At admission stage, Settlement Commission not expected to call records invoking Section 245D(3)/Rule 9 or utilize the machinery available

At the stage of admission, Settlement Commission not expected or be compelled to utilizing the machinery available to call records invoking Rule 9 or Section 245D(3). The petitioner should satisfy the Settlement Commission that there has been full and true disclosure

ABCAUS Case Law Citation:
ABCAUS 2178 (2018) (01) HC

The Challenge/Grievance:
The petitioner had challenged the order passed by the Income Tax Settlement Commission (The Commission) passed under Section 245D(1) of the Income Tax Act, 1961 (“the Act”) whereby the petitioner’s application for settlement of his case was rejected on the ground that he failed to make full and true disclosure and also the manner of earning such income, which are the requisite conditions laid down in Section 245C(1) of the Act.

Settlement Commission power to call records u/s 245D(3)

Brief Facts of the Case:
A search proceeding under Section 132 of the Act was conducted in the offices and residential premises of the petitioner during which, materials were seized/impounded along with substantial cash from the residential premises of the petitioner. Pursuant to the search, notices under Section 153A of the Act were issued for the block assessment years. The petitioner, over and above the income returned for the relevant assessment years, admitted undisclosed income of Rs. 25 crores approx under Section 132(4) of the Act.

The first application of the Petitioner for settlement was rejected as the Settlement Commission held that the petitioner reduced the quantum of transactions as per the seized material from Rs. 357 Crores to Rs. 175 Crores not treating them transactions.

The petitioner preferred a second settlement application. In the second application, the petitioner had offered Rs. 346 crores and offered full explanation of the quantum of transactions by producing necessary documents. However the Commission did not take into consideration and rejected the second application also.

Aggrieved, the Petitioner approached the High Court and submitted that Commission did not consider the voluminous document and records provided and the explanation offered by the petitioner and rejected the application without proper consideration.

Contention made on behalf of the Petitioner:
The Petitioner contended that the Settlement Commission without forming a reasoned opinion applied the provisions of Section 292C of the Act with respect to the seized diary which was only a tentative documents that ought not to have been fully relied on by the Department, more particularly, when the petitioner had made extensive submissions, explanations and evidences with respect to the undisclosed income.

It was submitted that the Settlement Commission erred in observing that the diary notings did not reconcile with the amount offered by the petitioner despite explaining the modus operandi. The Settlement Commission ought to have formed a prima facie opinion on the aspect of full and true disclosure of the particulars of income after going through the contents, submissions and additional records preferred by the petitioner.

The Petitioner contended that the Settlement Commission have sufficient machinery and power to call for a report from the Principal Commissioner of Income Tax, which procedure was not adopted.

Therefore, the Petitioner prayed that the matter may be remanded for fresh consideration before the Settlement Commission giving an opportunity to the assessee to explain the voluminous documents placed before it and also to direct the Settlement Commission to cause enquiry into those documents by exercising power under Rule 9 or under Section 245D(3) of the Act or with the machinery available with the Settlement Commission.

Contentions made on behalf of the Respondent Revenue:
The Revenue, on the other hand, submitted that the issues pointed out by the Settlement Commission were factual findings and the Hon’ble High Court exercising jurisdiction under Article 226 of the Constitution can not undertake an exercise to ascertain the correctness of the submissions of the assessee and the assessee should be relegated to adopt normal course of assessment under the provisions of the Act.

Observations made by the High Court:
The Hon’ble High Court observed that the very object of introduction of Section 245 of the Act was to bring about an early resolution of tax disputes, by which the assessee gets immunity from penalty and prosecution. However, the provision contain strict parameters, which guide the Settlement Commission as to how to go about when an application for settlement is made. The first and foremost condition for an assessee to fulfill before the Settlement Commission is to satisfy the Commission that his disclosure was full and true. If this basic ingredient is not satisfied, the Commission can reject the application at the very threshold at the stage of Section 245D(1) of the Act.

The Hon’ble High Court opined that the rejection order has necessarily to be tested on the first and foremost parameters and the it cannot convert itself as an appellate authority over the findings recorded by the Settlement Commission to consider the correctness of the same by re-appreciating the documents placed before the Commission.

The Hon’ble High Court noted that the Settlement Commission after considering the application along with the documents filed, the submissions made and available records, during the course of hearing, pointed out certain deficiencies to which the Petitioner was unable to give any clarification. Therefore, the Commission opined that trueness and fullness of the disclosure was lacking in the application.

The Hon’ble High Court opined that the case was not one where the Settlement Commission brushed aside the documents filed by the petitioner. In fact an exercise was been done by the Settlement Commission to examine the stand taken by the assessee, giving liberty to the assessee to explain from the documents filed. However, the petitioner was unable to explain or clarify or match the transactions.

The Hon’ble High Court opined that at the stage of admission of the application the applicant should satisfy the Settlement Commission that there has been full and true disclosure. At that stage, the Settlement Commission cannot be expected to or cannot be compelled to utilize the machinery available with it or to invoke Rule 9 or Section 245C of the Act. It is for the Settlement Commission to regulate its business.

The Hon’ble High Court opined that the Settlement Commission proceeded did not proceeded either arbitrary or unreasonably. The Settlement Commission can not be dictated the procedure to be followed at the stage of Section 245D(1) of the Act unless there is a palpable error or violation of any procedures under the Act.

Decision/ Conclusion/Held:
The writ petition was dismissed.

Settlement Commission power to call records u/s 245D(3)

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