2019 (3) TMI 702 - HC - Income Tax

Settlement Commission applications u/s 245(D)(1) - whether or not the disclosure was full and true - Pr. CIT submitted a report u/s 245D(2B) nowhere directly or indirectly indicated that the income disclosed by the petitioner is not full and true - Settlement Commission permited the CIT (DR) to raise objections to the admission of the application and more so in permitting him to go beyond the report - decision making process of the Settlement Commission - permitting the Principal Commissioner to supplement the report submitted by the Commissioner by way of oral submissions - permission to raise objection to the admission of the application and be heard before the assessee and too, to supplement an incomplete report on the basis of the material and evidences on record - preliminary report based on prima-facie findings recorded by the Principal Commissioner or Commissioner HELD THAT - What the Principal Commissioner was required to do was to record on the basis of the inquiry made by her as to whether or not the disclosure was full and true. In the absence of any such opinion having been expressed that there was no full and true disclosure, it was not permissible for the CIT(DR) to make supplementary submissions to contend that there was no full and true disclosure. Since the Principal Commissioner had found that it was not possible at this stage to comment on the adequacy of the additional taxes as well as other facts as recorded hereinabove, it is evident that all these facts could have been brought on record either by way of submission by the CIT(DR) at the stage to section 245D(4) or in the nature of the report as contemplated under sub-section (3) of section 245D of the Act, if so called for by the Settlement Commission. However, on the basis of such comments made by the Principal Commissioner in the report under sub-section (2C) of section 245D of the Act, the revenue could not have been permitted to object against the admission of the application by way of supplementary arguments made by the CIT(DR) with reference to the record as well as other evidence of the case. The Settlement Commission was, therefore, not justified in permitting the Principal Commissioner to supplement the report submitted by the Commissioner by way of oral submissions which were beyond the contents of the report. At best, if the applicant had made submissions in respect of the report, the Commissioner may have been permitted to deal with the same, but under no circumstances could the Commissioner be permitted to raise objection to the admission of the application and be heard before the assessee and that too, to supplement an incomplete report on the basis of the material and evidences on record. As already discussed hereinabove, any hearing based upon the material and evidences on record is contemplated at the stage of 245D(4) of the Act and insofar as sub-section (2C) of section 245D of the Act is concerned, the same contemplates a decision solely on the basis of the report of the Commissioner. As noticed earlier, insofar as the record of the case and other evidence is concerned, the same is required to be taken into consideration at the stage of section 245D(4) of the Act whereas insofar as the order under section 245D(2C) of the Act is concerned, the same is required to be made on the basis of the report. In the light of the above discussion, the impugned order passed by the Settlement Commission being in breach of the provisions of section 245D(2C) of the Act and also being in breach of the principles of natural justice inasmuch as at the stage of section 245D(2C) of the Act, the Settlement Commission has placed reliance upon material other than the report, cannot be sustained. The petitions, therefore, succeed and are accordingly, allowed.

Summary

Issues Involved:
1. Admissibility of the Settlement Application under Section 245D(2C) of the Income Tax Act.
2. Scope of hearing and consideration of the report by the Settlement Commission.
3. Compliance with principles of natural justice.

Issue-wise Detailed Analysis:

1. Admissibility of the Settlement Application under Section 245D(2C) of the Income Tax Act:
The petitions arose from a common order by the Income Tax Settlement Commission, which rejected the applications under Section 245D(2C) of the Income Tax Act. The petitioner argued that the Settlement Commission erred in rejecting the applications based on factors not mentioned in the Principal Commissioner's report. The Principal Commissioner had not explicitly stated that the income disclosed was not full and true, thus the Settlement Commission should not have rejected the application.

2. Scope of Hearing and Consideration of the Report by the Settlement Commission:
The petitioner contended that Section 245D(2C) mandates the Settlement Commission to pass an order based solely on the Principal Commissioner's report. The Settlement Commission, however, considered objections raised by the Commissioner of Income-tax (Departmental Representative) [CIT (DR)], which were beyond the report. The petitioner argued that the CIT (DR) should not have been allowed to raise objections or introduce new arguments not contained in the report. The Settlement Commission's decision should be based on the report's contents, and any new factual arguments should be addressed at a later stage under Section 245D(4).

3. Compliance with Principles of Natural Justice:
The petitioner argued that the Settlement Commission violated the principles of natural justice by considering objections and arguments not included in the Principal Commissioner's report. The petitioner was not prepared to respond to these new arguments, which were introduced without prior notice. The Settlement Commission's process should have allowed the petitioner to address only the contents of the report. The court held that the Settlement Commission's decision-making process was flawed as it went beyond the report and considered additional objections from the CIT (DR), which was not permissible under Section 245D(2C).

Conclusion:
The court quashed the impugned orders of the Settlement Commission, holding that the Commission had violated Section 245D(2C) by considering objections outside the Principal Commissioner's report and not adhering to the principles of natural justice. The applications were restored to the Settlement Commission at the stage of Section 245D(2C) for fresh consideration within fifteen days, without being influenced by the previous findings. The operation of this judgment was stayed for four weeks to allow the respondents to approach a higher forum.