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Issues: (i) Whether rejection of the settlement application on the ground of alleged failure to disclose interest on non-performing assets as income was sustainable; (ii) Whether rejection of the settlement application on the ground that the disclosure relating to excess realisation of gold was not full and true was sustainable; (iii) Whether the impugned order rejecting settlement required to be quashed and the matter restored for fresh consideration by the Interim Board.
Issue (i): Whether rejection of the settlement application on the ground of alleged failure to disclose interest on non-performing assets as income was sustainable.
Analysis: The scheme of settlement under Chapter XIX-A of the Income-tax Act, 1961 requires full and true disclosure by the assessee, but it also contemplates a further adjudicatory exercise by the Settlement Commission on the correct amount of tax, interest, and penalty payable. In the case of a non-banking financial company, the regulatory regime governing income recognition under the Reserve Bank of India Act takes precedence over a contrary treatment under the Income-tax Act. The finding that interest on non-performing assets should have been offered as income was therefore inconsistent with the applicable regulatory framework.
Conclusion: The rejection on this ground was unsustainable and was held to be against the petitioner.
Issue (ii): Whether rejection of the settlement application on the ground that the disclosure relating to excess realisation of gold was not full and true was sustainable.
Analysis: The disclosure concerning gold realisation had to be examined on the basis of the materials and methodology adopted for estimating purity. A solitary instance relating to one borrower could not, by itself, displace the overall disclosure made across a large volume of auction sales. The materials placed did not justify the inference that the petitioner had suppressed income so as to fail the statutory requirement of full and true disclosure. The Commission could examine whether a higher figure was warranted for assessment purposes, but that did not automatically establish lack of candour in the settlement application.
Conclusion: The rejection on this ground was unsustainable and was held to be against the petitioner.
Issue (iii): Whether the impugned order rejecting settlement required to be quashed and the matter restored for fresh consideration by the Interim Board.
Analysis: Once the impugned order was found unsustainable, the settlement application could not be treated as finally rejected on merits. In view of the statutory change replacing the Settlement Commission with the Interim Board, the pending settlement application had to be treated as revived and considered afresh in accordance with law, after giving both sides an opportunity to be heard.
Conclusion: The impugned order was quashed and the settlement application was directed to be considered afresh by the Interim Board.
Final Conclusion: The challenge to the rejection of settlement succeeded, the adverse order was set aside, and the application stood restored for reconsideration on merits by the competent interim forum.
Ratio Decidendi: In settlement proceedings, the Commission cannot reject an application for want of full and true disclosure on a ground that is contrary to the governing regulatory regime or on the basis of an isolated factual instance that does not establish suppression of income in the application as a whole; if the rejection is unsustainable, the settlement application revives for fresh consideration by the successor authority.
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