2017 (8) TMI 127 - HC - Income Tax

Income-tax Settlement Commission under section 245D(2C) - Held that - Order of the Income-tax Settlement Commission according to 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 Income-tax Settlement Commission for an early settlement of disputes. The court is unable to sustain the impugned order dated May 13, 2016, passed by the Income-tax Settlement Commission declining the prayers of the petitioners that their applications before the Income-tax Settlement Commission 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 Income-tax Settlement Commission on the same basis as the six other companies in the Bindal group. The petitioners applications shall be permitted to be proceeded with. The writ petitions are allowed and the applications are disposed of in the above terms but, in the circumstances of the case, with no orders as to costs. The applications of the four petitioners will now be listed before the Income-tax Settlement Commission along with the applications of the six other companies constituting the Bindal group on the date that the Income-tax Settlement Commission may have fixed for further consideration of all the applications of the other six companies.

Issues Involved:
1. Validity of the applications before the Income-tax Settlement Commission (ITSC) under section 245C(1) of the Income-tax Act, 1961.
2. Full and true disclosure of income and the manner of earning such income by the petitioners.
3. Differential treatment between the four petitioners and the six other companies of the Bindal group by the ITSC.
4. Legality of the procedure followed by the ITSC in rejecting the applications of the four petitioners.

Detailed Analysis:

1. Validity of the Applications Before the ITSC:
The four writ petitions were filed by entities whose applications before the ITSC were not allowed to proceed by the impugned order dated May 13, 2016. The applications were filed under section 245C(1) of the Income-tax Act for the assessment years 2008-09 to 2015-16. The ITSC initially allowed the applications to proceed, stating that the technical requirements under section 245C(1) were fulfilled, and there was no reason to hold that the disclosures made were not full and true.

2. Full and True Disclosure of Income and the Manner of Earning Such Income:
The ITSC later reversed its decision, stating that the four petitioners did not explain the manner of earning the undisclosed income, which is a mandatory requirement under section 245C(1). The ITSC noted that the petitioners filed a consolidated cash flow to explain non-genuine share capital and unsecured loans but failed to explain the manner of deriving the undisclosed income used in acquiring assets or incurring expenses.

3. Differential Treatment Between the Four Petitioners and the Six Other Companies:
The ITSC allowed the applications of six other companies of the Bindal group to proceed but rejected those of the four petitioners. The court observed that the applications of the ten companies explained that unaccounted income generated by the group formed a common pool and was redeployed into all companies. The report submitted by the Principal Commissioner of Income-tax was a consolidated one and did not differentiate between the companies. The court found no rational basis for the differential treatment given to the four petitioners.

4. Legality of the Procedure Followed by the ITSC:
The court noted that the ITSC's decision to reject the four petitioners' applications was based on a ground not urged by the Revenue, i.e., the failure to disclose the manner of earning undisclosed income. The court held that the ITSC did not provide a rational criterion for distinguishing between the six companies and the four petitioners. The court emphasized that the scope of interference under Article 226 of the Constitution is limited but found that the ITSC's order lacked justification and could defeat the purpose of early settlement of disputes.

Conclusion:
The court set aside the impugned order dated May 13, 2016, passed by the ITSC 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. 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 for further consideration.

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