2018 (8) TMI 381 - HC - Income Tax

Settlement Commission - Applications for settlement u/s 245D rejected - Procedure on receipt of application - requirements to be satisfied by an assessee while making an application for settlement - whether once an order is passed under Section 245D (1), allowing the application to be proceeded with, on the ground that the application satisfied the requirements stipulated in Section 245C, the Settlement Commission is not thereafter entitled to review its own order and hold that the application cannot be proceeded with? - Held that - The conclusion reached by the Commission that there was no true and full disclosure, cannot be termed as arbitrary or without any material worth consideration. In so far as the applications of nine individuals are concerned, out of whom, eight have come up with writ petitions, the Settlement Commission rejected their applications both on the ground of deficiency in disclosure and on the ground of not crossing the threshold limits. Let us presume for a moment that the finding relating to not crossing the threshold limits under Section 245C is not correct. Even then the finding with regard to non-disclosure cannot be assailed - Settlement Commission was not satisfied that there was a true and full disclosure. Therefore, they did what they did and which they are entitled to do under sub-section (2C). When the Settlement Commission has recorded reasons, which we have extracted above, to come to the conclusion, after perusing the report of the Principal Commissioner submitted under sub-section (2B) that there was no true and full disclosure, there is no scope for any interference under Article 226 of the Constitution of India. Hence, all the writ petitions are liable to be dismissed.

Summary

Issues Involved:
1. Jurisdiction of the Settlement Commission to review its own order.
2. Requirement of true and full disclosure in settlement applications.
3. Validity of the applications under Section 245D (2C) of the Income Tax Act, 1961.
4. Procedural compliance with Sections 245C and 245D of the Income Tax Act, 1961.

Detailed Analysis:

1. Jurisdiction of the Settlement Commission to review its own order:
The petitioners argued that once the Settlement Commission decided to proceed with the enquiry into the application under Section 245D(1), it lacked jurisdiction to review its own order without an application from the respondents. The court clarified that the order under Section 245D(1) is a preliminary one and does not attain finality as it is made ex parte. The subsequent order under Section 245D(2C) after receiving the Principal Commissioner's report is not a review but an independent order. The court compared this to civil court procedures where an ex parte interim order can be revisited after hearing both parties.

2. Requirement of true and full disclosure in settlement applications:
The court emphasized that a full and true disclosure of income, which had not been disclosed before the Assessing Officer, is a statutory requirement under Section 245C(1). The Settlement Commission is empowered to declare an application invalid under Section 245D(2C) if it finds that the disclosure is not full and true. The court cited the Supreme Court's decision in Ajmera Housing Corporation, which held that full and true disclosure is a prerequisite for a valid application under Section 245C(1). The court found that the Settlement Commission's conclusion of non-disclosure was based on material evidence and was not arbitrary.

3. Validity of the applications under Section 245D (2C) of the Income Tax Act, 1961:
The court noted that the Settlement Commission rejected the applications of Maa Mahamaya Industries Ltd., GVA Industries Pvt. Ltd., and Sri Ashok Kumar Agrawal as invalid under Section 245D(2C) due to the lack of true and full disclosure. The court found that the Settlement Commission's findings were based on specific queries regarding the manner of earning income and the genuineness of the disclosed income, which were not satisfactorily answered by the petitioners. Similarly, the applications of nine individuals were rejected on grounds of deficiency in disclosure and not crossing the threshold limits.

4. Procedural compliance with Sections 245C and 245D of the Income Tax Act, 1961:
The court detailed the procedural scheme of Sections 245C and 245D, highlighting the four-stage process of adjudication under Section 245D. This includes the preliminary order under Section 245D(1), the report from the Principal Commissioner under Section 245D(2B), the order under Section 245D(2C) declaring the application invalid if necessary, and the final settlement order under Section 245D(4). The court found that the Settlement Commission followed the prescribed procedure and provided opportunities for both parties to present their cases.

Conclusion:
The court dismissed all the writ petitions, upholding the Settlement Commission's orders declaring the applications invalid under Section 245D(2C) due to the lack of true and full disclosure. The court found no procedural irregularities or arbitrary actions by the Settlement Commission and emphasized the statutory obligations of the assessees under Section 245C(1). The court also highlighted that judicial review under Article 226 of the Constitution is limited and does not extend to re-evaluating the factual findings of the Settlement Commission.