Court overturns ITSC's rejection of petitioners' applications under Income-tax Act, citing lack of rational basis.

The court set aside the ITSC's order rejecting the applications of four petitioners under section 245C(1) of the Income-tax Act for failure to disclose the manner of earning undisclosed income. It found no rational basis for differential treatment compared to six other companies in the group. The court directed the ITSC to entertain and proceed with the four petitioners' applications on par with the other companies, emphasizing the need for a rational criterion in decision-making to facilitate early dispute resolution.

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Issues Involved:
1. Validity of the applications before the Income-tax Settlement Commission (ITSC) under section 245C(1) of the Income-tax Act, 1961.
2. Full and true disclosure of income and the manner of earning such income by the petitioners.
3. Differential treatment between the four petitioners and the six other companies of the Bindal group by the ITSC.
4. Legality of the procedure followed by the ITSC in rejecting the applications of the four petitioners.

Detailed Analysis:

1. Validity of the Applications Before the ITSC:
The four writ petitions were filed by entities whose applications before the ITSC were not allowed to proceed by the impugned order dated May 13, 2016. The applications were filed under section 245C(1) of the Income-tax Act for the assessment years 2008-09 to 2015-16. The ITSC initially allowed the applications to proceed, stating that the technical requirements under section 245C(1) were fulfilled, and there was no reason to hold that the disclosures made were not full and true.

2. Full and True Disclosure of Income and the Manner of Earning Such Income:
The ITSC later reversed its decision, stating that the four petitioners did not explain the manner of earning the undisclosed income, which is a mandatory requirement under section 245C(1). The ITSC noted that the petitioners filed a consolidated cash flow to explain non-genuine share capital and unsecured loans but failed to explain the manner of deriving the undisclosed income used in acquiring assets or incurring expenses.

3. Differential Treatment Between the Four Petitioners and the Six Other Companies:
The ITSC allowed the applications of six other companies of the Bindal group to proceed but rejected those of the four petitioners. The court observed that the applications of the ten companies explained that unaccounted income generated by the group formed a common pool and was redeployed into all companies. The report submitted by the Principal Commissioner of Income-tax was a consolidated one and did not differentiate between the companies. The court found no rational basis for the differential treatment given to the four petitioners.

4. Legality of the Procedure Followed by the ITSC:
The court noted that the ITSC's decision to reject the four petitioners' applications was based on a ground not urged by the Revenue, i.e., the failure to disclose the manner of earning undisclosed income. The court held that the ITSC did not provide a rational criterion for distinguishing between the six companies and the four petitioners. The court emphasized that the scope of interference under Article 226 of the Constitution is limited but found that the ITSC's order lacked justification and could defeat the purpose of early settlement of disputes.

Conclusion:
The court set aside the impugned order dated May 13, 2016, passed by the ITSC and directed that the applications of the four petitioners be entertained and proceeded with on the same basis as the six other companies in the Bindal group. The writ petitions were allowed, and the applications were disposed of with no orders as to costs. The applications of the four petitioners will now be listed before the ITSC along with the applications of the six other companies for further consideration.

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