2021 (4) TMI 1038 - HC - Income Tax

Settlement Commission order - additional disclosures of income during the pendency of the Settlement Commission - HELD THAT - Findings of the order of the Settlement Commission clearly established that there are many additions regarding the undisclosed income by the assessee. The additions are made due to the search conducted and the Department has stated that the undisclosed income are more and a regular assessment is to be made in order to scrutinise all the books of accounts and incriminating evidences for the purpose of forming an opinion and to determine the tax payable by the assessee. When such an exercise to be made under the Act is not permitted and if the issues are settled, then this Court has no hesitation in holding that the very purpose and object of the provisions of the Act is defeated. This apart, the very scope of Section 245C of the Act cannot be widened so as to permit the Settlement Commission to make a regular assessment, which is not contemplated. The very factum that there are additional disclosures of income during the pendency of the Settlement Commission, which were not made available at the time of application by the assessee under Section 254C of the Act there is a sufficient cause to reject the application under Section 245C of the Act. The very spirit of the provision is that the application must contain full and true disclosure of income. Once it is established that the application dose not contain full disclosure of income and additions are made during the pendency of the application, it is sufficient to arrive a conclusion that the application made by the assessee is not in consonance with the provisions of Section 245C of the Act and therefore, the same is liable to be rejected in limine. Contrarily, in the present case, the Settlement Commission travelled beyond the scope of Section 245C of the Act and adjudicated the additional income disclosed and further gone to the extent of settling the issues based on the additional income, which were not disclosed at the time of filing of an application under Section 245C of the Act. It is established that the assessee has not approached the Settlement Commission with clean hands. The assessee has not disclosed the true and full income and more specifically, the undisclosed income recovered during the search were not made available before the Settlement Commission along with the application and this would be sufficient to reject the application by the Settlement Commission. Contrarily, the Settlement Commission proceeded by adjudicating the issues on merits on the presumption that the Settlement Commission can pass an assessment order, which is otherwise not permissible under the provisions of Section 245C of the Act. Thus, the order passed by the Settlement Commission is perverse and not in consonance with the provisions of the Income Tax Act, 1961 and the Settlement Commission exceeded its jurisdiction by entering into the venture of a regular assessment, which is otherwise to be made by the Assessing Officer under the other provisions of the Income Tax Act, 1961.

Issues Involved:
1. Maintainability of the writ petition.
2. Jurisdiction and authority of the Income Tax Settlement Commission.
3. Full and true disclosure of income by the assessee.
4. Powers of the Assessing Officer under Section 153A of the Income Tax Act.
5. Scope and limitations of the Settlement Commission under Section 245C of the Income Tax Act.
6. Adjudication process and decision-making of the Settlement Commission.

Detailed Analysis:

1. Maintainability of the Writ Petition:
The court emphasized that all writ petitions are entertainable under Article 226 of the Constitution of India. The powers of the High Court under Article 226 are broad enough to provide complete justice to the litigants. The court rejected the contention that the writ petition is not maintainable merely because the Settlement Commission had passed an order. The court stated that the maintainability must be examined with reference to both legal and factual aspects.

2. Jurisdiction and Authority of the Income Tax Settlement Commission:
The petitioner argued that the Settlement Commission exceeded its jurisdiction by settling the matter without considering the fundamental powers of the Assessing Officer. The court agreed, stating that the Settlement Commission cannot usurp the powers of the Assessing Officer. The court noted that the Settlement Commission's role is to settle disputes based on full and true disclosure of income, not to make independent assessments.

3. Full and True Disclosure of Income by the Assessee:
The court scrutinized whether the assessee made a full and true disclosure of income in the application under Section 245C. The court found that the Settlement Commission itself was doubtful about the disclosure made by the assessee. The court highlighted that additional income was disclosed during the proceedings, which was not initially included in the application. This indicated that the application did not contain a full and true disclosure, rendering it non-entertainable.

4. Powers of the Assessing Officer under Section 153A of the Income Tax Act:
The court reiterated that the powers of the Assessing Officer under Section 153A cannot be usurped by the Settlement Commission. The court cited the judgment in CANARA JEWELLERS vs. SETTLEMENT COMMISSION, emphasizing that the Settlement Commission's powers are limited to the settlement process and do not extend to reassessment of tax, which is the domain of the Assessing Officer.

5. Scope and Limitations of the Settlement Commission under Section 245C of the Income Tax Act:
The court elaborated on the legislative intent behind Section 245C, which is to provide an opportunity for assessees to settle disputes by making a full and true disclosure of income. The court noted that the Settlement Commission's powers are guided by the provisions of Section 245C and cannot be expanded to include independent assessments. The court asserted that the Settlement Commission must follow the procedures and conditions stipulated in Section 245C and 245D.

6. Adjudication Process and Decision-Making of the Settlement Commission:
The court found that the Settlement Commission's decision-making process was flawed. The Commission had made additional disclosures of income during the proceedings, which were not part of the initial application. The court held that the Settlement Commission's order was perverse and not in consonance with the provisions of the Income Tax Act. The court quashed the order of the Settlement Commission and allowed the petitioner-Department to proceed with a regular assessment.

Conclusion:
The court quashed the order passed by the Income Tax Settlement Commission and permitted the petitioner-Department to proceed with the regular assessment through the competent authority under the provisions of the Act. The writ petition was allowed, and the court emphasized that the Settlement Commission had exceeded its jurisdiction and failed to ensure a full and true disclosure of income by the assessee.

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