2024 (4) TMI 501 - HC - Income Tax

Income Tax Settlement Commission lacks jurisdiction under Section 245C without full and true disclosure by assessee

Delhi HC held that Income Tax Settlement Commission (ITSC) lacked jurisdiction to proceed with settlement application under Section 245C of Income Tax ... Settlement applications u/s 245C (1) - statutory requirement of “full and true disclosure” under Section 245C of the Income Tax Act, 1961, pre-conditions associated with an application under Chapter XIX-A of the Act and effect of violation of the said pre-conditions on the jurisdiction of the Income Tax Settlement Commission [“ITSC”] as well as the fate of the application - ITSC accepted the Revenue’s contention that unaccounted money was introduced as bogus share capital by the respondent-assessee group and thus, it proceeded to make the aforesaid addition. Whether the ITSC was justified in considering the application filed u/s 245C of the Act despite recognizing the absence of a full and true disclosure of income?” HELD THAT:- ITSC to arrive at an unequivocal finding of full and true disclosure in the application. If the ITSC is not satisfied as to the “full and true disclosure” of the income in the application, it shall refrain from advancing with it, thereby, lacking jurisdiction to issue any orders pertaining to the subject matter outlined in the application. Additionally, in the case of Om Prakash Mittal [2005 (2) TMI 16 - SUPREME COURT] the Hon’ble Supreme Court has held that the essential condition to proceed with the settlement through an application u/s 245C of the Act is the necessity for a complete and honest disclosure of income, including the method by which it was obtained. Following an enquiry into the authenticity of this disclosure, the ITSC may decide to either approve or dismiss the application. As in the present case ITSC in its order has succintly noted that the respondent-assessee group failed to provide a convincing explanation regarding repurchase of the share capital. It observed that the evidence submitted by the respondent-assessee group regarding the purported investors lacked credibility, as the shares of the companies had already been repurchased at an extremely unreasonable price. It further noted that the transaction involving the repurchase of shares having a face value of INR 10/-, at a nominal value of 10 paise per paid-up share, cannot be deemed to be authentic. Later, the respondent-assessee group voluntarily agreed to relinquish the amount in question, i.e., the value of the shares repurchased at an unreasonably low price, which was under scrutiny. Further, addressing the respondent-assessee group’s contention regarding the revision of the application, we are of the opinion that the statutory framework of Chapter XIX-A of the Act does not allow for any revision or amendment of an application under Section 245C of the Act, as this would essentially entail submitting a new application in the same case while withdrawing the previous one. Such a process would afford the respondent-assessee group an opportunity to retract their initial submission and make a fresh one. Therefore, permitting the revision of the application would indirectly provide the respondent-assessee group a chance to accomplish something that they could not achieve directly. It would also severely affect the importance of the requirement of full and true disclosure at the first instance. The very foundation of a settlement proceeding lies at the bedrock of good faith and therefore, revision or amendment, which has the effect of concealing a misrepresentation made in the application, would be impermissible and de hors the scheme of Chapter XIX-A under the Act. In the case of CIT v. ITSC [2013 (7) TMI 95 - DELHI HIGH COURT] this Court, while relying upon the decision of the Hon’ble Supreme Court in the case of Ajmera Housing Corporation [2010 (8) TMI 35 - SUPREME COURT] concluded that revising a disclosure made in a settlement application would clearly indicate that the original disclosure was neither truthful nor comprehensive.Thus ITSC ought not to have proceeded with passing of the order as the respondent-assessee had failed to make a true and full disclosure before the ITSC. Granting immunity from penalty and prosecution u/s 245H - The grant of such immunity is subject to conditions that the ITSC may deem appropriate to impose. A prerequisite for granting immunity is that the applicant must have cooperated in the proceedings before the ITSC and made a 'full and true disclosure' of its income and the manner in which such income has been derived. Taking into account all above, it is imperative to highlight that the legal framework concerning applications u/s 245C (1) of the Act fundamentally requires a 'full and true disclosure' of additional income. It must be noted that the procedure prescribed under Chapter XIX-A of the Act is a marked departure from the general procedure involving assessment by the AO and consequent action under the law. As briefly observed in the initial part of this judgment, this departure is meant to provide an opportunity for the assessee to come clean regarding the income and tax payable thereon. However, the relief envisaged in Chapter XIX-A of the Act is wide in nature and apart from settlement and quantification of payable tax, it also protects the assessee from prosecution and penalties, if so ordered by the ITSC. At the root of this incentive, lies a commitment of the assessee to make a full, true and honest disclosure of the income, source of income and additional tax payable thereon. Once it is seen that the disclosure was not full and truthful, the ITSC loses its jurisdiction to entertain such an application as well as to provide any immunity to the applicant from prosecution and penalties. Hence, in the present case, the ITSC has erred in law by approving the application of the respondent-assessee group under Section 245C of the Act. The ITSC further went on to grant immunity from the penalty and prosecution under Section 245H of the Act, which was contrary to the twin conditions stipulated herein above. Thus, the ITSC acted in excess of the jurisdiction conferred upon it under the Act. WP allowed. Issues Involved:1. Statutory requirement of 'full and true disclosure' u/s 245C of the Income Tax Act, 1961.2. Pre-conditions for an application under Chapter XIX-A of the Act.3. Jurisdiction of the Income Tax Settlement Commission (ITSC) in case of violation of pre-conditions.4. Fate of the application filed by the respondent-assessee group.5. Granting of immunity from penalty and prosecution u/s 245H of the Act.Summary:Issue 1: Statutory Requirement of 'Full and True Disclosure' u/s 245CThe court examined the statutory requirement of 'full and true disclosure' u/s 245C of the Income Tax Act, 1961. It was highlighted that the respondent-assessee group did not make a full and true disclosure of its income in the application filed before the ITSC. The ITSC's acceptance of additional income disclosed during proceedings indicated that the initial application was neither full nor true.Issue 2: Pre-conditions for an Application under Chapter XIX-AThe pre-condition for an application under Chapter XIX-A is that it must include a full and true disclosure of income, the manner in which it was derived, and the additional tax payable. The court noted that the respondent-assessee group's application failed to meet these pre-conditions, as the full extent of the undisclosed income was only revealed after the CIT's report.Issue 3: Jurisdiction of ITSC in Case of Violation of Pre-conditionsThe court determined that the ITSC lacked jurisdiction to proceed with the application once it was established that the respondent-assessee group did not make a full and true disclosure initially. The ITSC's decision to proceed with the application and make substantial additions to the disclosed income was found to be erroneous.Issue 4: Fate of the Application Filed by the Respondent-Assessee GroupThe ITSC's order dated 09 June 2014, which admitted the application and settled the income tax liability of the respondent-assessee group, was set aside. The court held that the application should have been rejected at the outset due to the lack of full and true disclosure.Issue 5: Granting of Immunity from Penalty and Prosecution u/s 245HThe court emphasized that granting immunity from penalty and prosecution u/s 245H requires full and true disclosure and cooperation from the applicant. Since the respondent-assessee group failed to meet these conditions, the ITSC's decision to grant immunity was deemed to be in excess of its jurisdiction and was set aside.Conclusion:The writ petition was allowed, and the ITSC's order dated 09 June 2014 was set aside due to the respondent-assessee group's failure to make a full and true disclosure of income in their application u/s 245C of the Act. The ITSC's jurisdiction to proceed with the application and grant immunity from penalty and prosecution was found to be invalid.