2013 (6) TMI 574 - HC - Income Tax

Validity of order passed by the Settlement Commission u/s 245D - validity of application moved for settlement of cases - whether the Commission bound to consider whether there has been a full and true disclosure at the stage of a proceeding under sub-section 2C of Section 245D - Held that - Error in the order of the Commission in the present case lies in permitting the application for settlement of cases to proceed without that satisfaction being recorded by the Commission, which is a fundamental aspect which goes to the root of its jurisdiction to entertain an application under Section 245C. The Commission has proceeded on the basis that at this stage it cannot hold a view that the income offered in the statement of facts is not a true and full disclosure. In the same vein, the Commission was of the view that the subject of true and full disclosure is open for examination in the proceedings under subsection 4 of Section 245D. In holding this, the Commission has moved over to the stage of Section 245D(4) without entering upon the fundamental issue as to whether the application was or was not invalid. This exercise had to be carried out by the Commission at the stage of the proceedings under sub-section 2C of Section 245D on the basis of the report submitted by the Commissioner and after hearing the applicant. The Commission has abdicated the discharge of that obligation at that stage, by deferring its consideration at a later stage. The Commission, thus was completely in error in holding that unless it is established by a competent authority that the purchases are all bogus, that the application at this stage could not be held to be invalid, though the department may have in its possession certain evidence indicating the fact that the income has not been truly and fully disclosed, or that the quantum of income disclosed in the application in comparison to the claim of the department is meager. The Commission could not have declined to determine as to whether the application fulfilled the requirements or prerequisites of a valid application under Section 245C(1). The Commission has to consider as to whether or not the application is invalid. Thus the impugned order of the Settlement Commission is unsustainable and would have to be quashed and set aside.

Summary

Issues Involved:
1. Validity of the Settlement Commission's order under Section 245D of the Income Tax Act, 1961.
2. Requirement of true and full disclosure of income and the manner in which it was derived under Section 245C(1) of the Income Tax Act.
3. Jurisdiction of the Settlement Commission to proceed with an application under Section 245C(1).

Issue-wise Detailed Analysis:

1. Validity of the Settlement Commission's order under Section 245D of the Income Tax Act, 1961:
The Revenue challenged the validity of the Settlement Commission's order under Section 245D. The Commission had allowed the application of the Second Respondent to proceed without determining whether the application was invalid as per Section 245D(2C). The Commission deferred this consideration to a later stage under Section 245D(4), which was deemed incorrect by the court. The court emphasized that the Commission must determine the validity of the application at the stage of Section 245D(2C) based on the report submitted by the Commissioner and after hearing the applicant.

2. Requirement of true and full disclosure of income and the manner in which it was derived under Section 245C(1) of the Income Tax Act:
The court highlighted that Section 245C(1) mandates an application to contain a full and true disclosure of income not disclosed before the assessing officer, the manner in which such income was derived, and the additional amount of income tax payable. The Commission's jurisdiction to proceed can only be invoked on the basis of an application that complies with these requirements. The court referred to the Supreme Court's decision in Ajmera Housing Corporation, which reiterated the necessity of full and true disclosure for a valid application under Section 245C(1).

3. Jurisdiction of the Settlement Commission to proceed with an application under Section 245C(1):
The court explained that the Settlement Commission is a statutory body with its jurisdiction defined by the statute. The Commission must adhere to the statutory provisions and cannot proceed with an application unless the jurisdictional requirements under Section 245C(1) are fulfilled. The court noted that the Commission had erred in allowing the application to proceed without being satisfied that the application met the prerequisites of a valid application. The Commission's role is to ensure that the application is not invalid at the stage of Section 245D(2C) before proceeding further.

Conclusion:
The court quashed and set aside the impugned order of the Settlement Commission dated 9 November 2012 and restored the proceedings back to the Commission for reconsideration in terms of the observations contained in the judgment. The court emphasized the importance of the Commission determining the validity of the application at the appropriate stage and ensuring compliance with the statutory requirements for a valid application under Section 245C(1).