2021 (5) TMI 332 - HC - Income Tax

Validity of the application filed u/s 245(C) - consequential order passed by the Settlement Commission - maintainability of the writ petition filed by the Commissioner of Income Tax, challenging the order passed by the Settlement Commission - As contended that in the eventuality of no pendency of case during the relevant assessment year, the application under Section 245(C) of the Act is not maintainable before the Settlement Commission - HELD THAT - In the instant case, the power of the Settlement Commission is well enumerated under Section 245C and 245D of the Act. The manner in which settlement is to be arrived is also contemplated under the Act. Certain preconditions are also stipulated. Thus, the Settlement Commission cannot enter into the venture of assessment, which is the power of an Assessing Officer under Section 153A. Therefore, this Court is of an opinion that in the absence of any true and full disclosure, the Settlement Commission cannot go beyond the scope of Section 245C of the Act and adjudicate the additional income found by the Department during seizure, which is admittedly not disclosed in the application filed at the first instance by the assessee. Assessee in the present case filed statement of facts in vide two letters dated 10.03.2008 and 14.03.2008, offering additional income and the Settlement Commission also proceeded and settled the issues, it is to be inferred that the assessee at the first instance, had not disclosed true and full income and therefore, the subsequent additional statements cannot be relied upon in order to satisfy the requirements of the provisions u/s 245(C). The principles involved in Section 245(C) of the Income tax is that the person approaching the Settlement Commission should file an application with clean hands and surrender the full and true disclosure of income. Only in the eventuality of proving the genuinity, then alone the Settlement Commission is empowered to settle the disputes and not otherwise. Thus, the prime consideration and pre-condition for entertaining an application is true and full disclosure of income and subsequent adding, deletion or insertion would dis-entitle the Settlement Commission from entertaining an application. In such an event, the genuinity of the assessee became questionable and the matter is to be sent back for assessment before the jurisdictional AO This being the scope of the provision under Section 245(C) for entertaining an application for settlement. In the present case, the Settlement Commission exceeded its jurisdiction by settling the issues, even after filing of the additional statement of facts by the assessee on two occasions, providing further disclosure of income. The petitioner could able to establish that the Settlement has caused prejudice to the interest of the Revenue and therefore, regular assessment is to be made to cull out the truth and proceed with the matter in the manner known to law.

Issues Involved:
1. Validity of the application filed by the assessee under Section 245(C) of the Income Tax Act.
2. Jurisdiction of the Settlement Commission to entertain the application.
3. Requirement of full and true disclosure of income by the assessee.
4. Powers of the Settlement Commission versus the Assessing Officer.
5. Maintainability of the writ petition filed by the Commissioner of Income Tax.

Detailed Analysis:

1. Validity of the application filed by the assessee under Section 245(C) of the Income Tax Act:
The petitioner, Commissioner of Income Tax, challenged the validity of the application filed by the 2nd respondent/assessee under Section 245(C) of the Income Tax Act and the consequential order passed by the Settlement Commission. The assessee filed the application before the Settlement Commission on 30.05.2007, one day before the amendment on 01.06.2007. The petitioner contended that no assessment proceedings had commenced by issuance of notice, and thus, there was no case pending as required under Section 245(A)b of the Act. Therefore, the application itself was not maintainable.

2. Jurisdiction of the Settlement Commission to entertain the application:
The Revenue argued that the Settlement Commission had no jurisdiction to take up the application as there was no case pending on the date of filing the application for the Assessment Year 2006-07. The Settlement Commission erroneously treated the application as valid and passed an order. The court noted that the Settlement Commission's power to entertain an application is guided by the provision itself, which requires a full and true disclosure of income.

3. Requirement of full and true disclosure of income by the assessee:
The petitioner contended that the assessee did not make a full and true disclosure of income in the application filed under Section 245(C). The assessee filed revised offers on two occasions, which indicated that the original application did not meet the requirements of full and true disclosure. The court emphasized that the prime consideration for entertaining an application under Section 245(C) is the full and true disclosure of income by the assessee. Subsequent additions or corrections disqualify the application from being entertained by the Settlement Commission.

4. Powers of the Settlement Commission versus the Assessing Officer:
The court clarified that the Settlement Commission cannot usurp the powers of the Assessing Officer under Section 153A of the Act. The Settlement Commission's role is to settle disputes based on full and true disclosure of income by the assessee. The power of the Assessing Officer to make regular assessments cannot be diluted or neutralized by the Settlement Commission. The court held that in the absence of true and full disclosure, the Settlement Commission cannot adjudicate additional income found by the Department during a seizure.

5. Maintainability of the writ petition filed by the Commissioner of Income Tax:
The court referred to the judgment of the Hon'ble Supreme Court in the case of Ajmera Housing Corporation Vs. Commissioner of Income Tax, which discussed the maintainability of a writ petition challenging the order of the Settlement Commission. The court concluded that the writ petition was maintainable as the Settlement Commission had exceeded its jurisdiction by settling the issues without a full and true disclosure of income by the assessee.

Conclusion:
The court quashed the impugned order dated 14.03.2008 passed by the Settlement Commission and allowed the writ petition. The court held that the Settlement Commission exceeded its jurisdiction by entertaining the application without a full and true disclosure of income by the assessee. The matter was directed to be sent back for regular assessment before the jurisdictional Assessing Officer. The court emphasized that the Settlement Commission's power is limited to settling disputes based on full and true disclosure and cannot extend to making regular assessments.

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