Settlement Commission's Order Upheld; ITAT Appeal Restored, Allowing Further Legal Remedy Despite Abatement.

The court upheld the Settlement Commission's decision that proceedings abated due to non-compliance with section 245D(2D) of the Income-Tax Act, rejecting the challenge to the Commission's order. However, it granted the petitioner relief by restoring the appeal before the ITAT, directing it to hear the appeal on merits, ensuring the petitioner retained a legal remedy despite the abatement.

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Issues Involved:
1. Compliance with the Settlement Commission's order under section 245D(1) of the Income-Tax Act.
2. Abatement of proceedings before the Settlement Commission under section 245HA(1)(ii) of the Act.
3. Restoration of the appeal before the Income Tax Appellate Tribunal.

Issue-wise Detailed Analysis:

1. Compliance with the Settlement Commission's order under section 245D(1) of the Income-Tax Act:
The petitioner initially declared an undisclosed income of Rs. 20 lakhs in the application under section 245C of the Income-Tax Act but later revised it to Rs. 5 lakhs. The Settlement Commission, by its order dated 11.09.1999, directed the petitioner to pay the additional tax on the disclosed income within 35 days. The petitioner contended that the tax payable was covered by the cash seized during the search. However, the Supreme Court in Ajmera Housing Corporation & Anr. v. Commissioner of Income Tax held that the scheme of Chapter XIX-A does not contemplate the revision of the income disclosed in the application. Therefore, the petitioner was required to pay tax based on the original undisclosed income of Rs. 20 lakhs. The petitioner failed to comply with this requirement, leading to the conclusion that the petitioner did not comply with the order under section 245D(1).

2. Abatement of proceedings before the Settlement Commission under section 245HA(1)(ii) of the Act:
Section 245D(2D) mandates that additional tax on the disclosed income must be paid on or before 31.07.2007. The petitioner did not make this payment, resulting in the automatic abatement of proceedings under section 245HA(1)(ii). The Settlement Commission, therefore, held that the proceedings abated due to non-compliance with section 245D(2D). The court upheld this decision, noting that the abatement was by operation of law and there was no infirmity in the Settlement Commission's order.

3. Restoration of the appeal before the Income Tax Appellate Tribunal:
The petitioner had filed an appeal before the Tribunal against the order under section 158BC, which was withdrawn after the Settlement Commission admitted the application under section 245C. With the abatement of proceedings before the Settlement Commission, the petitioner sought the restoration of the appeal. The court noted that the liability under the order passed by the Assessing Officer continues to subsist and does not get automatically set aside. Given that the appeal was withdrawn due to the proceedings before the Settlement Commission, the court found it equitable to restore the appeal to the Tribunal to prevent prejudice to the petitioner. Consequently, the court quashed the Tribunal's order dismissing the appeal and directed the Tribunal to decide the appeal on merits.

Conclusion:
The court rejected the principal relief challenging the Settlement Commission's order but granted the alternative relief of restoring the appeal before the Tribunal. The Tribunal was directed to hear the appeal on merits, ensuring the petitioner had a remedy despite the abatement of proceedings before the Settlement Commission.

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