2021 (4) TMI 1235 - HC - Income Tax

Failure to Disclose Income Leads to Quashed Settlement Commission Order

The Court found that the first respondent did not make a true and full disclosure of income as required under Section 245C of the Income Tax Act. As a ... Orders passed by the Settlement Commission u/s 245D - sole grievance of the petitioner stems out of factual matters which have been duly considered by the second respondent after a thorough enquiry and a detailed 'speaking order' has been passed by the second respondent in this regard - HELD THAT:- In view of the fact that the petitioner could able to establish that the first respondent has not approached the second respondent/Settlement Commission with true and full disclosure of his income and during the course of proceedings, offered additional income and the findings of the Settlement Commission would also confirm the same, the said offerings of the additional income would be sufficient for the purpose of arriving a conclusion that the first respondent filed an application under Section 245C of the Act without disclosing true and full income. Thus, the second respondent/Settlement Commission ought to have rejected the application, at the stage when it noticed that the first respondent has not disclosed true and full facts which was not done. Thus, the Settlement Commission has committed an error apparent and allowed the application filed by the first respondent which is in violation of the provisions of the Act. Thus, the order impugned passed by the second respondent in proceedings dated 14.09.2015 is quashed and the writ petition stands allowed Issues Involved1. Maintainability of the writ petition.2. True and full disclosure of income under Section 245C of the Income Tax Act.3. Jurisdiction and procedural propriety of the Income Tax Settlement Commission.4. Disallowance under Section 14A of the Income Tax Act.5. Immunity from prosecution and penalty under Section 245H of the Income Tax Act.Detailed Analysis1. Maintainability of the Writ PetitionThe first respondent argued that the writ petition is not maintainable, asserting it as an abuse of process of law. They contended that the High Court's interference under Article 226 of the Constitution of India is limited to exceptional circumstances, particularly procedural irregularities, and not on the merits of the decision itself. The petitioner, however, maintained that the Settlement Commission's decision-making process was flawed due to the lack of true and full disclosure by the first respondent.2. True and Full Disclosure of Income under Section 245CThe petitioner argued that the first respondent failed to make true and full disclosure of their income as mandated under Section 245C(1) of the Income Tax Act. This was evidenced by various reports, including the Rule 9 Report. The Settlement Commission, however, directed the first respondent to disclose additional income of Rs. 7.70 crores and granted immunity from prosecution and penalty. The petitioner contended that the additional income offered during the proceedings indicated that the initial application did not contain full and true disclosure, thus violating Section 245C.3. Jurisdiction and Procedural Propriety of the Income Tax Settlement CommissionThe first respondent claimed that the Settlement Commission had considered all submissions, records, and evidence, passing a detailed and reasoned order. They argued that the High Court should not re-evaluate the factual disputes, which had been thoroughly examined by the Settlement Commission. The petitioner, however, highlighted that the Settlement Commission should have rejected the application upon identifying non-disclosure of income, as the Assessing Officer is the authority to proceed with reassessment in such cases.4. Disallowance under Section 14A of the Income Tax ActThe petitioner contended that the impugned order's restriction on disallowance of expenses under Section 14A was incorrect and erroneous. They argued that the disallowance should be based on the average value of the entire investment in exempt/tax-free income during the year, as provided under Rule 8D(2)(iii). The first respondent countered that the disallowance under Section 14A could not form part of proceedings under Section 153A in the absence of any incriminating material found during the search, citing the decision in Commissioner of Income Tax-20 vs. Deepak Kumar Agarwal.5. Immunity from Prosecution and Penalty under Section 245HThe petitioner argued that immunity under Section 245H is available only to those who have made full and true disclosure, which the first respondent failed to do. The first respondent, however, maintained that the Settlement Commission had duly considered all disclosures and evidence, and the order was a reasoned one, thus warranting dismissal of the writ petition.ConclusionThe Court concluded that the first respondent did not approach the Settlement Commission with clean hands, as evidenced by the additional income offered during the proceedings. The application under Section 245C was filed without true and full disclosure of income, violating the provisions of the Act. Consequently, the Settlement Commission's order dated 14.09.2015 was quashed, and the writ petition was allowed. No costs were imposed.