2018 (1) TMI 1048 - HC - Income Tax

Validity of settlement commission order - as per assessee proper appreciation of the documents filed by the assessee was not done by the Settlement Commission - Held that - Application is at the stage of admission and the petitioner should satisfy the Settlement Commission that there has been full and true disclosure. At that stage of the matter, the Settlement Commission cannot be expected to or cannot be compelled to utilize the machinery available with it or to invoke Rule 9 or Section 245C of the Act. It is for the Settlement Commission to regulate its business. The manner in which the Settlement Commission proceeded cannot be stated to be either arbitrary or unreasonable. The Court cannot dictate the procedure that the Settlement Commission has to follow at the stage of Section 245D(1) of the Act unless there is a palpable error or violation of any procedures under the Act. It is no doubt true that Section 245 was inserted into the provisions of the Income Tax Act for an early resolution of complicated tax disputes, where the assessee gets relief, more particularly from penalty and prosecution. However, to be entitled for such a remedy, the conduct of the assessee is primordial. In my considered view, the conduct of the assessee as pointed out by the Tribunal definitely leads to the irresistible conclusion that there has been no full or true disclosure. Petition dismissed.

Issues Involved:
1. Rejection of the petitioner's application by the Income Tax Settlement Commission under Section 245D(1) of the Income Tax Act, 1961.
2. Allegations of failure to make full and true disclosure of income.
3. Procedural aspects and powers of the Settlement Commission under Section 245D(1) and Rule 9 of the Income Tax Act.
4. The petitioner's claim for immunity from penalties and prosecution.
5. The adequacy of the Settlement Commission's examination of the petitioner's documents and explanations.

Detailed Analysis:

1. Rejection of the Petitioner's Application by the Income Tax Settlement Commission:
The petitioner challenged the order passed by the Income Tax Settlement Commission, Additional Bench, Chennai, dated 05.01.2018, under Section 245D(1) of the Income Tax Act, 1961, which rejected the petitioner's application for settlement of his case. The rejection was based on the grounds that the petitioner failed to make full and true disclosure of income and the manner of earning such income, as required by Section 245C(1) of the Act. This was the petitioner's second application, with the first one having been rejected on 10.08.2017.

2. Allegations of Failure to Make Full and True Disclosure of Income:
The petitioner, involved in the film distribution business, had opened multiple bank accounts in various names for business convenience. A search under Section 132 of the Act led to the seizure of materials and cash. The petitioner admitted undisclosed income of ?25,10,95,304/- under Section 132(4) of the Act. However, the Settlement Commission found that the petitioner did not provide a full and true disclosure of income, as there were discrepancies in the explanations and documents provided, particularly regarding diary notings and the quantum of transactions.

3. Procedural Aspects and Powers of the Settlement Commission:
The petitioner argued that the Settlement Commission did not properly consider the voluminous documents submitted and failed to utilize its powers under Rule 9 or Section 245D(3) of the Act to call for a report from the Principal Commissioner of Income Tax. The Court noted that at the stage of Section 245D(1), the Settlement Commission is not compelled to use such powers and must be satisfied with the prima facie case of full and true disclosure. The Court emphasized that the Settlement Commission's procedure cannot be deemed arbitrary or unreasonable unless there is a palpable error or violation of procedures under the Act.

4. The Petitioner's Claim for Immunity from Penalties and Prosecution:
The petitioner sought immunity from penalties and prosecution under the Act. However, the Court highlighted that the primary condition for such relief is the full and true disclosure of income. Since the Settlement Commission found deficiencies in the petitioner's disclosure, the application for immunity was not entertained.

5. Adequacy of the Settlement Commission's Examination of the Petitioner's Documents and Explanations:
The Settlement Commission examined the petitioner's documents and explanations but found inconsistencies. The authorized representative of the petitioner failed to clarify or match the transactions with the entries in the seized documents. The Court observed that the Settlement Commission conducted a thorough examination and provided the petitioner an opportunity to explain the documents. The Court concluded that the Settlement Commission's decision was based on a reasonable assessment of the evidence and did not warrant interference.

Conclusion:
The Court dismissed the writ petition, affirming the Settlement Commission's decision to reject the petitioner's application for settlement under Section 245D(1) of the Income Tax Act. The Court emphasized the importance of full and true disclosure for the settlement process and upheld the procedural discretion exercised by the Settlement Commission. Consequently, the petitioner's request for remand and further examination of documents was denied.

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