2020 (5) TMI 518 - HC - Income Tax

Admitted liability in terms of Section 245D (2A) - large-scale suppression resorted by the petitioner - HELD THAT - The 1st respondent has accepted that the statement of 2nd respondent that it retained only 5% of the amount paid to it by BSAL as commission. Since the 2nd respondent agreed to add another amount of ₹ 1.5 crores to the aforesaid sum as undisclosed income the 1st respondent has accepted the case of the 2nd respondent. Arithmetic of the transactions disclosed before the 1st respondent Settlement Commission do not add up and clearly shows that there were large-scale suppression resorted by the petitioner not only before the assessing officer but also before the 1st respondent settlement commission. The 1st respondent Settlement Commission has accepted the case of the 2nd respondent that a sum of ₹ 20.14 crores was directly paid by BSAL by opening a LC directly in favour of the German company and that the amount was not received by the petitioner. There are several discrepancies in the manner in which the case has been allowed to be settled by the 1st respondent settlement commission. The calculations has been accepted without any deliberations do not inspire confidence. There are several disputed questions of fact which have been glossed over by the 1st respondent Settlement Commission while settling be case of the 2nd respondent vide impugned order. This court is not sitting in appeal against the impugned order of the 1st respondent Settlement Commission, find sufficient reasons to interfere with the impugned order as there are several contradictions and the 2nd respondent appears to have not disclosed truly all facts that are required for settling the case. The impugned order has accepted cases without any discussions, therefore of the view that the impugned order is not sustainable. The impugned order passed by the 1st respondent is quashed and the case is remanded back to the 1st respondent Settlement Commission to pass a fresh order after considering the objections of the petitioner filed under rule 9 of the Settlement Commission (Procedure) Rules 1997. Since the dispute pertains to the assessment years 1997-98 and 1999-2000 and the application filed by the 2nd respondent was of the year 2005, the 1st respondent Settlement Commission is requested to pass a fresh order within a period of 6 months from the date of receipt of this order after considering the report of the petitioner filed under Section 9 of the Settlement Commission (Procedure) Rules 1997 through videoconferencing, if situations so warrants on account of continuance of Covid19 pandemic.

Issues Involved:
1. Jurisdiction of the Settlement Commission.
2. Compliance with Section 245D of the Income Tax Act.
3. Full and true disclosure of income by the 2nd respondent.
4. Contradictions in the 2nd respondent's application.
5. Validity of the Settlement Commission's order.

Detailed Analysis:

1. Jurisdiction of the Settlement Commission:
The petitioner challenged the jurisdiction of the 1st respondent (Settlement Commission) to pass the impugned order dated 24.3.2008. The petitioner argued that the 2nd respondent failed to pay the admitted liability as required under Section 245D(2A) of the Income Tax Act, 1961. According to the petitioner, the shortfall in payment of tax on the admitted liability amounted to ?70,396. However, the court found that since the 2nd respondent paid the additional tax before the stipulated date (31st July 2007), the Settlement Commission had jurisdiction to proceed with the application.

2. Compliance with Section 245D of the Income Tax Act:
The petitioner contended that the 1st respondent erred in admitting the 2nd respondent’s application contrary to Section 245D of the Income Tax Act, as amended by the Finance Act, 2007. The petitioner highlighted that the 2nd respondent only partially paid the admitted tax liability and interest on 23.7.2007. However, the court observed that the 2nd respondent had paid the additional tax amount before the cut-off date, thus complying with the requirements of Section 245D.

3. Full and True Disclosure of Income by the 2nd Respondent:
The petitioner argued that the 2nd respondent did not make a full and true disclosure of income. The court noted several contradictions in the 2nd respondent’s application and found that the 2nd respondent had not disclosed all material facts fully and truly. For instance, the 2nd respondent claimed to have received ?35.77 crores from BSAL, whereas other documents indicated different amounts.

4. Contradictions in the 2nd Respondent's Application:
The court identified multiple contradictions in the 2nd respondent’s application. The 2nd respondent initially stated that BSAL had awarded a turnkey contract for ?60.5 crores, but later mentioned different figures for the amounts received and the value of the invoices raised. These discrepancies indicated that the 2nd respondent had not provided a consistent and clear account of the transactions.

5. Validity of the Settlement Commission's Order:
The court found that the Settlement Commission’s order lacked deliberation and did not inspire confidence. The court noted that the Settlement Commission accepted the 2nd respondent’s version without thoroughly examining the contradictions and discrepancies raised in the petitioner’s Rule 9 report. Consequently, the court quashed the impugned order and remanded the case back to the Settlement Commission for a fresh order after considering the petitioner’s objections.

Conclusion:
The court quashed the impugned order of the Settlement Commission and remanded the case for a fresh order, emphasizing the need for full and true disclosure of facts by the 2nd respondent and thorough examination of the objections raised by the petitioner. The Settlement Commission was directed to pass a fresh order within six months, considering the petitioner’s report under Rule 9 of the Settlement Commission (Procedure) Rules, 1997.

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