Assessees had filed settlement applications u/s 245C(1) in respect of the AYs 2006-07 to 2012-13 on 16.11.2012. The applications filed by respondents 3 and 4 who were the parents of respondent 2 were rejected by the Settlement Commission by an order dated 23.11.2012 on the ground that the applicants had not paid the full amount of the additional tax and interest which was payable on or before the filing of the applications. It was therefore held by the Settlement Commission that the said applications of respondents 3 and 4 could not be allowed to be proceeded with and accordingly the applications were rejected. On the very same day, i.e. on 23.11.2012, the respondents 3 and 4 submitted fresh applications u/s 245C(1) after allegedly paying the amount of additional tax and interest that was payable prior to the filing of the settlement applications. Subsequently on 17.12.2012, the respondent 5 (wife of respondent 2) submitted her settlement application for the above mentioned AYs. The settlement applications were allowed to be proceeded with by virtue of an order dated 30.11.2012 in respect of respondents 2 to 4. A similar order was passed in respect of respondent 5 on 28.12.2012 u/s 245D(1) of the Act.
After the passing of the orders u/s 245D(1), reports were called from the CIT u/s 245D(2B) of the Act on the validity of the settlement applications. That report was received by the Settlement Commission on 09.01.2013 and the applications were heard in the context of Section 245D(2C) on 21.01.2013. Thereafter the order dated 24.01.2013 was passed in respect of the four settlement applications. The CIT (petitioner here) being aggrieved by the said order as also the earlier orders passed u/s 245D(1) is in appeal before High Court by way of the present writ petition.
On behalf of the petitioner, it was sought to be contended that as there was no true and full disclosure by the respondents 2 to 5 in their applications for settlement, the Settlement Commission ought not to have proceeded with their applications and ought to have passed an order u/s 245D(2C) holding the applications to be invalid. It was also contended that the manner of deriving the undisclosed income had not been indicated by the respondents 2 to 5 and, therefore, on this ground also, the order u/s 245D(2C) passed by the Settlement Commission ought to have been one holding the settlement applications to be invalid. Strong reliance was placed by the petitioner on the Supreme Court decision in the case of Ajmera Housing Corporation v. Commissioner of Income Tax (2010-TIOL-66-SC-IT) to contend that where there was an established case of absence of full and true disclosure on the part of the applicant, the settlement application ought to be rejected at the threshold by the Settlement Commission.
Having heard the matter, the Court held that,
++ from the relevant provisions and the scheme of the Act, it is apparent that the settlement application passes through several stages before the final order providing for the terms of settlement is passed by the Settlement Commission. The first stage is u/s 245D(1). This is followed by the next step u/s 245D(2C) and finally by the order passed u/s 245D(4). In the present case, the final order u/s 245D(4) is yet to be passed. The orders u/s 245D(1) and 245D(2C) are not final orders and they are subject to the final orders that may be passed u/s 245D(4). It is, therefore, clear that the issue of full and true disclosure on the part of the applicants and the manner in which the undisclosed income was derived is still open for discussion and debate and the Settlement Commission would have to give its final decision on these aspects before an order of settlement is passed u/s 245D(4) of the Act. Therefore, on a plain reading of the provisions, it is apparent that the submission made by the respondents 2 to 5 merits acceptance insofar as it was contended by him that the entire issue remains open and at any stage of the proceedings till the order u/s 245D(4) is passed by the Settlement Commission, the issue with regard to full and true disclosure and the manner in which the undisclosed income had been derived would be open and can be raised by the Revenue. In fact, it was clarified by the respondents 2 to 5 that the said respondents do not even contend that once an application has been proceeded with u/s 245D(1) and has not been held to be invalid u/s 245D(2C), the validity of the same in terms of the requisite conditions stipulated in Section 245C(1) cannot be gone into at the subsequent stages up to the passing of the order u/s 245D(4) of the Act;
++ Section 245F deals with the powers and procedures of the Settlement Commission. Sub-section (1) stipulates that in addition to the powers conferred on the Settlement Commission under the Act, it would also have all the powers which are vested in an income tax authority under the Act. Sub-section (2) of Section 245F further stipulates that where an application u/s 245C has been allowed to be proceeded with u/s 245D, the Settlement Commission shall, until an order is passed under sub-section (4) of Section 245D, have, subject to the provisions of sub-section (3) of that section, exclusive jurisdiction to exercise the powers and perform the functions of an income tax authority under the Act in relation to the case. The proviso to Section 245F(2) which makes it clear that where an application has been made u/s 245C on or after the first day of June, 2007, the Settlement Commission shall have exclusive jurisdiction from the date on which the application was made. In the present case, all the four applications made by the respondents 2 to 5 had been made after the first day of June, 2007 and therefore it is the aforesaid proviso which would apply. In other words, in the present case, the Settlement Commission had exclusive jurisdiction in respect of the cases of respondents 2 to 5 from the dates on which the applications u/s 245C were made by the said respondents. We have specifically referred to this proviso, because the petitioner had made an argument that if an application u/s 245C is allowed to be proceeded with by virtue of an order u/s 245D(1) or u/s 245D(2C), the Settlement Commission would have exclusive jurisdiction and the ongoing investigation, which the income tax authorities were conducting insofar as respondents 2 to 5 were concerned, would be stultified. This argument is not available to the Department inasmuch as in the present case, it is not the passing of the order u/s 245D(1) or u/s 245D(2C) which would enable the Settlement Commission to have exclusive jurisdiction in relation to the case but, because of the proviso to Section 245F(2), it would be the date on which the application is made u/s 245C which would trigger the Settlement Commission’s exclusive jurisdiction insofar as the case of the applicant is concerned;
++ For the sake of completeness, it would also be appropriate to refer to the second proviso to Section 245F(2) of the Act which, inter alia, makes it clear that where an application which has been made on or after the first day of June, 2007 is rejected u/s 245D(1) or is declared invalid u/s 245D(2C), the Settlement Commission, inspite of such an application, would have exclusive jurisdiction upto the date on which the application is rejected or declared invalid as the case may be. In the present case, the Settlement Commission would have exclusive jurisdiction in relation to the cases on and from the date on which the applications u/s 245C were made by respondents 2 to 5 and not from the dates of the orders passed u/s 245D(1) and 245D(2C) of the Act. Obviously, as the applications have not been rejected or declared invalid, the exclusive jurisdiction of the Settlement Commission continues till the Settlement Commission passes the final order u/s 245D(4) of the Act;
++ the point of maintainability of an application u/s 245C(1) does not get foreclosed by virtue of the Settlement Commission passing an order u/s 245D(1) or Section 245D(2C) of the Act and that such an issue could be examined by the Settlement Commission at the final hearing of the matter, that is, at the stage of passing an order u/s 245D(4) of the Act;
++ in Commissioner of Central Excise, Vishakapatnam v. True Woods Private Ltd. (2006-TIOL-40-HC-DEL-CX), a specific argument had been raised on behalf of the Revenue that it was incumbent upon the Settlement Commission to record a specific finding to the effect that the applicant had made a full and true disclosure before it admitted the application or took any further steps on the basis thereof. This argument was rejected by the Division Bench. The Division Bench was of the view that while the foundation for settlement was an application from the assessee in which the assessee is required to make a full and true disclosure, it was equally true that such requirement need not be examined and authoritatively determined at the threshold of any proceeding initiated before the Commission. Importantly, the Division Bench observed that there may be cases where it is possible for the Commission to record a finding that the disclosure made in the application is full and true. At the same time, there could also be situations in which the Commission may not be able to, at the stage of admission of the application, record a finding with any amount of certainty. It is in such a situation that it would be permissible for the Commission to keep the question open to be examined at a later stage or at the stage of disposal of the application. As in the case of True Woods Pvt. Ltd., this is exactly what has happened in the present case. The Settlement Commission has noted the rival contentions of the Revenue and the applicants with regard to the issues of full and true disclosure and the manner of deriving the undisclosed income and has taken a prima facie view in favour of the applicants. It is not a definitive or final view and it is for this reason that the Settlement Commission, in its wisdom, left the issues open to be determined at the stage of final hearing u/s 245D(4) of the Act. It may very well be that the Settlement Commission, at that stage, may agree with the Revenue on the basis of the material on record and the report submitted by the CIT that the applications were not maintainable u/s 245C(1) of the Act. In fact, the Settlement Commission may, at any stage till it passes a final order u/s 245D(4), examine the issues and if there is sufficient material on record, determine the question of full and true disclosure and the manner in which the undisclosed income was derived conclusively and, depending on such a decision, the applications may be thrown out or they may be proceeded with further;
++ the order of the Supreme Court in Commissioner of Income Tax v. K. Jayaprakash Narayanan (2009-TIOL-143-SC-IT) and the decision of the Division Bench of this Court in True Woods Pvt. Ltd. clinch the issue in favour of the respondents. As such, this Court ought not to interfere with the impugned orders;
++ it is clear that it is mandatory for the Settlement Commission to record its findings with regard to the issues of “full and true disclosure” of particulars of undisclosed income and “the manner” in which such income was derived by the assessee. It is also clear that unless the Settlement Commission records its satisfaction on these aspects, it would not have the jurisdiction to pass any order u/s 245D(4) of the Act setting out the terms of settlement;
++ even when the Settlement Commission decides to proceed with the application when it passes an order u/s 245D(1) or Section 245D(2C), it would not be denuded of its power to examine as to whether the assessee has made a full and true disclosure of his undisclosed income in the application for settlement. The report of the Commission and other documents would be coming on record of the Settlement Commission at different stages of the consideration of the case, before or after the Settlement Commission has decided to proceed with the application, and, all these would be germane to the determination of the said question;
++ all the conclusions made by the Settlement Commission up till now, in the present case, are only prima facie conclusions and do not foreclose the issues raised by the Revenue in the present proceedings. Even when the Settlement Commission decides to proceed with the settlement application, it is not denuded of its power to examine as to whether the said application is in accord with the conditions stipulated in Section 245C(1) of the Act including the conditions of the applicant making a full and true disclosure of his undisclosed income as also the manner in which the said undisclosed income was derived by him.
(See 2013-TIOL-543-HC-DEL-IT)
