Settlement application rejection requires proper enquiry into revised revenue objections and bona fide explanation before invalidation.
Settlement applications under Chapter XIX-A of the Income-tax Act cannot be rejected under Section 245D(2C) on a technical objection without proper enquiry into the Revenue's revised stand and the assessee's bona fide explanation. The Court noted that the alleged refund-related omission had already been overlooked in the earlier report, the supplementary objection was raised shortly before hearing, and the Commission did not test either side's case before invalidating the application. The rejection was therefore unsustainable for want of fair and holistic scrutiny, and the matter was remitted for fresh consideration with an opportunity to make good the shortfall in tax and interest.
Issues: Whether the Settlement Commission was justified in treating the settlement application as invalid under Section 245D(2C) of the Income-tax Act, 1961 on the ground of short payment and alleged false claim of refund, and whether the writ petition deserved interference under Article 226 of the Constitution of India.
Analysis: The settlement application contained the relevant tax particulars and the alleged non-disclosure related to a refund that had already been granted, but the Department itself had not raised that point in its earlier report under Section 245D(2B) of the Income-tax Act, 1961. The supplementary report introducing the refund issue was placed before the Commission shortly before hearing, and the petitioner explained the omission as inadvertent and bona fide. The impugned order proceeded to hold the application invalid without conducting any enquiry to test the Revenue's stand or the petitioner's explanation, despite the wide statutory scheme under Chapter XIX-A of the Income-tax Act, 1961 empowering settlement and requiring scrutiny of the application as a whole.
Conclusion: The rejection under Section 245D(2C) of the Income-tax Act, 1961 was unsustainable for want of proper enquiry and suffered from a flaw in the decision-making process; the petitioner was entitled to judicial review and relief.
Final Conclusion: The settlement matter was sent back to the Settlement Commission for fresh consideration after granting the petitioner an opportunity to make good the shortfall in tax and interest.
Ratio Decidendi: A settlement application cannot be rejected on a technical or suspicious ground without proper enquiry into the Revenue's revised objection and the assessee's bona fide explanation, especially where the statutory scheme under Chapter XIX-A requires a fair and holistic scrutiny of the application.
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