2008 (1) TMI 395 - HC - Income Tax

Challenge to the order passed by the Settlement Commission under section 245D(1) and to the consequential order passed under section 142(2A) application rejected by Settlement Commission firstly on ground that there was no complexity of investigation and secondly there was no full and true disclosure. - In the instant case it is clearly set out that the issues emerging of the search are not satisfactorily addressed. In our opinion this cannot be said to be the case of No reasons . So it is a fit case where we should exercise our extraordinary jurisdiction. Order under section 142(2A) is also quashed

Summary

Issues:
Challenge to the order of the Settlement Commission under section 245D(1) of the Income Tax Act, 1961 and the order dated August 2, 2006, under section 142(2A) of the Income-tax Act.

Analysis:
1. Challenge to Settlement Commission's Order:
The petitioner sought to challenge the Settlement Commission's order based on two grounds: the absence of complexity of investigation and the lack of full and true disclosure. The respondent contended that the rejection was justified due to the petitioner's failure in making a full and true disclosure. The Commission, in its order, highlighted that there was no complexity of investigation and that the disclosure made by the petitioner did not meet the criteria of being full and true. The issues arising from the search were not adequately addressed in the disclosure, leading to discrepancies in the information provided. The court observed that the petitioner had disclosed income as a managing agent of two petrol pumps, but investigations revealed that the petitioner was actually running the pumps and paying commission to the license holders, which was crucial information before the Commission.

2. Complexity of Accounts and Special Audit:
Regarding the order for a special audit under section 142(2A) of the Income-tax Act, the petitioner argued that the audit was ordered without providing a hearing, which was a legal requirement. The petitioner contended that the complexity of accounts necessitating a special audit should have been considered as part of the complexity of investigation, rendering the Settlement Commission's order invalid. The court agreed that the issues emerging from the search were not adequately addressed, indicating that this was not a case of "No reasons." The court concluded that it was not appropriate to intervene in this matter, upholding the Settlement Commission's decision.

3. Consequential Order and Opportunity of Hearing:
The court acknowledged that the petitioner was not given a hearing before the special audit was ordered. As a result, the order dated August 2, 2006, under section 142(2A) of the Income-tax Act was quashed and set aside. The matter was referred back to the concerned authority to pass a fresh order after providing the petitioner with an opportunity for a hearing. The court made the rule partly absolute without any order as to costs, ensuring fairness and due process in the proceedings.

This detailed analysis of the judgment highlights the key issues raised, arguments presented by both parties, the court's evaluation of the Settlement Commission's order, considerations regarding the special audit, and the importance of providing a fair opportunity for a hearing in legal proceedings.