2023 (2) TMI 389 - HC - Income Tax

Settlement of a Case - receipt of the application u/s 245C(1) - Procedure u/s 245D - Whether full and true disclosure of income while making application under Section 245(C)? - HELD THAT - A full and true disclosure of income, which had not been previously disclosed by the assessee, being a precondition for a valid application under Section 245(C-1) of the Act, the scheme of Chapter XIX-A does not contemplate revision of the income so disclosed in the application against item No. 11 of the form. By revising the application, the applicant would be achieving something indirectly what he cannot otherwise achieve directly and, in the process, rendering the provision of sub-section (3) of Section 245C of the Act otiose and meaningless. Apart from inadequate disclosure made in the application (SOF), in our opinion, the mere fact that the applicant had sought to revise his income by means of rectification application is demonstrative of the fact that he had not made a full and true disclosure of income, hence the application was bound to be rejected on this ground alone. The above facts clearly demonstrate that the respondents had not made a full and true disclosure before the Settlement Commission. The Settlement Commission should have noticed and examined the fact itself, as it is a pre-condition for an application under section 245C of the Act of 1961 that the applicant makes a true and full disclosure of their income which has not previously been disclosed, or at subsequent stage when further disclosure was brought to their notice at the time of filing of the application for rectification. Accordingly, we are of considered view that the application before the Commission deserved to be rejected as the respondents had not made true and full disclosure of their undisclosed income. This issue is decided in favour of the petitioner. Jurisdiction of the Settlement Commission - Validity of order of settlement commission adjusting the receipts in the account of DR A.K. Sanchan toward the income of applicants - Manipulation by the respondents and the two assessees who were not before the Commission but were part of search seizure operation is evident from the fact that appeal was filed by Dr A. K. Sachan before the Commissioner (Appeal) against the assessment order. The Commissioner (Appeals) set aside the assessment order relying on the impugned order passed by the Settlement Commission. This clearly demonstrates that benefit was granted to entities from the impugned order who were not even before the Commission. Further the order passed by the Commission was still under challenge before this Court. Therefore the manner in which the Commission has proceeded is questionable and is accordingly the impugned order is liable to be set aside. Transparency, fairness, giving reasonable opportunity and adherence to the prescribed procedure are some of the hallmarks of a judicial determination. Absence of any one of them will render an order nullity and invite interference of the High Court exercising its jurisdiction under Article 226 of the Constitution of India. The Commission by not considering the reply of the petitioner/department, by considering and dealing with regards to income of an individual who is not before it and redistributing the same, not considering the objection of the department that the said income has already been assessed during regular proceedings, has clearly proceeded in violation of statutory provisions and has misdirected itself and we have no hesitation is holding the impugned orders to be illegal and arbitrary. Power of the Commission to rectify its orders as per section 245D(6B) - Having noticed the manner in which the Commission has proceeded in the present case without following the basic principles of judicial determination like affording proper opportunity of hearing, duly considering the submissions of parties, we deem it proper to observe that the Settlement Commission in exercise of its powers to settle a matter brought before it is endowed with the jurisdiction of the authority under the Income Tax Act. The purpose of conferment of these powers is to settle the matters concerning undisclosed income expeditiously and finally. Such an application should truthfully and fully disclose the undisclosed income. In such a situation where the applicant is granted exemption on account of the business expenses or takes benefit of any provisions of the Income Tax Act to compute total income then the Settlement Commission would be exercising the powers of the assessing authority and is duty bound to examine the claim of the applicant on the basis of evidence and material before it. The Commission while exercising power of the assessing officer will have to make necessary inquiry or it can also direct the Commissioner of Income Tax to make necessary inquiry and inform the Commission of the outcome of such inquiry. Therefore, it is abundantly clear that the Commission while settling any matter has to do the same in accordance with the provisions of the Act and where required will have to pass necessary orders giving reasons for allowing any release or exemption in favour of the applicants. Waiver off interest in favour of the respondents - The Settlement Commission, in a mechanical manner, waived off the interest without considering whether the matter of the respondents was covered by the circulars of the Board, and waiving off the interest in such a manner, which may indicate that statutory interest payable under sections 234A, 234B and 234C has also been waived which is clearly beyond the competence and jurisdiction of the Commission. Accordingly, this issue is decided in favour of the petitioner. This Court takes a very serious view of the facts placed before it and it is expected that the university concerned and the State Government shall make due inquiries and proceed appropriately against such individuals who are found indulged in blatant private practice and making profits in private companies and also being on their Boards as Directors. Let a copy of this judgment be forwarded to the Principal Secretary, Medical Education, Government of U.P and the Vice Chancellor of King George Medical University, Lucknow by the Senior Registrar of this Court for compliance.

Summary

Issues Involved:
1. Full and true disclosure of income by the applicants.
2. Validity of the Settlement Commission's order regarding undisclosed income in the accounts of Dr. A.K. Sachan.
3. Jurisdiction of the Settlement Commission in rectifying its orders.
4. Waiver of interest by the Settlement Commission.
5. Procedural fairness and adherence to statutory provisions by the Settlement Commission.

Detailed Analysis:

1. Full and True Disclosure of Income:
The petitioner argued that the respondents did not make a full and true disclosure of their unaccounted income as required by Section 245(C) of the Income Tax Act, 1961. During a search operation, Ms. Richa Mishra had surrendered Rs. 8.00 crores as undisclosed income, but the amounts disclosed before the Settlement Commission were significantly lower. The Commission accepted further undisclosed receipts of Rs. 1.20 crores during a rectification application, which indicated that the initial disclosure was not complete. The court cited the Supreme Court's judgment in Ajmera Housing Corporation, emphasizing that a full and true disclosure is a precondition for a valid application under Section 245C. The court found that the respondents had not made a full and true disclosure, and thus, the application should have been rejected.

2. Validity of the Settlement Commission's Order Regarding Dr. A.K. Sachan's Accounts:
The petitioner contended that the Settlement Commission exceeded its jurisdiction by considering the undisclosed income in Dr. A.K. Sachan's accounts as the income of the respondents. Dr. A.K. Sachan was not a party before the Commission, nor did he appear before it. The court noted that the income in Dr. A.K. Sachan's accounts had already been assessed by the Income Tax Department, and thus, it no longer remained "undisclosed income." The Commission's decision to attribute this income to the respondents was found to be arbitrary and beyond its jurisdiction.

3. Jurisdiction of the Settlement Commission in Rectifying Its Orders:
The petitioner argued that the Settlement Commission did not have the power to materially alter its initial order through a rectification application under Section 245D(6B) of the Act. The court observed that the rectification application disclosed new income of Rs. 1.20 crores, which was not permissible. The Commission's rectification order significantly altered the liabilities of the applicants, which amounted to an illegal review of its earlier order. The court held that the Commission exceeded its jurisdiction in entertaining and allowing the rectification application.

4. Waiver of Interest by the Settlement Commission:
The petitioner contended that the Commission waived off interest in favor of the respondents without considering the guidelines of the Board. The court referred to the Supreme Court's judgment in Anjum M.H. Ghaswala, which held that the Commission does not have the power to waive interest statutorily payable under Sections 234A, 234B, and 234C of the Act, except as per the Board's circulars. The court found that the Commission's waiver of interest was beyond its competence and jurisdiction.

5. Procedural Fairness and Adherence to Statutory Provisions:
The court emphasized that the Settlement Commission must adhere to principles of natural justice and consider the objections raised by the Income Tax Department. The Commission failed to consider the department's objections and did not provide reasons for its decisions, rendering its order arbitrary. The court found that the Commission acted in violation of statutory provisions and principles of natural justice, making the impugned orders illegal and arbitrary.

Conclusion:
The court allowed the writ petition, setting aside the impugned orders dated 19/22.08.2016 and 17.02.2017 passed by the Settlement Commission. The court also granted liberty to the Income Tax Department to pursue appropriate remedies against the order passed by the Commissioner of Income Tax (Appeals) in the appeal filed by Dr. A.K. Sachan. The court directed the Principal Secretary, Medical Education, Government of U.P., and the Vice Chancellor of King George Medical University, Lucknow, to take appropriate action against individuals involved in private practice contrary to their employment terms.