2021 (5) TMI 196 - HC - Income Tax

Validity of order of Settlement Commission u/s 245C - contention of the writ petitioner / revenue is that there is no true and full disclosure of income by the first respondent at the time of filing applications under Section 245C before the second respondent-Settlement Commission for settlement - HELD THAT - Wherever there is a possibility of escapement or non-disclosure of certain income in a true and full manner, then the very purpose and object of the provision is to provide powers to the Assessing Officer to cull out the entire truth and proceed with regular assessment. If at all, the first respondent-assessees say that they themselves have admitted that they have not maintained any books of accounts, then it is to be construed that the regular assessment must be done in such cases. There is no possibility of providing true and full disclosure of income by the assessees. In either of the circumstances, when the Department could able to establish that the assessee has not come out with true and full disclosure of income by the assessees themselves admitted that they have not maintained any books of accounts, then in both the cases, there is no possibility of disclosure of full and true income and therefore, in such cases, the regular assessment alone would be a proper method and settlement cannot be made. The very contention raised on behalf of the first respondent that the first respondent-assessees themselves admitted the fact that they have not maintained any books of accounts is of no avail for the purpose of settling the issues and in such circumstances, all evidences collected by the petitioner-Department also to be enquired into by the Assessing Officer through a regular assessment. Perusal of the order passed by the second respondent- Settlement Commission, as rightly pointed out by the learned Senior Standing Counsel, the contentions of the Department made by the CIT(DR) in detail in respect of the income were not completely enquired into nor considered by the second respondent-Settlement Commission. Contrarily, the second respondent-Settlement Commission made a finding that the applicants have not kept proper books of accounts in all the three cases and settled the issues. Such a settlement is improper and not in consonance with the provisions of the Act. When the prerequisite condition contemplated in the provision stipulates that the person approaching the second respondent- Settlement Commission should come out with true and full disclosure of income and the Department could able to establish that there are many discrepancies in the matter of such disclosure made by the first respondent-assessees, then, there is no other reason whatsoever to settle the issues under the provisions of the Act and the mater must be placed before the Assessing Officer for assessment. This being the factum established, the petitioner- Department could able to prove that the orders impugned passed by the second respondent-Settlement Commission are not in consonance with the provisions of the Act. Thus, the impugned orders passed in Settlement Application are quashed.

Summary

Issues Involved:
1. True and Full Disclosure of Income
2. Maintainability of Writ Petition
3. Adjudication by Settlement Commission

Detailed Analysis:

1. True and Full Disclosure of Income:
The primary contention of the petitioner, the Commissioner of Income Tax, was that the first respondent did not make a "true and full disclosure of income" while filing applications under Section 245C of the Income Tax Act, 1961, before the Settlement Commission. Section 245C mandates that an assessee must disclose all income that has not been previously disclosed to the Assessing Officer. The petitioner argued that there were significant discrepancies in the income disclosure, including suppression of Ward collection, IVF/IUI income, and unaccounted income from consulting doctors. The Department established these discrepancies before the Settlement Commission. The Settlement Commission's findings that the applicants did not keep proper books of account further supported the petitioner's claim that the applications were not filed with full and true disclosure of income.

2. Maintainability of Writ Petition:
The first respondent contended that writ petitions challenging the Settlement Commission's order are not maintainable under Article 226 of the Constitution of India. The argument was that the Settlement Commission had adjudicated all disputed issues, and its order could not be reopened through a writ petition. However, the court held that the maintainability of the writ petition must be considered with reference to the mixed questions of law and fact. The court emphasized that it is empowered to adjudicate whether the Settlement Commission's order was in consonance with Section 245C of the Act. The court cited precedents, including ACE Investments Limited vs. Settlement Commission, to assert that judicial review is concerned with the decision-making process rather than the decision itself.

3. Adjudication by Settlement Commission:
The petitioner argued that the Settlement Commission did not adjudicate the issues raised by the Department adequately and passed a cryptic order without considering the contentions and discrepancies highlighted by the Department. The court noted that the Settlement Commission's finding that the applicants had not kept proper books of account indicated that the application did not contain full and true disclosure of income. The court found that the Settlement Commission's decision to settle the issues without a clear finding on the full and true disclosure of income was improper and not in consonance with the provisions of the Act. The court held that the Department should be provided with an opportunity to conduct a regular assessment, as the assessees themselves admitted to not maintaining proper books of account, making it impossible to provide a true and full disclosure of income.

Conclusion:
The court quashed the Settlement Commission's orders dated 23.01.2014 in Settlement Application Nos.TN/CN/52/2013-14/8/IT, TN/CN/52/2013-14/7/IT, and TN/CN/52/2013-14/5/IT, and allowed the writ petitions. The court emphasized that the prerequisite condition for an application under Section 245C is the full and true disclosure of income, and in the absence of such disclosure, the matter must be placed before the Assessing Officer for regular assessment.