2017 (1) TMI 1286 - HC - Income Tax

Scope of order u/s 245(D)(4) passed by the Income Tax Settlement Commission - application for settlement under Section 254(D)(4) rejected on the ground of failure to make a full and true disclosure in the application for settlement - Held that - It would be evident that while reproducing, for the sake of convenience the case of the petitioner before the Commission, the written submission dated 11th July, 2015 is in effect extracted. However, clause (f) Speed money for getting clearances as found in the submission has been omitted in the body of the petition. The learned Counsel sought to explain the same by stating that it was not referred to in the petition as speed money expenses incurred for getting clearances are not expenses which are allowable in view of Explanation I to Section 37 of the Act. However no such explanation is offered in the petition. One would have therefore proceeded on the basis that no speed money expenses were estimated while working out the estimated expenditure out of on money received. The petitioner must disclose all material facts even if not favourable to him. It is not open to the petitioner to selectively disclose facts and suppress some facts and yet seek extra ordinary remedy of a prerogative writ. As pointed out above, one of the heads of expenses claimed before the Commission for arriving at estimated expenses is the amount paid as speed money . Thus it was a material fact. The degree of materiality is of no consequence and once the court comes to the view that the non-disclosure was deliberate and possibly made with a view to present a picture different from what existed before the Commission, this Court will not exercise its writ jurisdiction. Therefore, the petitioner has not come with clean hands. In the present case, we are of the view that there was suppression of facts in the petition which was material to the issue at hand. Therefore, we see no reason to entertain this petition on the above ground also.

Summary

Issues involved:
Challenge to order rejecting settlement application under Section 245(D)(4) of the Income Tax Act, 1961 based on failure to make full and true disclosure of income and manner of earning income.

Detailed Analysis:
1. The petitioner challenged the order rejecting its settlement application under Section 245(D)(4) of the Income Tax Act, 1961, citing lack of full and true disclosure in the application. The impugned order pointed out three specific claims where disclosure was lacking: money received, estimated expenses, and entitlement to Section 80IB benefits. However, the order ultimately rejected the application on the grounds of inadequate disclosure of income and the manner in which it was earned, as required by Section 245C(1) of the Act. The petitioner did not challenge the finding related to the manner of earning income, which was a crucial aspect of the rejection.

2. The impugned order highlighted the petitioner's failure to disclose the manner of earning income for specific assessment years, which was deemed essential for a valid settlement application under Section 245C(1). The court emphasized that even if an application is initially declared valid, subsequent non-disclosure of true and full information can lead to rejection. The petitioner's challenge to the lack of full and true disclosure was deemed academic due to the unchallenged rejection based on inadequate disclosure of the manner of earning income.

3. The petitioner attempted to justify unaccounted expenses in its business, including payments to slum dwellers and other related costs, as necessary for the business to function. However, discrepancies were noted in the petitioner's submissions regarding expenses, particularly the omission of "speed money" expenses for clearances in the petition. The court emphasized the obligation of utmost good faith in disclosure, highlighting the importance of disclosing all material facts, even if unfavorable, when seeking extraordinary remedies like a prerogative writ.

4. The court concluded that the petitioner failed to come with clean hands due to material facts being suppressed, leading to a distorted presentation before the Commission. As a result, the petition was dismissed on multiple grounds, including the lack of full and true disclosure of income and the manner of earning income, as well as the petitioner's failure to act in utmost good faith. The Assessing Officer was directed to proceed with the assessment of the petitioner in accordance with the law.