Settlement Commission has power to reject Application at three stages. Bar u/s 245K(2) is not in respect of application for a future assessment year – HC
ABCAUS Case Law Citation:
ABCAUS 2519 (2018) 09 HC
Important Case Laws Cited/relied upon by the parties:
C.I.T. vs. Express Newspaper Ltd., reported in 206 ITR 443
Commissioner of Income-tax vs. Income Tax Settlement Commission (2013) 35 taxman.com 56 (Delhi)
A Survey operation under Section 133-A of the Income Tax Act, 1961, was conducted at the residential and business premises of the petitioner. A CPU and 5 pen drives were impounded. Subsequently, a search and seizure operation was initiated under Section 132 of the Act the very same day at the residential and business premises of the petitioner.
Certain documents were seized and sworn statements were recorded on various dates. The petitioner approached the Settlement Commission and filed an application under Section 245C of the Act to settle the issue of the undisclosed income, grant immunity from all the penalties and prosecution under the Act and capitalization of the undisclosed income offered.
The Settlement Commission, by order made under section 245D(1) of the Act, allowed the Application to be proceeded with further. The Commission held that there was no material on record to prove that full and true disclosure had not been made by the applicant in the Settlement Application.
On notice, the Principal Commissioner of Income Tax, filed a report under Section 245D(2B). It was the contention of the Department that the undisclosed amount as per the impounded records, CPU and pen drives was much more than additional income offered before the Settlement Commission.
The petitioner denied such allegations. However, the Commission, vide impugned order held that the petitioner had caused suppression and misrepresentation of facts thereby violated the requirement of the full and true disclosure of additional income. Hence, the Commission did not allow the petitioner’s application to be proceeded with and treated the same as invalid under Section 245D(2C) of the said Act.
Before the Hon’ble High Court, the Petitioner contended that the Commission merely relied upon the report of the PCIT and rejected the application of the petitioner at the threshold stage without providing any sufficient opportunity and without any evidence was absolutely wrong.
According to the Petitioner, the Commission ought to have directed further enquiry or an investigation in respect of the submissions made by the petitioner. The Commission rejected the application under section 245D(2C) without having regard to the provisions of Section 245K(2). It was submitted that when the Commission had found that the petitioner had not fully and truly disclosed the materials, it ought to have rejected the Settlement Application, at the stage of passing an order under Section 245D(1) itself.
Ur was also contended that in view of a specific bar under Section 245K(2), the petitioner was totally prevented in making any further application of any kind on any issue in future before the Settlement Commission and thus, it affected and prejudice the petitioner’s right in approaching the Settlement Commission once for all. In other words, it was contended that Section 245K(2) bars all subsequent applications for settlement, if an application made under Section 245C has been allowed to be proceeded with under Section 245D(1).
The Hon’ble High Court opined that any prima facie view expressed by the Settlement Commission for allowing the application to be proceeded with further, cannot mean or be taken advantage of by the petitioner, as if such view expressed was the only view that could be arrived by the Settlement Commission at all stages, especially, when procedures contemplated under Section 245D at various stages empower the Commission to reject the application even at a later stage either under section 245D(2C) or under Sections 245D(2D)(3) or (4).
The Hon’ble High Court observed that an application, though allowed to be proceeded with under Section 245D(1), can still be rejected under Section 245D(2C), after perusal of the report filed by the Principal Commissioner or Commissioner of Income tax.
The Hon’ble High Court opined that only when a report is filed under Section 245D(2B), the Commission will be in a position to find out as to whether the prima facie view taken by the Commission under section 245D(1), for allowing the application to be proceeded with further solely based on the details furnished by the applicant, is right or wrong. In other words, the Commission is entitled to change its view, based on the report submitted by the Principal Commissioner or Commissioner with regard to the full and true disclosure of the material details furnished in the Settlement Application. Therefore, the report filed under Section 245D(2B) is a crucial document for the Settlement Commission to decide as to whether the application is to be declared as invalid at this stage itself or to push it to the next stage for calling the records from the Principal commissioner or Commissioner and after examination of such records whether to order for conducting any further enquiry or investigation by the Principal Commissioner or Commissioner. However, before taking such decision based on such report, the applicant is provided an opportunity of being heard as contemplated under Section 245D(2C).
It was noted that such opportunity was given to the petitioner by forwarding the report of the PCIT to him. The petitioner filed his reply but it was not to the satisfaction of the Settlement Commission when the Petitioner failed to explain the facts on the impounded materials. The Settlement Commission specifically pointed out that even after repeated questioning regarding the deficiency in disclosure of contents of pen drives and hard disc, the AR however failed to explain and remained silent during the hearing.
The Hon’ble High Court opined that evidently, the petitioner failed to cross the stage of Section 245(2C) successfully. Therefore, there was no question of asking the Commission to proceed further under section 245 D(2D)(3). The Commission was fully satisfied that there was suppression of materials and that there was no valid and true disclosure of income, even while hearing the matter at the stage of 245D(2C), it had ample power to reject the application at that stage itself. Therefore, the petitioner was not entitled to question such order, merely because such rejection would bar the petitioner from approaching the Commission as contemplated under Section 245K(2)
The Hon’ble High Court explained that the Settlement Commission is vested with power to reject the Settlement Application at three stages, as provided under Section 245D of the Act as under:
(i) Rejection at the threshold is contemplated under Section 245D(1).
(ii) Rejection after notice to the Revenue and on perusing the report filed by the Revenue could be made under Section 245D(2).
While rejection under Section 245D(1) is a dismissal at the admission stage, rejection under Section 245D(2) is after notice to the revenue and on being satisfied with non disclosure of true and full undisclosed income.
(iii) The third stage of rejection is contemplated under Section 245D(4), after directing the Revenue to furnish records and thereafter to conduct an investigation or enquiry.
The Hon’ble High Court stated that in all these stages, the satisfaction of the Commission with regard to true and full disclosure of income must continue to exist so as to carry over the proceedings from one stage to another and finally, to pass an order determining the terms of settlement as provided under Section 245D(6). In other words, “true and full disclosure” is the life line, satisfaction of the same should remain to live in the mind of the Commission till the final order is passed.
The Hon’ble High Court explained that the term “true and full disclosure” does not mean that whatever the amount shown by the applicant, which according to him is undisclosed income, is in fact, the true and full disclosure. It may be the disclosure of undisclosed income in the view of the applicant. But whether such disclosure is “true and full”, in its strict sense, is a question that should fetch an answer in favour of the petitioner/applicant at all stages even after hearing the revenue. In other words, such disclosure should not give room for deduction of concealed fact with regard to any other income either after getting a report from the Revenue or conducting an investigation or enquiry at the instance of the Commission.
The Hon’ble High Court observed that the Settlement Commission though initially found prima facie that there was true and full disclosure while dealing with the application under Section 245D(1), had however subsequently, after hearing the Revenue through their report, had categorically found against the applicant at the stage of 245D(2C) with regard to full and true disclosure of income. Thus, the Settlement Commission had chosen to reject the application at that stage itself which is permissible as contemplated under section 245 D(2C).
The Hon’ble High Court observed that the bar imposed under sub-clause 2 of Section 245K stands on a different footing. Under this category, a person or related person is barred from making an application under Section 245C, if his earlier application filed under the said provision has been allowed to be proceeded with under section 245D(1). Here, the phrase “any other matter” as contemplated under section 245K(1) is conspicuously absent or omitted. Thus, the bar stipulated under section 245K(2) is to be read along with Section 245C in order to find out whether such bar is against another application under section 245C in respect of that particular assessment year, which is the subject matter in the application filed already, by such person under section 245C or in respect of any application in relation to any other matter, as specifically provided under section 245K(1)
The Hon’ble High Court opined that the bar provided under section 245K(2) for making subsequent application under section 245C is to be construed as a bar in respect of such assessment year, which is already the subject matter in the earlier application, and not in respect of any future application in respect of any other assessment year/years, being not the subject matter of the application already filed under section 245C, which was allowed to be proceeded with under sub-section (1) of Section 245D.
It was held that the order passed by the Settlement Commission did not warrant any interference under the discretionary jurisdiction of the High Court under Article 226 of the Constitution of India.