2005 (2) TMI 16 - SC - Income Tax

Supreme Court orders re-hearing by Income-tax Settlement Commission

Commissioner of Income-Tax Versus Om Prakash Mittal

The Supreme Court directed the Income-tax Settlement Commission to re-hear the matter, allowing both parties to present further material. The Commission ... Settlement Commission hold that the prayer made by CIT, to declare the settlement order passed by the Commission, to be void and for withdrawing the benefits and immunities granted to the assessee was not acceptable - not it is held that Voluntary disclosure and making a full and true disclosure of the income are necessary preconditions for invoking the Commission's jurisdiction- hence Commission is directed to re-hear the matter Issues Involved:1. Validity of the Settlement Order under Section 245D(4) of the Income-tax Act, 1961.2. Allegations of fraud and misrepresentation of facts by the assessee.3. Jurisdiction and powers of the Income-tax Settlement Commission under Section 245D(6) of the Act.4. Procedural aspects and requirements under Chapter XIX-A of the Income-tax Act.Detailed Analysis:1. Validity of the Settlement Order under Section 245D(4) of the Income-tax Act, 1961:The primary issue in this case is the validity of the settlement order passed by the Income-tax Settlement Commission on September 18, 1990, under Section 245D(4) of the Income-tax Act, 1961. The Commissioner of Income-tax (CIT) requested the Commission to declare this order void and withdraw the benefits and immunities granted to the assessee, alleging that the order was obtained by fraud and misrepresentation of facts.2. Allegations of Fraud and Misrepresentation of Facts by the Assessee:The CIT's application was based on the claim that the assessee had fraudulently obtained the settlement order by misrepresenting facts, particularly regarding the genuineness of loans amounting to Rs. 1.5 crores received from seven individuals purportedly residing in Sikkim. The Central Bureau of Investigation (CBI) conducted inquiries and found that the alleged lenders had no financial capacity to advance such loans and denied having done so. Additionally, some of the certificates submitted were found to be unauthentic. The Commission, however, initially accepted the assessee's stand and did not question the credibility of the loans.3. Jurisdiction and Powers of the Income-tax Settlement Commission under Section 245D(6) of the Act:The CIT argued that the Commission failed to properly exercise its powers under Section 245D(6), which allows the Commission to declare a settlement void if it is subsequently found to have been obtained by fraud or misrepresentation of facts. The CIT contended that the application was not for a review but to establish that the settlement was obtained fraudulently. The Commission, however, held that it could not re-evaluate the evidence and that the Department had not proven that the settlement was obtained by fraud or misrepresentation.4. Procedural Aspects and Requirements under Chapter XIX-A of the Income-tax Act:Chapter XIX-A, introduced by the Taxation Laws (Amendment) Act, 1975, outlines the procedure for settlement of cases. An application for settlement under Section 245C must contain a full and true disclosure of income not previously disclosed to the Assessing Officer. The Commission has the authority to either proceed with or reject the application based on a report from the Commissioner. The Commission's order under Section 245D(4) must include terms of settlement and specify that the settlement is void if obtained by fraud or misrepresentation.The Court noted that the Commission's power to declare a settlement void under Section 245D(6) does not require the Commission to act suo motu. The Revenue can initiate proceedings if it has material evidence of fraud or misrepresentation. The Court emphasized that the Commission's jurisdiction is plenary and it must ensure that the settlement is based on a true and fair disclosure of income.Conclusion:The Supreme Court directed the Income-tax Settlement Commission to re-hear the matter, allowing both parties to present further material in support of their respective positions. The Commission must decide afresh, considering the observations made by the Court, without expressing any opinion on the facts of the case. The appeal was disposed of with costs made easy.