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2021 (12) TMI 1033 - HC - Income TaxValidity of Settlement Commission order - Settlement Commission rejected the petitioner's settlement application, at the first stage itself - reason to reject the application is one, being the manner of earning the undisclosed income has not been satisfactorily explained - HELD THAT - As decided in AJMERA HOUSING CORPORATION ANR. ETC. VERSUS COMMISSIONER OF INCOME TAX 2010 (8) TMI 35 - SUPREME COURT burden cast upon the declarant is only to make a full and true disclosure. To make a disclosure and to prove that fact are two different things. In the nature of proceedings before the Settlement Commission, at the first stage, as laid down by the Supreme Court, it is only the factum of disclosure that is to be ascertained. In the present case, there is no denial of the fact that such a disclosure had been made by the petitioner. All that remains to be examined is whether the same was true and full in the eyes of the Settlement Commission. To test whether the disclosure made was true and full, the Settlement Commission was only obligated to record a satisfaction. Again, a satisfaction is different and distinct from a concrete finding of fact or law. The decision of the Supreme Court only uses the word 'satisfaction' and not finding. The satisfaction to be recorded is only an expression of a tentative opinion to entertain an application or to allow it to be processed further. Such a satisfaction does not and it could not determine either the rights of the parties to any extent or limit the options of the Settlement Commission to reach a different conclusion i.e. to reject the application either in part or in entirety, at a later stage. Unless the application filed is found to be wholly bogus or unfounded on facts or law, there may remain less reason to reject such applications outrightly. In the facts of the present case, the petitioner had supported his claim and the Settlement Commission had not reached a conclusion that the disclosure made was not full or true inasmuch as the quantification was not in dispute at that stage. The truthfulness of the disclosure made may be said to have been not believed by the Settlement Commission inasmuch as there are observations disbelieving the manner of acquiring the declared income. In that regard, the petitioner had supported the disclosures with material in the shape of income tax returns, bank statements and another documents pertaining to the business entity M/s SIB International with respect to disclosure of undeclared income of ₹ 1 crore 25 lakhs. It had also brought on record the will deed, the affidavit of the attesting witness and also the invoices of sale and purchase of jewellery etc. in support of the disclosure arising from the jewellery business. These materials have not been considered at all by the Settlement Commission while recording a satisfaction in the negative, to reject the application filed by the petitioner. We find no reason to endorse such an approach adopted by the Settlement Commission inasmuch as at that stage of the proceedings, there was no material to discard such evidence relied upon by the petitioner. The Settlement Commission had no basis to overlook the evidence produced by the petitioner. It would be one thing if the Settlement Commission after considering the same had recorded any conclusion disbelieving the same for cogent reasons. That having not been done, the order of the Settlement Commission can neither be described as reasoned nor it can be said to be based upon consideration of material on record. In fact, to that extent, it suffers from a non application of mind. Disclosure of income of cash observations made by the Settlement Commission are self contradicted. In the first place, the application could not be thrown out at the threshold on the reasoning that the petitioner had not made any disclosure of such income before filing an application before the Settlement Commission. In fact, if the petitioner had disclosed such income in any earlier proceeding it may have been a ground to record such negative satisfaction to disallow the application to proceed because the petitioner had already disclosed such income in any proceeding under the Act. Here, according to the Settlement Commission, the petitioner did not disclose the income either during search proceedings or during the investigation carried out after the search or in response to the notice issued under Section 153 (A) of the Act. To that extent, the reasoning of the Settlement Commission is clearly erroneous in law. As to the further reasoning offered by the Settlement Commission that the petitioner had not explained the manner of acquiring the income (cash and jewellery), the Settlement Commission has again failed to take into consideration the effect of the Memorandum of Agreement and the further claim of the petitioner that the signatories to that agreement (who had contributed ₹ 10.5 crores to set up a new business) had disowned that amount, subsequent to that search. Prima-facie , there is merit in the submissions advanced by learned Senior Counsel for the petitioner that by virtue of Section 132 (4A), Section 56 (2) (vii) and Section 292 (C), the presumption in law arose as a consequence of the action/inaction of the third party in not claiming the cash seized at the petitioner s hands as may be treated as her income. Without drawing any final conclusion to that, we find that the said aspect has not been examined and has been completely overlooked by the Settlement Commission. Settlement Commission appears to have remained in some doubt about the aspect of the matter inasmuch as its observation on the issue are hypothetical and plural. It has thus tried to weigh between two hypothetical possibilities of the money belonging to the third party and, the money belonging to the petitioner. The approach taken by the Settlement Commission cannot be endorsed or appreciated. It is expected from the Settlement Commission to form clear opinion on facts, even at the stage of admission. Accordingly, the order passed by the Income Tax Settlement Commission, Additional Bench-II, New Delhi is hereby set aside.
Issues Involved:
1. Legality of the summary rejection of the settlement application by the Income Tax Settlement Commission. 2. Adequacy of the explanation provided by the petitioner regarding the manner of earning undisclosed income. 3. Procedural correctness of the Settlement Commission's decision-making process. Issue-Wise Detailed Analysis: 1. Legality of the Summary Rejection of the Settlement Application by the Income Tax Settlement Commission: The petitioner challenged the order dated 27.09.2018 by the Income Tax Settlement Commission, which summarily rejected her settlement application under Section 245(D)(1) of the Income Tax Act, 1961. The rejection was based on the ground that the manner of earning the undisclosed income was not satisfactorily explained. The court observed that the Settlement Commission's role at this stage is to ascertain whether the declarant has made a "true and full disclosure" of undisclosed income and the manner of its derivation. The Supreme Court's decision in Ajmera Housing Corporation vs. Commissioner of Income Tax was cited, which mandates that the Settlement Commission must record its satisfaction on these aspects before proceeding further. The court found that the Settlement Commission prematurely terminated the proceedings without forming a definite opinion on the prima facie case set up by the petitioner. 2. Adequacy of the Explanation Provided by the Petitioner Regarding the Manner of Earning Undisclosed Income: The petitioner disclosed three sources of her undeclared income: business income from M/s SIB International, income from jewellery designing, and a Memorandum of Agreement for a new business venture. The Settlement Commission rejected the application, stating that the petitioner did not satisfactorily explain the manner of earning the income. The court noted that the petitioner had provided supporting documents, including income tax returns, bank statements, and a will deed, which were not adequately considered by the Settlement Commission. The court emphasized that at this stage, the Settlement Commission's role is to form a tentative opinion based on the material provided, not to make a conclusive finding. 3. Procedural Correctness of the Settlement Commission's Decision-Making Process: The court criticized the Settlement Commission for not considering the evidence provided by the petitioner and for making hypothetical observations. The court highlighted that the Settlement Commission should have formed a clear opinion based on the material on record, even if it was tentative. The court found that the Settlement Commission's approach was flawed as it acted on doubts and probabilities rather than on a definite opinion. The court also noted that the Settlement Commission's reasoning was self-contradictory, particularly regarding the cash discovery, and failed to consider the legal presumptions arising under Sections 132(4A), 56(2)(vii), and 292(C) of the Income Tax Act. Conclusion: The court set aside the order dated 27.09.2018 passed by the Income Tax Settlement Commission and remitted the matter for a fresh decision in accordance with the law. The court directed that the matter be placed before the Interim Board for further proceedings, given that the Settlement Commission had been disbanded. The court emphasized the need for expeditious handling of the matter.
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