Termination Order Quashed for Tax Non-Compliance: Settlement Commission Directed to Proceed

The court quashed the termination order of the settlement application due to non-compliance with tax provisions, directing the Settlement Commission to proceed with the offer made by the petitioner. The court emphasized the petitioner's ownership of the seized amount and the request to adjust it against tax liabilities, highlighting the necessity to consider these factors under the relevant tax provisions.

---

---

Issues:
Challenge to order terminating settlement application due to non-compliance with tax provisions.

Analysis:
1. The petitioner challenged the termination of their settlement application by the Income Tax Settlement Commission due to non-compliance with Section 245D(2D) of the Income Tax Act, 1961. The petitioner had disclosed a total of Rs. 1,60,000 seized during a search operation and requested its adjustment against tax liabilities. The Assistant Commissioner treated Rs. 10,000 as unexplained income and Rs. 1,50,000 as undisclosed income from the neighbour's premises. The petitioner applied for settlement in 1995, but a tax shortfall of Rs. 48,086 was raised later. The Settlement Commission terminated the application as the tax deposit was made after the deadline, disregarding the petitioner's ownership and request to adjust the seized amount against tax liabilities.

2. The petitioner pointed out in 2012 that the Rs. 1,60,000 seized amount was not credited, but the Settlement Commission did not address this issue. The court noted the petitioner's immediate ownership of the seized cash, the department's acceptance of the disclosure, and the lack of explanation for the source of the cash. The Assistant Commissioner treated the seized cash as undisclosed income. The petitioner's ownership and request for adjustment against tax liabilities were acknowledged, and the neighbour did not claim the seized cash.

3. The court found that the department was incorrect in raising the tax shortfall as the petitioner had unconditionally surrendered the Rs. 1,60,000 in 1994 for tax adjustment. The court emphasized the fundamental fact of the petitioner's declaration in 1994 and the necessity to adjust the seized amount against tax liabilities under the amended Section 245D. The court quashed the termination order and directed the Settlement Commission to proceed with the settlement offer made by the petitioner, considering the ownership and request for adjustment of the seized amount against tax liabilities.

---