2021 (12) TMI 1033 - HC - Income Tax

Supreme Court emphasizes full disclosure in Income Tax Settlement Commission case

Indu Srivastava Versus Income Tax Settlement Commission

Indu Srivastava Versus Income Tax Settlement Commission - [2022] 440 ITR 280 (All) Issues Involved:1. Legality of the summary rejection of the settlement application by the Income Tax Settlement Commission.2. Adequacy of the explanation provided by the petitioner regarding the manner of earning undisclosed income.3. Procedural correctness of the Settlement Commission's decision-making process.Issue-Wise Detailed Analysis:1. Legality of the Summary Rejection of the Settlement Application by the Income Tax Settlement Commission:The petitioner challenged the order dated 27.09.2018 by the Income Tax Settlement Commission, which summarily rejected her settlement application under Section 245(D)(1) of the Income Tax Act, 1961. The rejection was based on the ground that the manner of earning the undisclosed income was not satisfactorily explained. The court observed that the Settlement Commission's role at this stage is to ascertain whether the declarant has made a 'true and full disclosure' of undisclosed income and the manner of its derivation. The Supreme Court's decision in Ajmera Housing Corporation vs. Commissioner of Income Tax was cited, which mandates that the Settlement Commission must record its satisfaction on these aspects before proceeding further. The court found that the Settlement Commission prematurely terminated the proceedings without forming a definite opinion on the prima facie case set up by the petitioner.2. Adequacy of the Explanation Provided by the Petitioner Regarding the Manner of Earning Undisclosed Income:The petitioner disclosed three sources of her undeclared income: business income from M/s SIB International, income from jewellery designing, and a Memorandum of Agreement for a new business venture. The Settlement Commission rejected the application, stating that the petitioner did not satisfactorily explain the manner of earning the income. The court noted that the petitioner had provided supporting documents, including income tax returns, bank statements, and a will deed, which were not adequately considered by the Settlement Commission. The court emphasized that at this stage, the Settlement Commission's role is to form a tentative opinion based on the material provided, not to make a conclusive finding.3. Procedural Correctness of the Settlement Commission's Decision-Making Process:The court criticized the Settlement Commission for not considering the evidence provided by the petitioner and for making hypothetical observations. The court highlighted that the Settlement Commission should have formed a clear opinion based on the material on record, even if it was tentative. The court found that the Settlement Commission's approach was flawed as it acted on doubts and probabilities rather than on a definite opinion. The court also noted that the Settlement Commission's reasoning was self-contradictory, particularly regarding the cash discovery, and failed to consider the legal presumptions arising under Sections 132(4A), 56(2)(vii), and 292(C) of the Income Tax Act.Conclusion:The court set aside the order dated 27.09.2018 passed by the Income Tax Settlement Commission and remitted the matter for a fresh decision in accordance with the law. The court directed that the matter be placed before the Interim Board for further proceedings, given that the Settlement Commission had been disbanded. The court emphasized the need for expeditious handling of the matter.