC concluded that the petitioners failed to explain the manner of earning the undisclosed income, particularly concerning unexplained loans, credit balance, stock, and transportation costs. The ITSC held that the mandatory requirement for a valid application under Section 245C(1) was not complied with, rendering the applications invalid.

3. Differential treatment of companies within the same group by the ITSC:
The petitioners argued that the ITSC should have examined all applications from the Bindal Group as a whole rather than individually. The ITSC allowed the applications of six other companies in the Bindal Group to proceed but rejected the applications of the four petitioners. The court found no rational basis for this differential treatment, noting that the unaccounted income generated by the group was pooled and redeployed across various companies. The court held that the ITSC's decision to treat the four petitioners differently was not justified and lacked a rational basis.

4. Scope of judicial review under Article 226 of the Constitution:
The court acknowledged that its scope of interference under Article 226 is limited. However, it found that the ITSC's order did not provide a rational criterion for distinguishing between the six companies whose applications were allowed to proceed and the four petitioners whose applications were rejected. The court also noted that the ITSC rejected the applications on a ground not urged by the Revenue, i.e., the failure to disclose the manner of earning undisclosed income. The court concluded that the ITSC's order might defeat the purpose of early settlement of disputes and directed that the applications of the four petitioners be entertained and proceeded with on the same basis as the six other companies in the Bindal Group.

Conclusion:
The court set aside the ITSC's impugned order dated 13th May 2016, which had declined the prayers of the petitioners to proceed with their applications. The court directed that the applications of the four petitioners be entertained and proceeded with by the ITSC on the same basis as the six other companies in the Bindal Group. The writ petitions were allowed, and the applications were disposed of with no orders as to costs. The applications of the four petitioners will now be listed before the ITSC along with the applications of the six other companies constituting the Bindal Group.