Court quashes order rejecting settlement application, directs fresh consideration

The court allowed the writ petition, quashing the order that rejected the application for settlement by the Income Tax Settlement Commission. The court directed the Interim Board to reconsider the application afresh, emphasizing that the Commission's role includes adjudication and determining additional income. The court clarified that the rejection based on lack of full and true disclosure was not justified, instructing the Interim Board to dispose of the application in accordance with the law without being influenced by the quashed order.

---

---

Issues Involved:
1. Rejection of the application for settlement by the Income Tax Settlement Commission.
2. Non-accounting of interest on non-performing assets.
3. Purity of gold sold in auctions and its impact on income disclosure.

Summary:

1. Rejection of the Application for Settlement:
The petitioner challenged the Ext.P12 order of the Income Tax Settlement Commission, which rejected the application for settlement. The application covered Assessment Years 2010-11 to 2017-18 and included disclosures under three heads: excess realization of gold, an ad-hoc voluntary disclosure, and disallowance of interest on debentures.

2. Non-accounting of Interest on Non-performing Assets:
The Settlement Commission's rejection was partly based on the petitioner's failure to account for interest on non-performing assets. The petitioner argued that Section 45Q of the Reserve Bank of India Act prohibits recognizing such interest as income. The Supreme Court's judgment in CIT v. Vasisth Chay Vyapar Ltd. established that RBI provisions take precedence over the Income Tax Act. The court found the Settlement Commission's decision unsustainable, as the petitioner was not required to disclose interest on non-performing assets.

3. Purity of Gold Sold in Auctions:
The Settlement Commission also rejected the application due to discrepancies in the purity of gold sold in auctions. The petitioner disclosed an average purity of 80%, but the Commission questioned this based on a single instance involving one P.M. Reji, where the purity was recorded as 85%. The court found this reasoning flawed, noting that the petitioner had sold 29.6 tons of gold, and the single instance could not represent the entire quantity. The court held that the Commission should scrutinize documents to determine the correct purity for income calculation, but it was wrong to conclude there was no full and true disclosure based on one instance.

Conclusion:
The court allowed the writ petition, quashing Ext.P12 order and directing the Interim Board to reconsider the application for settlement afresh. The court emphasized that the Settlement Commission's role includes adjudication and determining additional income, and merely requiring further amounts does not justify rejecting the application for lack of full and true disclosure. The court clarified that the Interim Board should dispose of the application in accordance with the law, without being influenced by the quashed order.

---