2017 (9) TMI 188 - HC - Income Tax

Prerequisite for an application u/s 245C(1) - Application to settlement commission - proof of full and true disclosure of income - sufficient details available suggesting full and complete disclosure - dealing in land transactions on behalf of others - failure to establish the identity of the third parties - Held that - In the order dated 26.09.2016, the Settlement Commission has found that there was no full and complete disclosure of income so as to entertain an application for settlement. Based on the report of the Principal Commissioner of Income Tax, it was found that though the applicant sought to disclose the income of ₹ 32 crores through the application, in fact the income that ought to have been disclosed was ₹ 85 crores (rounded off). The finding of fact was arrived at by the Commission holding that in absence of full and true disclosure at the hands of the assessee, the application did not merit consideration. We do not find any reason to interfere in view of the narrow scope of judicial review to substitute our wisdom for the one taken by the Settlement Commission. The petition is, therefore, dismissed.

Summary

Issues Involved:
1. Challenge to the order of the Settlement Commission.
2. Alleged violation of principles of natural justice.
3. Full and true disclosure of income by the petitioner.
4. Examination of the manner of income derivation.
5. Judicial review under Article 226 of the Constitution.

Detailed Analysis:

1. Challenge to the order of the Settlement Commission:
The petitioner challenged the order of the Settlement Commission dated 29.09.2016, which was passed under section 245D(4) of the Income Tax Act, 1961. The petitioner, a labour contractor and broker, had faced a survey under section 133A, revealing unaccounted business dealings and income. The petitioner filed an application under section 245C, disclosing an income of ?32.60 crores for the assessment years 2007-08 to 2013-14. However, the Settlement Commission rejected the application, stating that the petitioner failed to make a full and true disclosure of the undisclosed income.

2. Alleged violation of principles of natural justice:
The petitioner contended that the Settlement Commission violated the principles of natural justice by not providing sufficient opportunity and time after filing the Rule 9 report. Specifically, the petitioner argued that the statement of Shri Hitesh Savani, recorded on 11.03.2015, was not provided, nor was Shri Savani offered for cross-examination. The court observed that at no point during the hearings did the petitioner request a copy of the statement or cross-examination, making the contention an afterthought.

3. Full and true disclosure of income by the petitioner:
The Principal Commissioner of Income Tax reported that the petitioner had not made a full and true disclosure of unaccounted income. The Rule 9 report revealed that the additional unaccounted income detected was ?85.77 crores, significantly higher than the disclosed ?32.60 crores. The Settlement Commission found discrepancies in the petitioner's claims, including the denial by Shri Hitesh Savani of any involvement in land transactions, and the lack of evidence to support the petitioner's claims of third-party transactions.

4. Examination of the manner of income derivation:
The petitioner explained income derivation through buying and selling immovable properties and managing third-party funds. However, the Principal Commissioner found the disclosure unsupported by material evidence. The Settlement Commission observed that the petitioner failed to establish the identity of third parties involved in the transactions. For instance, the claim of dealings on behalf of Shri Vince Patel lacked sufficient details and confirmations, leading to the conclusion that the transactions did not relate to third parties.

5. Judicial review under Article 226 of the Constitution:
The court emphasized the limited scope of judicial review under Article 226 concerning Settlement Commission orders. The court cited precedents, noting that interference is warranted only if the order is contrary to statutory provisions, involves bias, fraud, or malice, or violates principles of natural justice. The court found that the Settlement Commission's decision-making process was not flawed and that the petitioner did not make a full and true disclosure of income. Consequently, the court dismissed the petition, upholding the Settlement Commission's order.

Conclusion:
The court concluded that the petitioner failed to make a full and true disclosure of income, as required under section 245C of the Income Tax Act. The Settlement Commission's decision was based on substantial evidence, and there was no violation of principles of natural justice. The court dismissed the petition, affirming the narrow scope of judicial review in such matters.