2021 (7) TMI 514 - HC - Income Tax

Settlement Commission order u/s 245C - orders are sought to be assailed by the Commissioner of Income Tax, the petitioner herein primarily on the ground that there was no true and full disclosure in the application filed by the second respondents in the respective writ petitions, inasmuch as the additional amount of income declared in the returns filed pursuant to notice issued u/s 153A by them was far lesser than the amount of income ultimately arrived by the 1st respondent Settlement Commission in the impugned order - as stated additional income offered for settling the case was not different from the amount that was of in the revised returns filed pursuant to notice issued under Section 153A and there was no further additional disclosure of income over and above ₹ 50,00,000/- - HELD THAT - The total income for the block assessment years 2006-07 to 2008-09 in the returns filed by the said 2nd respondent/applicant/2nd respondent herein was ₹ 2,10,06,060/-. After the search was completed under Section 132 the said 2nd respondent/applicant was issued with the notice dated 4.1.2010 under Section 153. The last date for filing returns expired on 03.02.2010. 2nd respondent/applicant initially filed an application under Section 245C of the Income Tax Act, 1961on 12.11.2010. As mentioned elsewhere in the order, the said application was also dismissed by the 1st respondent Settlement Commission by its order dated 16.11.2010. Thereafter, the 2nd respondent/applicant filed a return on 01.12. 2010 under Section 153 A of the Act and a fresh application under Section 245C of the Income Tax Act, 1961 on 01.12.2010 before the 1st respondent Settlement Commission. The application filed before the 1st respondent Settlement Commission, the 2nd respondent/applicant offered a total income of ₹ 5,05,69,810/- for these assessment years consisting of ₹ 2,95,63,750/ - as the additional income for the purpose of settling the case under chapter XIX-A of theIncome Tax Act, 1961. 1st respondent Settlement Commission after considering the reports of the petitioner Income Tax Department added another sum ₹ 2,93,16,704/- . This amount is double the additional amount offered by the 2nd respondent/applicant in the application filed under Section 245C of the Income Tax Act, 1961 for sum of ₹ 2,95,63,750/-. The amount of income enhanced is almost 100% of the additional income offered by the 2nd respondent/applicant. Therefore, it cannot be said that there was full and true disclosure of the additional income in the application filed under Section 245C The 1st respondent Settlement Commission therefore ought to have rejected the application for by these 2nd respondent/applicants as the intention of the 2nd respondent/applicant was only to take a chance by not disclosing truly and fully the correct additional income which was not disclosed at the time of filing of original returns under Section 139 of the Income Tax Act, 1961. It was intended take advantage of limited scope of enquiry in the proceeding before the 1st respondent Settlement Commission. The impugned order of the 1st respondent Settlement Commission is liable to be quashed. The above writ petitions filed by the petitioner Commissioner of Income Tax deserves to be allowed and are accordingly allowed.

Issues Involved:
1. Full and true disclosure of income by the respondents.
2. Compliance with Section 245C of the Income Tax Act, 1961.
3. The role and jurisdiction of the Income Tax Settlement Commission.
4. The power of judicial review under Article 226 of the Constitution of India.

Detailed Analysis:

1. Full and True Disclosure of Income by the Respondents:
The primary contention by the petitioner, Commissioner of Income Tax, was that the respondents did not make a full and true disclosure of their income in their applications to the Settlement Commission. It was argued that the additional income declared in the revised returns and applications under Section 245C was significantly lower than the amount ultimately determined by the Settlement Commission. The court noted significant discrepancies between the income disclosed by the respondents and the amounts determined by the Settlement Commission, indicating a lack of full and true disclosure.

2. Compliance with Section 245C of the Income Tax Act, 1961:
The court examined whether the respondents met the requirements of Section 245C, which mandates a full and true disclosure of income. It was found that the respondents' applications contained substantial variances in the declared additional income and the income ultimately determined by the Settlement Commission. This indicated non-compliance with the statutory requirement of full and true disclosure, as highlighted by the Supreme Court in Ajmera Housing Corporation vs. Commissioner of Income Tax.

3. The Role and Jurisdiction of the Income Tax Settlement Commission:
The Settlement Commission's role is to settle cases based on the income disclosed in the applications and the reports from the Commissioner of Income Tax. However, the Settlement Commission was found to have taken on the task of reassessment, which is beyond its jurisdiction. The court emphasized that the Settlement Commission's jurisdiction under Section 245D(4) is confined to matters covered by the application and the Commissioner's report, and it cannot extend to revising the income disclosed in the application.

4. The Power of Judicial Review under Article 226 of the Constitution of India:
The respondents argued that the scope of judicial review under Article 226 is limited and should only address procedural irregularities. The court, however, found that the Settlement Commission's orders were vitiated by the lack of full and true disclosure, which is a fundamental requirement for a valid application under Section 245C. The court held that it has the authority to interfere when the decision-making process is flawed due to fraud, misrepresentation, or arbitrariness.

Separate Judgments:

M/s. Maral Lab (W.P.No. 24147 of 2013):
The court found a significant difference between the income declared and the additional income determined by the Settlement Commission. The total income declared was ?13,91,45,419, while the Commission determined it to be ?19,46,08,786, indicating an 81% increase. This discrepancy led the court to conclude that there was no true and full disclosure by the respondent, and the application should have been dismissed.

Madras Pharmaceuticals (W.P.No. 24179 of 2013):
The court noted a similar pattern of discrepancies. The total income declared was ?18,49,20,580, while the Commission determined it to be ?24,44,20,722, showing a 51.5% increase. The court concluded that the respondent did not make a full and true disclosure, and the application should have been dismissed.

M/s. Accent Pharma (W.P.No. 24278 of 2013):
The court observed that the total income declared was ?5,05,69,810, while the Commission determined it to be ?7,98,86,514, indicating a 100% increase. The court found that the respondent's disclosure was not full and true, and the application should have been dismissed.

Conclusion:
The court allowed all three writ petitions filed by the Commissioner of Income Tax, quashing the orders of the Settlement Commission. It concluded that the respondents did not make full and true disclosures of their income, and the Settlement Commission exceeded its jurisdiction by reassessing the income. The applications should have been dismissed due to non-compliance with Section 245C of the Income Tax Act, 1961.

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