2016 (8) TMI 817 - HC - Income Tax

High Court affirms Income Tax Settlement Commission decision on undisclosed income disclosure

The High Court upheld the decision of the Income Tax Settlement Commission to reject settlement applications for a block period. The Court found no ... Application to Settlement Commission - Held that:- The contention of the petitioner that NIL return has been filed to comply with the technical requirements, cannot be countenanced. Section 245C(1) of the Act, states that an assessee may at any stage of the matter relating to him, make an application containing full and true disclosure of his income, which has not been disclosed before the Assessing Officer, explaining the manner in which such income has been derived, additional amounts of income tax payable on such income and such other particulars, as may be prescribed to the Settlement Commission to have the case settled. To be entitled to file such an application under sub-section (1) of Section 245C, the assessee is required to comply with the conditions provided in the proviso, which are as hereunder:- (a) the assessee has furnished the return of income which he is or was required to furnish under any of the provisions of this Act; and (b) the additional amount of income-tax payable on the income disclosed in the application exceeds one hundred thousand rupees. Therefore, the return of income, which is contemplated under clause (a) of the proviso mandates the assessee to file a return, which he is or was required to furnish under any of the provisions of the Act and (b) the additional amount of income tax payable on the income disclosed in the application exceeds one hundred thousand rupees. Therefore, I do not agree with the learned counsel for the petitioner to state that the petitioners were justified in filing NIL returns before the Assessing Officer as clause (a) under the proviso is only a technical requirement. Requirement is a pre-requisite to be entitled to file the application before the Commission and cannot be reduced to an insignificant or a mere technical requirement.For all the above reasons, the petitioners have not made out any case for interference with the orders passed by the Settlement Commission. Issues Involved:1. Validity of the rejection of settlement applications by the Income Tax Settlement Commission.2. Complexity of investigation involved in determining undisclosed income.3. Compliance with procedural requirements under Section 245C(1) of the Income Tax Act, 1961.4. Jurisdiction of the High Court in reviewing the Settlement Commission's decision.Detailed Analysis:1. Validity of the rejection of settlement applications by the Income Tax Settlement Commission:The petitioners challenged the common order passed by the Additional Bench of the Income Tax Settlement Commission, Chennai, under Section 245D(1) of the Income Tax Act, 1961, which rejected their settlement applications. The applications were filed for the block period from 01.04.1996 to 13.08.2002. The Commission rejected the applications on the grounds that the cases did not present any complexity of investigation and that the additional income offered was not prima facie full and true.2. Complexity of investigation involved in determining undisclosed income:The petitioners argued that the complexity of investigation was evident due to the multiple business activities and intermingling of funds among the family members and their business concerns. They contended that the Commission erred in not recognizing the complexity involved. However, the Commission, after considering the facts, the Commissioner’s report, and the nature and circumstances of the case, concluded that there was no complexity of investigation. The Court noted that the Commission’s finding was based on the materials and circumstances of the case and could not be re-examined in writ jurisdiction.3. Compliance with procedural requirements under Section 245C(1) of the Income Tax Act, 1961:The petitioners filed NIL returns to comply with the technical requirement of clause (a) of the Proviso to Section 245C(1), which mandates furnishing a return of income. The Court held that filing NIL returns could not be justified as a mere technical compliance. Section 245C(1) requires a full and true disclosure of income not disclosed before the Assessing Officer. The Court emphasized that this requirement is a pre-requisite for filing an application before the Commission and cannot be reduced to an insignificant or mere technical requirement.4. Jurisdiction of the High Court in reviewing the Settlement Commission's decision:The Court observed that it should be slow in interfering with the Settlement Commission’s order unless there are grave procedural defects, violation of mandatory procedural requirements, or violation of natural justice. The Court referred to several precedents where it was held that the High Court’s jurisdiction is limited to examining the legality of the procedure followed by the Commission and not the merits of its decision. The Court concluded that there was no procedural defect or violation of natural justice in the Commission’s order.Conclusion:The Court dismissed the writ petitions, upholding the Settlement Commission’s decision to reject the settlement applications. The Court found that the Commission had followed the due process and that the petitioners had not made out any case for interference. The Court also vacated the interim orders and dismissed the miscellaneous petitions.