2024 (2) TMI 1239 - HC - Income Tax

Settlement application u/s 245C - Disclosure of full and true particulars of the income - Apportioning the undisclosed income in the hands of the petitioner and the Company - Commission, while rejecting the application of the petitioner, has held that the petitioner is the Director and Promotor/ Proprietor and Partner in multiple companies - During the course of search and seizure u/s 132, in the case of the petitioner/group, incriminating material evidencing unaccounted sales by the under-invoicing of sales receipts and collecting a part in cash was found - Commission was of the view that the petitioner had not adduced any reason or basis for apportioning the undisclosed income in the hands of the petitioner and the Company M/s Hailstone Innovations Private Limited during the course of the hearing, and no explanation came forward to explain the difference between the unaccounted sales calculated by the Principal Commissioner of Income Tax on the basis of the seized material and the unaccounted sale computed by the petitioner - Commission concluded that the petitioner had not come before the Board with clean hands and had not offered full and true particulars of his income. HELD THAT - Section 245C(1) provides disclosure of full and true particulars of the income and the manner in which that income had been derived and apportioned in order to get the settlement. As the conditions prescribed in the provisions of Section 245C(1) have not been fulfilled in the case, the application was rejected by the impugned order. As petitioner submits that the petitioner had filed an objection to the report, and it was not considered by the Settlement Commission. The detailed reply has been placed on record. This Court has gone through the reply, but this Court has been unable to discern the basis for apportionment of unaccounted sales, unaccounted expenditures and unaccounted income between the petitioner and the Company. Thus the petitioner has not approached the Settlement Commission, with his application under Section 245-C, with clean hands and has failed to disclose true and correct facts. The provisions of Chapter XIX-A of the Income Tax Act 1961 are elaborate and provide a detailed mechanism for filing the application for settlement and its disclosure. The assessee is required to file an application under Section 245-C for settlement of disputes by the Income Tax Settlement Commission. Every order of settlement passed under sub-section (4) of section 245-D is conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in Chapter XIX-A, be re-opened in any proceedings under the Act or under any other law for the time being in force. Section 245-L declares that any proceedings under Chapter XIX-A before the Settlement Commission shall be deemed to be a judicial proceeding within the meaning of Sections 193 and 228 for the purposes of Section 196 of the Indian Penal Code. Thus, Section 245 provides a complete code and prescribes finality in the orders passed by the Settlement Commission. As incumbent upon the assessee to approach the Settlement Commission with true and full disclosure of income and its sources. PCIT, in his report, has held that the petitioner did not have any basis for apportionment of expenditure and undisclosed income between him and the Company. Despite the opportunity having been granted to the petitioner during the hearing, the petitioner did not explain the basis for apportionment of unaccounted sales, expenditure and income between the petitioner and the Company. Commission has taken a correct view that the petitioner failed to disclose true and correct facts before the Commission in his application and did not approach the Commission with clean hands. No grounds to interfere with the reasoned order of the Commission.

Summary

Issues:
The judgment involves the rejection of a writ petition challenging an order passed by the Interim Board for Settlement-II under Section 245-C of the Income Tax Act 1961. The issues include the application for settlement of disputes, disclosure of income, apportionment of undisclosed income, and the requirement of approaching the Settlement Commission with clean hands.

Issue 1: Application for Settlement of Disputes
The petitioner, involved in various firms supplying machinery parts, challenged the order passed by the Interim Board for Settlement-II. The Income Tax Settlement Commission had been discontinued, but an extension was granted for filing applications. The petitioner filed an application under Section 245-C, which was rejected based on a report by the Commissioner highlighting unaccounted sales and income discrepancies.

Issue 2: Disclosure of Income
The report noted unaccounted sales and income by the petitioner and a Company, with discrepancies in tax and interest calculations. The petitioner objected to the report, but the application was rejected after multiple hearings. The Commission found the petitioner to be associated with multiple entities and responsible for under-invoicing sales receipts.

Issue 3: Apportionment of Undisclosed Income
The Commission determined undisclosed income based on project activities and apportioned a portion to the petitioner's sole proprietorship. However, the petitioner failed to provide a basis for the apportionment during the hearing, leading to the rejection of the application for settlement.

Issue 4: Approaching Commission with Clean Hands
The Court observed that the petitioner did not disclose true and correct facts, failed to explain the apportionment of income, and did not approach the Settlement Commission with clean hands. The detailed mechanism under Chapter XIX-A of the Income Tax Act requires full disclosure for settlement, which the petitioner failed to fulfill.

Conclusion:
The judgment emphasizes the importance of approaching the Settlement Commission with full disclosure of income and its sources. The petitioner's lack of explanation for income apportionment led to the rejection of the application. The Court upheld the Commission's decision, stating that the petitioner did not present true and correct facts, resulting in the dismissal of the writ petition.