2009 (7) TMI 744 - HC - Income Tax

Settlement of cases - The application u/s 245C was made disclosing an additional income of Rs. 1.94 crores. Before the order of admission was passed the assessee revised its earlier application with confidential annexure disclosing an additional income of Rs. 11.41 crores. In fact, this was revision of the original application and therefore, the revised application should have been sent to the Commissioner for his report but this was not done and the admission order was passed. The Settlement Commission had not supplied the annexure, declaring an additional income of Rs. 11.41 crores and thus, opportunity was given to revenue to state its stand properly. Held that - it would be interest of justice to set aside the final order passed by the Settlement Commission and to remand the matter to the Settlement Commission and to remand the matter to the settlement commissioner for hearing the parties afresh and to pass order as per law.

Summary

Issues Involved:
1. True and full disclosure of income by the respondents.
2. Compliance with procedural requirements under Section 245D and related rules.
3. Consideration of undisclosed income and investments.
4. Imposition and reduction of penalty by the Settlement Commission.
5. Tenability of writ petitions under Article 226 of the Constitution.

Issue-wise Detailed Analysis:

1. True and Full Disclosure of Income by the Respondents:
The Revenue contended that the respondents failed to make true and full disclosure of their undisclosed incomes in their initial applications under Section 245C. Initially, the respondents disclosed an additional income of Rs. 1.94 crores, which was later revised to Rs. 11.41 crores and further increased by Rs. 2.76 crores and Rs. 7 crores. The court noted that the respondents made piecemeal disclosures and additional offers, indicating that they had not made full and true disclosures as required under Section 245C(1).

2. Compliance with Procedural Requirements under Section 245D and Related Rules:
The Revenue argued that the revised confidential annexure dated September 19, 1994, was never made available to the Commissioner of Income-tax, violating Rule 9 of the Settlement Commission (Procedure) Rules. The court found substance in this contention, noting that non-furnishing of the revised application and confidential annexures to the Commissioner amounted to a violation of Rule 9, which deprived the Revenue of sufficient opportunity to contest the application.

3. Consideration of Undisclosed Income and Investments:
The Settlement Commission's final order did not take into account a substantial amount of unexplained expenses, loans, and surplus money, totaling more than Rs. 14 crores. The court highlighted that the Settlement Commission failed to consider these amounts while assessing the total undisclosed income of the respondents, which needed better explanation and consideration.

4. Imposition and Reduction of Penalty by the Settlement Commission:
The Settlement Commission imposed a token penalty of Rs. 50 lakhs against the minimum leviable penalty of Rs. 562.87 lakhs, citing the respondents' cooperation in the proceedings. The court found this reduction to be arbitrary and lacking justification, especially given that the respondents had not made true and full disclosure at any stage. The court emphasized that the power to reduce the penalty under Section 245H must be exercised judiciously and not arbitrarily.

5. Tenability of Writ Petitions under Article 226 of the Constitution:
Initially, the respondents contended that writ petitions under Article 226 were not tenable, arguing that the Settlement Commission's purpose was to finally settle disputes. However, after discussion, the respondents did not press this point, and the court did not enter into this question at length. The court proceeded to hear the matter on its merits.

Conclusion:
The court found that the respondents had not made full and true disclosure of their income and that the Settlement Commission had misdirected itself on several important aspects. The final order of the Settlement Commission was set aside, and the matter was remanded back to the Settlement Commission for fresh hearing and disposal within six months. The court directed the parties to appear before the Settlement Commission on August 3, 2009.