2013 (9) TMI 896 - HC - Income Tax

Correctness of order of Settlement commission passed u/s 245D of the Income Tax Act Held that - With some hesitation, we record that the order under challenge is cryptic and is not focused on the issues and contentions, which were raised by the petitioners and by the Commissioner. - The Settlement Commission has rejected the applications for all assessment years, without referring to facts and issues relating to each year. Revenue accepted that there were some factual errors in the impugned order like opening and closing stock were on record, and accepts that the Commissioner had not objected to inflation of stock issue. However, he has submitted that assessment proceedings under Section 153A read with Section 143(3) are pending and all issues and questions can be thrashed out and decided there. - The submission of the revenue cannot accepted as the petitioners have a right to invoke jurisdiction of the Settlement Commission, which is provided under the statute, i.e., Income Tax Act. The petitioners must come clean and be honest and admit their faults and cannot but declare their true and full undisclosed income. However, their plea and explanation that their declarations are genuine and truthful, cannot be rejected without a legitimate and fair consideration - The matter is remanded to the Settlement commission again.

Summary

Issues:
Challenging common order of Income Tax Settlement Commission under Section 245D(2C) of the Income Tax Act, 1961 through writ jurisdiction under Articles 226 and 227 of the Constitution of India.

Analysis:
The two sister concerns invoked writ jurisdiction to challenge a common order passed by the Income Tax Settlement Commission. The Settlement Commission's order was based on applications filed under Section 245C of the Income Tax Act for Assessment Years 2005-06 to 2012-13. The Commissioner of Income Tax submitted reports, and hearings were conducted with the petitioners. The Settlement Commission found discrepancies in the applicants' accounts, including stock discrepancies and income suppression. The petitioners argued that the Settlement Commission erred in dismissing their applications without proper consideration of their submissions and facts presented.

The petitioners were subjected to searches by the Central Excise and Income Tax Departments. Previous orders by the Customs and Central Excise Settlement Commission quantified unaccounted manufactured items for one concern and disclosed unrecorded turnover for the other. The main dispute revolved around the gross profit rate to be applied on the declared turnover. The petitioners declared a GP rate of 10.21%, while the Revenue claimed 25% was appropriate. The Settlement Commission's order was criticized for not focusing on the issues raised and failing to consider the contentions of both parties.

The High Court noted that the Settlement Commission's order was cryptic and lacked a focused analysis of the raised issues. The order did not reflect upon the facts and disputes between the parties. The Court emphasized the importance of a thorough consideration of contentions before passing an order under Section 245D(2C). The Court set aside the impugned order and remanded the case for a fresh decision, directing the Settlement Commission to deal with the application in accordance with the law. The decision emphasized the need for a fair and legitimate consideration of the petitioners' declarations before forming an opinion on undisclosed income.