High Court directs ITSC to reconsider application under Section 245D (1) of Income Tax Act, emphasizes disclosure requirements

The High Court set aside the Income Tax Settlement Commission's order and directed them to proceed with the petitioner's application under Section 245D (1) of the Income Tax Act. The Court held that the petitioner's offer to withdraw certain claims and disclose income before the ITSC satisfied the requirement of disclosing income not previously declared before the Assessing Officer. The Court emphasized that demonstrating a fresh source of income was not mandatory, contrary to the ITSC's decision. The writ petition was allowed in favor of the petitioner, with the ITSC instructed to reconsider the application based on the Court's interpretation of disclosure requirements.

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Issues involved:
Challenge to the order of the Income Tax Settlement Commission under Section 245D (1) of the Income Tax Act, 1961 for declining to proceed on the petitioner's application under Section 245C (1) of the Act.

Detailed Analysis:

1. Challenge to ITSC Order:
The petitioner, a subsidiary company, challenged the order of the Income Tax Settlement Commission (ITSC) declining to proceed on the application under Section 245C (1) of the Income Tax Act, 1961. The petitioner had applied for surrender of its licenses and became non-operational after transferring its business to another entity. The ITSC held that the petitioner failed to fulfill the requirement of Section 245C by not making a full and true disclosure of its income that was not disclosed before the Assessing Officer (AO).

2. Disclosure of Income:
The petitioner offered to give up certain claims for depreciation, unearned revenue, legal expenses, and finance charges for obtaining a Bank Guarantee. However, the ITSC found that these were amounts earlier claimed as deductions in the returns filed before the AO and were now sought to be withdrawn. The ITSC concluded that there were no fresh issues or incomes being offered for tax that had not been declared before the AO.

3. Court's Analysis and Decision:
The High Court disagreed with the ITSC's approach, stating that the requirement of Section 245C (1) is to disclose income not previously declared before the AO. The Court highlighted that withdrawing excessive claims for deductions and offering income to tax before the ITSC satisfies this requirement. Citing decisions of the Bombay and Karnataka High Courts, the Court held that demonstrating a fresh source of income not disclosed before the AO is not mandatory.

4. Court's Decision:
The High Court set aside the ITSC order and restored the petitioner's application, directing the ITSC to proceed with the application under Section 245D (1) of the Act. The matter was listed for further proceedings before the ITSC on a specified date.

In conclusion, the High Court allowed the writ petition, disposing of it in favor of the petitioner and directing the ITSC to reconsider the application in light of the Court's interpretation of the disclosure requirements under the Income Tax Act.

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