2018 (8) TMI 1208 - HC - Income Tax

Settlement of a case - rejection of application u/s 245D(4) on account of a failure to make a full and true disclosure of its undisclosed income - Held that - In view of our view on the issue of full and true disclosure in respect of facilitation charges no question of entertaining this Petition can arise. This even if we are of the view that the issue of deduction under Section 80IB(10) of the Act may require consideration. - However it is made clear that the Assessment Proceedings under the Act will proceed on its own merits. Nothing stated in the impugned order of the Commission or this order should influence the assessing procedure under the Act. - Decided against the assessee.

Summary

Issues:
Challenge to order of Income Tax Settlement Commission rejecting application for settlement under Chapter XIXA of the Income Tax Act, 1961 based on failure to disclose undisclosed income fully and truly.

Analysis:
The petition challenged the order of the Income Tax Settlement Commission rejecting the application for settlement under Chapter XIXA of the Income Tax Act, 1961, for the Assessment Years 2009-10 to 2015-16. The rejection was based on the alleged failure of the petitioner to make a full and true disclosure of its undisclosed income as required by the Act. The Commission specifically pointed out two areas where the disclosure was deemed inadequate: (a) claim for deduction under Section 80IB(10) of the Act, and (b) income declared based on diaries seized during a search. The petitioner, engaged in real estate development, contested the rejection on both grounds, arguing that further details were needed to verify the deduction claim and that the income from facilitation work was entirely based on details from the seized diaries.

Regarding the rejection based on the claim for deduction under Section 80IB(10) of the Act, the court noted that the rejection may not be sustainable as further details were required to determine the validity of the claim. The court highlighted the need for a comprehensive review before reaching a conclusion. However, the rejection based on the facilitation work income was more contentious. The Commission found the petitioner's explanation unsatisfactory, stating that the petitioner failed to provide full particulars and details of the income and expenses related to the facilitation work, casting doubt on the completeness and truthfulness of the disclosure.

The petitioner argued that the Commission's decision went beyond its jurisdiction by requiring substantiation of the income, contrary to Section 245C(1) of the Act, which only mandates full and true disclosure of income without the need for substantiation. The court disagreed, stating that providing particulars of the income and expenses was necessary to ensure full and true disclosure. The court emphasized that the obligation to disclose fully and truly applies throughout the settlement process, including at the stage of Section 245D(4) of the Act.

Ultimately, the court dismissed the writ petition, stating that the issue of full and true disclosure regarding facilitation charges was crucial, even if the deduction under Section 80IB(10) required further consideration. The court clarified that the assessment proceedings under the Act would proceed independently of the settlement application, emphasizing that the orders of the Commission and the court should not influence the assessment process.