2023 (11) TMI 290 - HC - Income Tax

Validity of Settlement Commission proceeding - splitting and fragmenting of unaccounted amounts between the petitioners - scope for dismissing the application based on the report filed u/s 245D(2B) read with Rule 6 of the Income Tax Settlement Commission (Procedure) Rules, 1997 - as submitted that whether the petitioners are indeed to settle their cases eventually or not has to be adjudicated by the first respondent Settlement Commission under Sub-Section 4 of Section 245D (4) of the Income Tax Act, 1961 - petitioner has offered interest under Section 234A only from 22.10.2019 when indeed, the petitioners should have offered interest from 26.11.2018 - HELD THAT - Petitioners have failed to pay tax on the unaccounted income and are recalcitrant and have shown no remorse after indulging in evasion tax. Cumulatively, these petitioners have offered only 17.79% of the gross receipt for tax before the first respondent Settlement Commission. Thus, it is clear that the petitioners have not made and full and true disclosure of the income before the first respondent, Income tax Settlement Commission . The impugned order records that during the search, meticulous accounts of the daily collection sheet containing the details of names of patients, date of collection, heads of collection and amount collected were seized from the applicant s business premises which indicated receipts received in cash and through cards for the Assessment Years 2012-13 to 2018-19. These collection sheets/folders also contain the details of investment made in immovable properties including unaccounted investment thereon. In these sheets as well as in other documents found during the search, no details of any unaccounted expenditure were found. Application before the first respondent, Settlement Commission is expected to be made in good faith with full true and disclosure. Merely because, a portion is offered without proper disclosure does not mean, the first respondent, Settlement Commission has to continue with the proceedings after it was brought to its knowledge of attempt of the petitioners to still evade tax before the Settlement Commission. The purpose for which Chapter XIX A of Income Tax Act, 1961 has been provided is to allow assesses to settle the dispute with the department by giving an opportunity to a defaulting assessee to make a clean breast of all the past lies and misdeeds by giving an opportunity to pay tax that was not paid earlier together with interest. Once there is a clear finding recorded that there was a failure on the part of the petitioners to make proper declaration as is contemplated Section 245D of the Income Tax Act, 1961, question of the first respondent, Settlement Commission proceeding further cannot be countenanced. Thus, there is no scope for allowing an application to be proceeded where a party refuses to make a correct declaration viz ., true and full disclosure of income before the Settlement Commission.

Issues Involved:
1. Validity of the impugned Notice dated 29.07.2022.
2. Rejection of applications by the Income Tax Settlement Commission.
3. Adjudication at Section 245D(2C) stage.
4. Full and true disclosure of income by the petitioners.
5. Applicability of Section 245A(a) of the IT Act post Finance Act, 2021.

Summary:

1. Validity of the Impugned Notice:
The petitioner challenged the impugned Notice dated 29.07.2022 issued by the third respondent. The applications filed by the petitioners before the Income Tax Settlement Commission were rejected, with the operative portion noting the shortfall in payment of additional taxes and failure to disclose full facts.

2. Rejection of Applications by the Income Tax Settlement Commission:
The applications under Section 245D(1) of the Income Tax Act, 1961 were dismissed by the Commission on 27.02.2020. The Commission noted the petitioners failed to disclose full and true income and did not satisfy the primary condition of payment of additional taxes with interest.

3. Adjudication at Section 245D(2C) Stage:
The petitioners argued that there cannot be an adjudication of the case at the Section 245D(2C) stage, citing the decision in M/s. Hitachi Power Europe GmbH. The court held that the plain reading of Sub-Section (2C) of Section 245D does not spell out an adjudicatory process. Each case must be decided on its own facts, and the application should not be declared invalid without proper adjudication.

4. Full and True Disclosure of Income:
The petitioners were found to have not made full and true disclosure of their income. The Commission noted that the petitioners offered only a portion of the unaccounted income unearthed during the search and failed to substantiate the claimed expenses. The court observed that the petitioners had shown no remorse after indulging in tax evasion and offered only 17.79% of the gross receipt for tax before the Commission.

5. Applicability of Section 245A(a) Post Finance Act, 2021:
The respondents argued that the petitioners are left with no remedy as Section 245A(a) of the IT Act, inserted by the Finance Act, 2021, applies only to "pending cases." Since the applications were dismissed on 27.02.2020, the petitioners' cases cannot be relegated to the Interim Board for Settlement.

Conclusion:
The court dismissed the writ petitions, noting that the petitioners failed to make a full and true disclosure of income and did not fulfill the main requirements for admission of an application under Section 245D. The court held that there was no scope for allowing an application to proceed where a party refuses to make a correct declaration of income before the Settlement Commission.

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