2016 (11) TMI 1257 - HC - Income Tax

Settlement Commission order validity - Held that - It is not open to the petitioners to argue that the Income Tax Department or the Settlement Commission ought to be only concerned with the income tax to be collected on the income disclosed and not the nature of the transactions even if they amounted to a criminal act. The provisions of Section 245C make it very clear that not only full and true disclosure of income has to be made but also the manner in which the income has been derived. It is true that grounds of criminality may not lead to a situation where the Settlement Commission shall refuse to go ahead with the settlement, otherwise there would have been no occasion to confer upon it powers under Section 245H to grant immunity from prosecution and penalty, but the same does not mean that the applicant before the Settlement Commission can choose to evade the requirement of disclosing the manner in which the income has been derived. The only fact that has been admitted by the respondents even in the counter affidavit is that the source of income of the petitioners is from the BCCL. This Court does not find any cogent material produced by the petitioners with regard to the manner in which the income has been derived and thus we see no reason to consider the conclusion of the Commission as suffering from any infirmity. For the aforesaid reasons we also do not find any substance in the submission of learned counsel for the petitioners that the Settlement Commission has shirked its responsibility by leaving it to the Assessing Officer to decide the issue on the same facts. Since the basic requirements of Section 245C have been found to have been not met by the Settlement Commission in view of the materials before it, there could have been no question of the Settlement Commission to have proceeded further in the matter except to reject the applications of the petitioners.

Issues Involved:
1. Validity of Settlement Applications under Section 245C of the Income Tax Act.
2. Full and True Disclosure of Income.
3. Disclosure of the Manner in which Income was Derived.
4. Payment of Additional Tax and Interest.
5. Jurisdiction and Authority of Settlement Commission.
6. Confidentiality and Use of Information Disclosed to the Settlement Commission.
7. Procedural Compliance and Natural Justice.

Detailed Analysis:

1. Validity of Settlement Applications under Section 245C of the Income Tax Act:
The Settlement Commission rejected the settlement applications filed by the petitioners, holding that the applications did not meet the requirements of Section 245C. The applications were deemed invalid as the petitioners failed to make a full and true disclosure of their income and the manner in which it was derived. The Commission emphasized that the applications lacked the necessary compliance with the statutory provisions, particularly the payment of additional tax and interest.

2. Full and True Disclosure of Income:
The Settlement Commission found that the petitioners did not make a full and true disclosure of their income. The report under Section 245D(3) revealed that the total turnover of the petitioners was significantly higher than what was disclosed in their applications. The petitioners had not accounted for substantial amounts of income, leading to the conclusion that they had not made a full and true disclosure. The Commission noted that the petitioners had followed the mercantile system of accounting in their returns but presented their applications on a cash basis, which was inconsistent and led to non-disclosure of a significant portion of their income.

3. Disclosure of the Manner in which Income was Derived:
The Commission also held that the petitioners failed to disclose the manner in which their income was derived. The petitioners claimed to have received income from BCCL through contracts, but the Commission found that the nature of the transactions and the high-profit margins suggested otherwise. The Commission was not satisfied with the explanation provided by the petitioners regarding the manner in which the income was derived, leading to the rejection of the applications.

4. Payment of Additional Tax and Interest:
The petitioners did not comply with the requirement of paying additional tax and interest on the disclosed income before filing the settlement applications. They sought adjustment of the seized amounts towards the tax and interest payable, which was not in line with the statutory provisions. The Commission noted that the petitioners had not attached proof of payment of additional tax and interest with their applications, which was a mandatory requirement under Section 245C.

5. Jurisdiction and Authority of Settlement Commission:
The Settlement Commission exercised its jurisdiction to determine the validity of the applications under Section 245D(2C) and Section 245D(4). The Commission held that the applications were invalid due to non-compliance with the statutory requirements. The Commission's decision was based on the reports submitted by the Commissioner and the material on record, which indicated that the petitioners had not made a full and true disclosure of their income and the manner in which it was derived.

6. Confidentiality and Use of Information Disclosed to the Settlement Commission:
The petitioners argued that the information disclosed to the Settlement Commission was confidential and should not be used against them if the applications were rejected. However, the Commission noted that the petitioners had already disclosed their income in their returns filed under Section 153A and 139, and the additional information was obtained through the Department's investigation. The Commission found no merit in the petitioners' argument regarding the confidentiality of the disclosed information.

7. Procedural Compliance and Natural Justice:
The petitioners contended that the Commission had violated the principles of natural justice by rejecting their applications without proper consideration. However, the Commission followed the due process, including calling for reports from the Commissioner and providing the petitioners with an opportunity to respond. The Commission's decision was based on the material evidence and reports submitted during the proceedings, ensuring compliance with procedural requirements.

Conclusion:
The High Court upheld the Settlement Commission's decision to reject the settlement applications filed by the petitioners. The Court found that the Commission acted within its jurisdiction and authority, and there was no procedural defect or violation of natural justice. The petitioners failed to meet the statutory requirements of making a full and true disclosure of their income and the manner in which it was derived, and they did not comply with the payment of additional tax and interest. The writ applications were dismissed, affirming the Commission's order.

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