By TIOL News Service

AHMEDABAD, DEC 31, 2015: THE issue is - Whether question of fulfillment of material requirements of valid application for settlement will remain open to Settlement Commission to examine before passing final, even if orders u/s 245D(1) & 245(2C) were passed. YES is the verdict.

Facts of the case

The Revenue Department had filed present petition challenging orders passed by Settlement Commission allowing applications filed by assessee u/s 245D(1). The case of the Department is that both the orders of the Settlement Commission suffer from material irregularities. Application for settlement was irregular and that therefore, ought not to have been proceeded further beyond the stage of Section 245D(1). The Revenue was of the view that in any case, assessee had not made true disclosure of his income previously before the AO and the manner in which the said income had been derived. In absence of such important disclosures, the Settlement Commission ought to have declared the application as invalid as provided u/s 245D(2C).

After hearing the parties, the High Court held that,

++ insofar as the order of the Settlement Commission u/s 245D(1) is concerned, the same poses no serious consideration. U/s 245C(1), an assessee is allowed to make an application for settlement in prescribed formate which would contain full and true disclosure of his income which has not been disclosed before the AO and the manner in which such income has been derived. Section 245D(1) provides that on receipt of an application u/s 245C, the Settlement Commission shall, within seven days from the date of receipt of the application, issue a notice to the applicant requiring him to explain as to why the application made by him be allowed to be proceeded with and on hearing the applicant, the Settlement Commission shall pass, within fourteen days from the date of the application, an order in writing rejecting the application or allowing the application to be proceeded with. Proviso to sub-section (1) of Section 245D would make it clear that where no such order has been passed within the aforesaid period by the Settlement Commission, the application shall be deemed to have been allowed to be proceeded with. Thus, at the stage of Section 245D(1), there is no requirement of hearing the Commissioner at all. The stage is to be crossed within a rigid time frame and in absence of any order, either rejecting the application for settlement or allowing it to be proceeded further, it would be deemed to have been allowed to proceed;

++ it is seen that the Delhi High Court in case of Commissioner of Income Tax Vs. Income Tax Settlement Commission has observed that 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). The orders under Section 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). In the said judgment, the counsel for the assessee had not contended that once the 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 u/s 245C(1) cannot be gone into at the subsequent stages up to the passing of the order u/s 245D(4). Same is the situation in the present case. We record the contention of the Counsel for the assessee that despite the orders being passed by the Settlement Commission u/s 245D(1) & Section 245D(2C), the question of fulfillment of all material requirements of a valid application for settlement would be still open for the Commission to examine before further inquiry u/s 245D(3) and passing final order u/s 245D(4). Thus, quite apart from the statutory interpretation adopted by this Court in case of Vishnubhai Mafatlal Patel and Delhi High Court in case of Commissioner of Income Tax Vs. Income Tax Settlement Commission, even the stand of the assessee and that of the Settlement Commission being that the findings of the Settlement Commission on the fulfillment of the requirements of a valid offer are merely tentative and it will be open for the Settlement Commission to examine these aspects before passing final order u/s 245D(4). Under the circumstances, we are not inclined to scrutinize the decisions of the Settlement Commission.

(See 2015-TIOL-2946-HC-AHM-IT)