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R.T. Industries & Ors Vs. Income Tax Settlement Commission & Anr.
September, 18th 2018
$~
*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                           W.P.(C) 4398/2017

                                        Reserved on:      20th August, 2018
%                                      Date of Decision:13th September, 2018


         R.T. INDUSTRIES & ORS                        ..... Petitioner
                        Through    Mr. N.P. Sahni and Mr. Ruchesh
                        Sinha, Advocates.

                            versus

         INCOME TAX SETTLEMENT COMMISSION & ANR.
                                                  ..... Respondent
                      Through Mr. Ruchir Bhatia, Advocate.

         CORAM:
         HON'BLE MR. JUSTICE SANJIV KHANNA
         HON'BLE MR. JUSTICE CHANDER SHEKHAR


SANJIV KHANNA, J.

          Petitioner No.1, M/s. R.T. Industries is a partnership firm based in
the Tonk district in the State of Rajasthan and primarily engaged in
production and trading of mustard oil, mustard seeds, oil cake etc.
Petitioner Nos.2 and 3, Trilok Chand Jain and Gyan Chand Jain are the
partners of R.T. Industries and claim that they were engaged in business of
lending money on interest. Petitioner Nos.4 and 5, are Rajesh Kumar Jain
(HUF) and Ashok Kumar Jain (HUF) and claim that they had earned
income from commission/brokerage on sale/purchase of properties.



WP(C) 4398/2017                                                  Page 1 of 48
2.       On 10.12.2015 search and seizure operations under Section 132 of the
Income Tax Act, 1961 (the Act, for short) were conducted in the case of the
petitioners and others associated with them. Simultaneously, survey
operations under Section 133A at some locations were undertaken.
3.       During the aforesaid operations, cash of Rs. 34,89,000/- and jewellery
worth Rs. 1,49,73,682/- were found out of which Rs.34,00,000/- in cash and
jewellery valued at Rs.23,53,853/- was seized. Incriminating documents in
the form of loose papers, registers, dairy etc. were also found and seized.
Trilok Chand Jain in his statement recorded on 10th December, 2015 had
admitted and surrendered undisclosed income of more than Rs. 18 Crores
for the entire group in the hands of different assessees. Subsequently, Trilok
Chand Jain vide his letter dated 18th November,2016 had retracted the
surrender.
4.       Consequent to the search, the petitioners were served with notices
under Section 153A for the assessment years 2010-11 to 2015-16. As
returns were not filed, notices for prosecution under Section 276CC of the
Act were also issued and served on the petitioners. The petitioners on the
other hand claim that they had filed their returns after seeking extension of
time on two occasions.
5.       On 28th April, 2017, five separate applications under Section 245C (1)
of the Act were filed by the five petitioners before the Income Tax
Settlement Commission (the Settlement Commission, for short), the first
respondent before us. The applications were for the assessment years 2010-
11 to 2016-17. On the same date itself intimation regarding filing of the
applications before the Settlement Commission was served on the Assistant



WP(C) 4398/2017                                                   Page 2 of 48
Commissioner of Income Tax, Central-I, Jaipur, the Assessing Officer and
Respondent No. 2 before us.
6.       The Settlement Commission by notice dated 28th April, 2017 had
informed the petitioners that the applications would be taken up for hearing
on 9th May, 2017. However, by notice dated 2nd May, 2017, hearing on the
applications before the Settlement Commission was preponed to 8th May,
2017.
7.       On 8th May, 2017, the Settlement Commission had heard ex-parte
arguments addressed by the petitioners for allowing the applications to be
proceeded with under Section 245D(1) of the Act.
8.       The Settlement Commission by the impugned order under Section
245D(1) of the Act also dated 8th May, 2017 has rejected the settlement
applications, holding that the petitioners had failed to establish sources of
undisclosed income, extent of such income and manner in which such
income was derived. The statement of affairs filed by the petitioners, it was
observed, were uniformly lacking from foundation of credible evidence
and were unreliable. The Settlement Commission held that "prima facie"
the conditions prescribed in Section 245C (1) of the Act were not fulfilled.
We shall subsequently refer to and quote from the impugned order.
9.        As the primary issue raised in the present writ petition relates to the
scope and ambit of the enquiry at the stage of passing of the order under
Section 254D(1) of the Act, we deem it proper to begin by reproducing and
examining Sections 245 C(1), sub-sections (1), (2), (2B), (2C), (2D), (3),
(4), (4A), (5), (6) and (6A) of Section 245 D and sub-sections (1) and (2) of
Section 245F and Sections 245-J of the Act, which are as under:-



WP(C) 4398/2017                                                     Page 3 of 48
                  "245C. Application for settlement of cases.- (1) An assessee
                  may, at any stage of a case relating to him, make an application
                  in such form and in such manner as may be prescribed, and
                  containing a full and true disclosure of his income which has
                  not been disclosed before the Assessing Officer, the manner in
                  which such income has been derived, the additional amount of
                  income-tax payable on such income and such other particulars
                  as may be prescribed, to the Settlement Commission to have
                  the case settled and any such application shall be disposed of in
                  the manner hereinafter provided:

                  Provided that no such application shall be made unless,--

                  (i) in a case where proceedings for assessment or reassessment
                  for any of the assessment years referred to in clause (b) of sub-
                  section (1) of section 153A or clause (b) of sub-section (1) of
                  section 153B in case of a person referred to in section 153A or
                  section 153C have been initiated, the additional amount of
                  income-tax payable on the income disclosed in the application
                  exceeds fifty lakh rupees,

                  (ia) in a case where--

                  (A) the applicant is related to the person referred to in clause (i)
                  who has filed an application (hereafter in this sub-section
                  referred to as specified person); and

                  (B) the proceedings for assessment or re-assessment for any of
                  the assessment years referred to in clause (b) of sub-section (1)
                  of section 153A or clause (b) of sub-section (1) of section 153B
                  in case of the applicant, being a person referred to in section
                  153A or section 153C, have been initiated, the additional
                  amount of income-tax payable on the income disclosed in the
                  application exceeds ten lakh rupees,

                  (ii) in any other case, the additional amount of income-tax
                  payable on the income disclosed in the application exceeds ten
                  lakh rupees, and such tax and the interest thereon, which would
                  have been paid under the provisions of this Act had the income


WP(C) 4398/2017                                                         Page 4 of 48
                  disclosed in the application been declared in the return of
                  income before the Assessing Officer on the date of application,
                  has been paid on or before the date of making the application
                  and the proof of such payment is attached with the application.

                  Explanation.--For the purposes of clause (ia),--

                  (a) the applicant, in relation to the specified person referred to
                  in clause (ia), means,--

                  (i) where the specified person is an individual, any relative of
                  the specified person;

                  (ii) where the specified person is a company, firm, association
                  of persons or Hindu undivided family, any director of the
                  company, partner of the firm, or member of the association or
                  family, or any relative of such director, partner or member;

                  (iii) any individual who has a substantial interest in the business
                  or profession of the specified person, or any relative of such
                  individual;

                  (iv) a company, firm, association of persons or Hindu
                  undivided family having a substantial interest in the business or
                  profession of the specified person or any director, partner or
                  member of such company, firm, association or family, or any
                  relative of such director, partner or member;

                  (v) a company, firm, association of persons or Hindu undivided
                  family of which a director, partner or member, as the case may
                  be, has a substantial interest in the business or profession of the
                  specified person; or any director, partner or member of such
                  company, firm, association or family or any relative of such
                  director, partner or member;

                  (vi) any person who carries on a business or profession,--
                  (A) where the specified person being an individual, or any
                  relative of such specified person, has a substantial interest in
                  the business or profession of that person; or


WP(C) 4398/2017                                                        Page 5 of 48
                  (B) where the specified person being a company, firm,
                  association of persons or Hindu undivided family, or any
                  director of such company, partner of such firm or member of
                  the association or family, or any relative of such director,
                  partner or member, has a substantial interest in the business or
                  profession of that person;

                  (b) a person shall be deemed to have a substantial interest in a
                  business or profession, if--

                  (A) in a case where the business or profession is carried on by a
                  company, such person is, at any time during the previous year,
                  the beneficial owner of shares (not being shares entitled to a
                  fixed rate of dividend, whether with or without a right to
                  participate in profits) carrying not less than twenty per cent of
                  the voting power; and

                  (B) in any other case, such person is, at any time during the
                  previous year, beneficially entitled to not less than twenty per
                  cent of the profits of such business or profession.

                  xxxxx

                  245-D. Procedure on receipt of an application under Section
                  245-C.-- (1) On receipt of an application under section 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, within a period of fourteen
                  days from the date of the application, by an order in writing,
                  reject the application or allow the application to be proceeded
                  with:

                  Provided that where no 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.




WP(C) 4398/2017                                                        Page 6 of 48
                  (2) A copy of every order under sub-section (1) shall be sent to
                  the applicant and to the Principal Commissioner or
                  Commissioner.

                  (2A) Where an application was made under section
                  245C before the 1st day of June, 2007, but an order under the
                  provisions of sub-section (1) of this section, as they stood
                  immediately before their amendment by the Finance Act, 2007,
                  has not been made before the 1st day of June, 2007, such
                  application shall be deemed to have been allowed to be
                  proceeded with if the additional tax on the income disclosed in
                  such application and the interest thereon is paid on or before the
                  31st day of July, 2007.

                  Explanation.--In respect of the applications referred to in this
                  sub-section, the 31st day of July, 2007 shall be deemed to be
                  the date of the order of rejection or allowing the application to
                  be proceeded with under sub-section (1).

                  (2B) The Settlement Commission shall,--

                       (i) in respect of an application which is allowed to be
                  proceeded with under sub-section (1), within thirty days from
                  the date on which the application was made; or

                       (ii) in respect of an application referred to in sub-section
                  (2A) which is deemed to have been allowed to be proceeded
                  with under that sub-section, on or before the 7th day of August,
                  2007,

                  call for a report from the Principal Commissioner or
                  Commissioner, and the Principal Commissioner or
                  Commissioner shall furnish the report within a period of thirty
                  days of the receipt of communication from the Settlement
                  Commission.

                   (2-C) Where a report of the Principal Commissioner or
                  Commissioner called for under sub-section (2-B) has been
                  furnished within the period specified therein, the Settlement


WP(C) 4398/2017                                                        Page 7 of 48
                  Commission may, on the basis of the report and within a period
                  of fifteen days of the receipt of the report, by an order in
                  writing, declare the application in question as invalid, and shall
                  send the copy of such order to the applicant and the Principal
                  Commissioner or Commissioner:

                  Provided that an application shall not be declared invalid unless
                  an opportunity has been given to the applicant of being heard:

                  Provided further that where the Principal Commissioner or
                  Commissioner has not furnished the report within the aforesaid
                  period, the Settlement Commission shall proceed further in the
                  matter without the report of the Principal Commissioner or
                  Commissioner.

                  (2-D) Where an application was made under sub-section (1) of
                  Section 245-C before the 1st day of June, 2007 and an order
                  under the provisions of sub-section (1) of this section, as they
                  stood immediately before their amendment by the Finance Act,
                  2007, allowing the application to have been proceeded with,
                  has been passed before the 1st day of June, 2007, but an order
                  under the provisions of sub-section (4), as they stood
                  immediately before their amendment by the Finance Act, 2007,
                  was not passed before the 1st day of June, 2007, such
                  application shall not be allowed to be further proceeded with
                  unless the additional tax on the income disclosed in such
                  application and the interest thereon, is, notwithstanding any
                  extension of time already granted by the Settlement
                  Commission, paid on or before the 31st day of July, 2007.

                  (3) The Settlement Commission, in respect of--

                  (i) an application which has not been declared invalid under
                  sub-section (2-C); or

                  (ii) an application referred to in sub-section (2-D) which has
                  been allowed to be further proceeded with under that sub-
                  section,



WP(C) 4398/2017                                                        Page 8 of 48
                  may call for the records from the Principal Commissioner or
                  Commissioner and after examination of such records, if the
                  Settlement Commission is of the opinion that any further
                  enquiry or investigation in the matter is necessary, it may direct
                  the Principal Commissioner or Commissioner to make or cause
                  to be made such further enquiry or investigation and furnish a
                  report on the matters covered by the application and any other
                  matter relating to the case, and the Principal Commissioner or
                  Commissioner shall furnish the report within a period of ninety
                  days of the receipt of communication from the Settlement
                  Commission:

                  Provided that where the Principal Commissioner or
                  Commissioner does not furnish the report within the aforesaid
                  period, the Settlement Commission may proceed to pass an
                  order under sub-section (4) without such report.

                  (4) After examination of the records and the report of
                  the Principal Commissioner or Commissioner, if any, received
                  under--

                  (i) sub-section (2-B) or sub-section (3), or

                  (ii) the provisions of sub-section (1) as they stood immediately
                  before their amendment by the Finance Act, 2007,

                  and after giving an opportunity to the applicant and to
                  the Principal Commissioner or Commissioner to be heard,
                  either in person or through a representative duly authorised in
                  this behalf, and after examining such further evidence as may
                  be placed before it or obtained by it, the Settlement
                  Commission may, in accordance with the provisions of this
                  Act, pass such order as it thinks fit on the matters covered by
                  the application and any other matter relating to the case not
                  covered by the application, but referred to in the report of
                  the Principal Commissioner or Commissioner.

                  (4-A) The Settlement Commission shall pass an order under
                  sub-section (4)--


WP(C) 4398/2017                                                        Page 9 of 48
                  (i) in respect of an application referred to in sub-section (2-A)
                  or sub-section (2-D), on or before the 31st day of March, 2008;

                  (ii) in respect of an application made on or after the 1st day of
                  June, 2007 but before the 1st day of June, 2010, within twelve
                  months from the end of the month in which the application was
                  made.]

                   (iii) in respect of an application made on or after the 1st day of
                  June, 2010, within eighteen months from the end of the month
                  in which the application was made.

                  (5) Subject to the provisions of Section 245-BA, the materials
                  brought on record before the Settlement Commission shall be
                  considered by the Members of the Bench concerned before
                  passing any order under sub-section (4) and, in relation to the
                  passing of such order, the provisions of Section 245-BD shall
                  apply.

                  (6) Every order passed under sub-section (4) shall provide for
                  the terms of settlement including any demand by way of tax,
                  penalty or interest the manner in which any sum due under the
                  settlement shall be paid and all other matters to make the
                  settlement effective and shall also provide that the settlement
                  shall be void if it is subsequently found by the Settlement
                  Commission that it has been obtained by fraud or
                  misrepresentation of facts.

                  (6-A) Where any tax payable in pursuance of an order under
                  sub-section (4) is not paid by the assessee within thirty-five
                  days of the receipt of a copy of the order by him, then whether
                  or not the Settlement Commission has extended the time for
                  payment of such tax or has allowed payment thereof by
                  instalments, the assessee shall be liable to pay simple interest
                  at one and one-fourth per cent for every month or part of a
                  month on the amount remaining unpaid from the date of expiry
                  of the period of thirty-five days aforesaid.

                  xxxxx


WP(C) 4398/2017                                                         Page 10 of 48
                  245-F. Power and procedure of Settlement Commission.-- (1)
                  In addition to the powers conferred on the Settlement
                  Commission under this Chapter, it shall have all the powers
                  which are vested in an income tax authority under this Act.

                  (2) Where an application made under Section 245-C has been
                  allowed to be proceeded with under Section 245-D, the
                  Settlement Commission shall, until an order is passed under
                  sub-section (4) of Section 245-D, 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 this Act in relation to the case:

                  Provided that where an application has been made under
                  Section 245-C on or after the 1st day of June, 2007, the
                  Settlement Commission shall have such exclusive jurisdiction
                  from the date on which the application was made:

                  Provided further that where--

                  (i) an application made on or after the 1st day of June, 2007, is
                  rejected under sub-section (1) of Section 245-D; or

                  (ii) an application is not allowed to be proceeded with under
                  sub-section (2-A) of Section 245-D, or, as the case may be, is
                  declared invalid under sub-section (2-C) of that section; or

                  (iii) an application is not allowed to be further proceeded with
                  under sub-section (2-D) of Section 245-D,

                  the Settlement Commission, in respect of such application shall
                  have such exclusive jurisdiction up to the date on which the
                  application is rejected, or, not allowed to be proceeded with, or,
                  declared invalid, or, not allowed to be further proceeded with,
                  as the case may be.

                  xxxx




WP(C) 4398/2017                                                        Page 11 of 48
                  245-J. Recovery of sums due under order of settlement.-- Any
                  sum specified in an order of settlement passed under sub-
                  section (4) of Section 245-D may, subject to such conditions, if
                  any, as may be specified therein, be recovered, and any penalty
                  for default in making payment of such sum may be imposed
                  and recovered in accordance with the provisions of Chapter
                  XVII, by the Assessing Officer having jurisdiction over the
                  person who made the application for settlement under Section
                  245-C.

10.      Settlement Commission has been constituted under Section 245B of
the Act. Section 245BA delineates and outlines jurisdiction and powers of
Settlement Commission. Sub-section (1) to Section 245C states that an
assessee at any stage of a case relating to him can make an application to the
Settlement Commission in the prescribed form containing full and true
disclosure of his income not disclosed before the Assessing Officer; the
manner such income was derived; the additional amount of tax payable on
undisclosed income and other particulars as prescribed. Proviso prescribes
other conditions including the minimum amount of tax that should be
payable on the undisclosed income and that the tax and the interest on the
undisclosed income has to be paid on or before the date of making of the
application. Proof of payment is to be attached with the application.
11.      Section 245D vide as many as 15 sub-sections sets forth in detail the
procedure to be followed by the Settlement Commission. We are primarily
concerned with sub-section (1) to Section 245D, which states that the
Settlement Commission shall within 7 days of the receipt of the application
issue notice to the applicant to explain as to why the application should be
allowed to be proceeded with and within a period of 14 days from the date
of application pass an order in writing allowing or rejecting the application


WP(C) 4398/2017                                                      Page 12 of 48
to be proceeded. The proviso states that if no order is passed within the
stated period, the application is deemed to have been allowed to be
proceeded with. Sub-section (2) states that the order passed under sub-
section (1) would be communicated to the Principal Commissioner or
Commissioner. Thus, at this stage only the applicant is heard and the statute
does not mandate oral hearing or written representation by the Principal
Commissioner or Commissioner. As the Principal Commissioner/
Commissioner do not get opportunity to respond and ague at this stage, their
stand and stance remains unknown.
12.      Sub-section (2B) to Section 245D states that the Settlement
Commission shall within thirty days of the application being allowed to be
proceeded with, call for report from the Principal Commissioner or
Commissioner and that the Principal Commissioner/Commissioner shall
within thirty days of the receipt of the communication submit their report to
the Settlement Commission. The Settlement Commission in terms of Sub-
Section (2C) to Section 245D of the Act can within a period of 15 days of
the submission of the report, pass an order and declare the settlement
application as invalid. However, before an order of rejection is passed,
opportunity of hearing is required and mandated. In case of failure of the
Principal Commissioner/Commissioner to furnish their report within the
specified period, the settlement application proceeds without their report.
13.      Where the application is not declared invalid or has been allowed to
be      proceeded    with    on    account    failure   of    the        Principal
Commissioner/Commissioner to file report under Sub-Section (2C) to
Section 245D of the Act, the Settlement Commission may call for records
from the Principal Commissioner/Commissioner. If on examination of


WP(C) 4398/2017                                                     Page 13 of 48
records the Settlement Commission feels that further inquiry or
investigation     is   necessary,   they    can    direct    the        Principal
Commissioner/Commissioner to make or cause to make further inquiry or
investigation and furnish a report on the matters covered by the application
and also other matters relating to the case. The report is to be furnished
within 90 days from the date of receipt of the communication from the
Settlement Commission. Sub-section (4) to Section 245D states that
Settlement Commission may after examining the records and the report of
the Principal Commissioner/Commissioner, if any, received under sub-
section (2B) or sub-section (3) and after giving an opportunity of hearing to
the applicant and the Principal Commissioner/Commissioner and examining
further evidence as may be placed or obtained by it, pass an order in
accordance with the provision of the Act as it thinks fit on the matters
covered by the application and other matters relating to the case not covered
by the application. These can be matters referred to in the report of the
Principal Commissioner/Commissioner. Sub-section (4A) prescribes time
limits for passing of orders under sub-section (4) to Section 245D. Sub-
section (5) states that the material brought on record shall be considered by
Settlement Commission before passing an order under Section 245D (4) of
the Act. Sub-section (6) mandates that every order under sub-section (4) to
Section 245D of the Act shall include demand by way of tax, penalty or
interest, the manner in which sum due would be paid and all other matters to
make the settlement effective and also stipulate that the settlement would be
void if it is subsequently found by the Settlement Commission that the
settlement has been obtained by fraud or misrepresentation of facts. Sub-
section (6A) states that in case tax is not paid within thirty-five days from


WP(C) 4398/2017                                                    Page 14 of 48
receipt of the order under Section 245D(4) of the Act or the extended
period, tax as determined, interest etc. would be payable. Sub-Section 6A
authorises the jurisdictional Assessing Officer to recover demands of the
additional tax and interest (and also penalty imposed for default) not paid in
terms of order under Section 245D(4) of the Act.
14.      Provisions with regard to payment of additional tax, and interest (and
penalty in default) in terms of the decision by the Settlement Commission
under Section 245D(4) of the Act and payment/recovery post the decision
does indicate and affirms that there could well be cases where the tax
payable as computed as per the settlement application could be enhanced
requiring deposit of additional tax and interest, notwithstanding the statutory
requirement to make full and true disclosure of undisclosed income and
pre-deposit of tax and interest before the settlement application is filed. In
the context of the present writ petition we need not elaborate, except record
that the requirement of "full and true" disclosure of undisclosed income and
the manner in which such income was derived are the two essential and core
mandatory conditions, which every settlement application must satisfy.
Failure to make "full and true" disclosure of undisclosed income and the
manner by which such income was derived is fatal. However, the statute
does not rule out possibility that an order under section 245D (4) of the Act
could require payment of additional tax and interest. This pliancy envisaged
by the provisions is limited and the order under section 245D (4) of the Act
should not undermine the legislative dictum in the form of the strict pre-
conditions. The legislature was conscious that inspite of full and true
disclosure of undisclosed income and the manner in which it was earned,
situations could arise when on interpretation of statutory provisions







WP(C) 4398/2017                                                   Page 15 of 48
additional tax and interest is required to be paid. A strait-jacket command
and stipulation that no additional tax and interest can be demanded in an
order under Section 245D(4) of the Act is therefore not the mandate, albeit
this leverage should not be exercised to dilute and undermine the condition
of "full and true" disclosure of income not earlier disclosed and the manner
in which such income was derived. The provision does not permit and
postulate piecemeal disclosures, which can be enhanced and increased
during the proceedings before the Settlement Commission for the statute
requires "full and true" disclosure in the settlement application and not
incomplete or partial disclosure. Modification and amendment of the
settlement application to comply with the statutory preconditions is not
permissible.
15.      On many occasions, an application for settlement could on the
question of computation of undisclosed income have an element of
estimation. Settlement provisions would well apply to the said cases and are
not barred as long as the undisclosed income declared is full and true and
the manner in which it is derived is stated. The Settlement Commission
under Chapter XIX ­A has all powers as vested in the Income-tax
authorities under the Act till a final order is passed.      The Settlement
Commission has exclusive jurisdiction to exercise power and performs
functions of the Income-tax Authorities under the Act in relation to the case.
However, unlike the Income-tax authorities, the Settlement Commission
does not proceed to make an assessment but passes an order of settlement.
The Supreme Court in The Commission of Income-tax Vs. Om Prakash
Mittal, [2005] 143 Taxman 373 (SC), has held that Section 245D(4) of the
Act uses the word order` and not assessment` and observed that the order


WP(C) 4398/2017                                                  Page 16 of 48
passed is not like an original assessment, regular assessment or re-
assessment. In that sense, the Commission exercises plenary jurisdiction.
16.      We would now refer to other case law dealing the power and nature
of jurisdiction exercised by the Settlement Commission under Chapter XIX-
A of the Act, which was introduced by Taxation Laws (Amendment) Act,
1975, pursuant to Wanchoo Committee Recommendations. Interpreting the
provisions, the Supreme Court in CIT versus B.N. Bhattacharjee, (1979) 4
SCC 121 had expressed a degree of reservation and had cautioned that the
provisions could become a panacea for tax evaders to avoid penalty and
prosecution, nevertheless it was observed that functionally the Chapter
provides settlement of a tax dispute as a compromise measure where the tax
evader could make a true disclosure to buy quittance for himself. The State
avoids protracted litigation, gains from accelerated recovery of taxes and
need not take recourse to cumbersome recovery proceedings. The judgment
highlights that the statutory provisions as enacted would work properly if
the settlement arrived is fair, prompt and independent. This is possible if the
Settlement Commission is to be composed of officers with integrity, wide
knowledge and experience thereby preventing misuse. The Settlement
Commission, it was observed, in terms of the statute stands vested with full
powers to investigate cases, and on its jurisdiction being invoked quantify
the amount of tax, penalty or interest. This judgment thereafter refers to the
quasi-judicial nature of the proceedings as the Settlement Commission has
the right to object to and reject the application from being proceeded with.
However, a rejection requires hearing to be given to the assessee before an
order under Section 245D(1) of the Act is passed.



WP(C) 4398/2017                                                   Page 17 of 48
17.      Commissioner of Income Tax, Jalpaiguri versus Om Prakash
Mittal, (2005) 2 SCC 751, opines that Section 245C(1) makes it clear that
the assessee can approach Settlement Commission by way of an application
at any stage of the proceedings against him by disclosing fully and truly his
income, which has not been disclosed before the Assessing Officer. This
disclosure must be voluntary and that the application must contain true and
full disclosure of the hitherto concealed income and the manner in which it
was derived. These were the fundamental and essential pre-conditions.
18.      Aspect of "full and true" disclosure was highlighted and brought to
forefront         in   Ajmera   Housing   Corporation   and   Another      versus
Commissioner of Income Tax, (2010) 8 SCC 739. The self-confessed tax
evader must come clean with his past illegitimate affairs, discharge his tax
liability as determined by the Settlement Commission to buy quittance for
himself and in the process, accelerate recovery of taxes by the State, though
less than what may have been recovered after protracted litigation and by
recovery proceedings. Disclosure of "full and true" of particulars
undisclosed income, and the manner in which said income has been derived
are essential and mandatory pre-requisites of a valid application. Therefore,
unless the Settlement Commission records their satisfaction on the said
aspect, it would not have jurisdiction to pass an order on a matter covered
by the application.         Reference was made to form No. 34B, which in
different columns, requires the assessee to make "full and true" disclosure
and also give full details of issues for which application for settlement is
made, nature and circumstances of the case, as well as complexities of
investigation involved. This decision makes it clear that the question of "full
and true" disclosure as well as manner in which the undisclosed income is


WP(C) 4398/2017                                                   Page 18 of 48
derived can be examined at different stages and is finally decided while
passing the order under Section 245D(4) of the Act. The Settlement
Commission is not denuded of its power to examine the aforesaid two
quintessential aspects, when the application is allowed to be proceeded with
under Section 245D(1) of the Act or thereafter not declared invalid under
Section 245D(2C) of the Act. These are steps in the proceedings. At each
stage, the Settlement Commission is required to consider the two pre-
conditions and an earlier observation on "full and true" disclosure would not
affect the power of the Settlement Commission to reject an application on
non satisfaction of the said requirements under sub-section (4) to Section
245D of the Act.
19.      In view of the aforesaid statutory position, it is clear that the
Settlement Commission can examine the questions and issues of
maintainability of the settlement application at three different stages. The
first is a very initial stage, when it in terms of Section 245D(1) of the Act,
the Settlement Commission examines whether or not to allow an application
to be proceeded with.          The second stage is after the Principal
Commissioner/Commissioner has filed its report before the Settlement
Commission and the Settlement Commission passes an order under Section
245D(2C) of the Act. The third stage is when the final order under Section
245D(4) of the Act is passed. In the present writ petition, we are concerned
with the first stage, i.e. under Section 245D(1) of the Act.
20.      The Gujarat High Court has elaborately examined and dealt with the
scope and ambit of inquiry at the stage of Section 245D(1) of the Act in
Vishnubhai Mafatlal Patel Vs. Assistant Commissioner of Income Tax,
Special Civil Application Nos. 12060,12061 and 12063 of 2012 decided on


WP(C) 4398/2017                                                  Page 19 of 48
4th December, 2012. Relevant paragraphs of the said judgment read as
under:-

                  "8. Under sub-section(1) of section 245D thus, the first stage of
                  scrutinising the application of settlement made by an assessee
                  is envisaged. The statute does not provide for grounds on which
                  Settlement Commission may reject such an application or allow
                  the application to be proceeded with. There are however,
                  sufficient indications in the statute itself what would be the
                  purpose and nature of scrutiny of Commission at that stage. As
                  already noted, sub-section(1) of section 245C an assessee may
                  make an application for settlement in the prescribed manner
                  containing true and full disclosure of income not previously
                  disclosed before the Assessing Officer and the manner in which
                  such income had been derived as also the additional amount of
                  income-tax payable on such income and such other particulars
                  as may be prescribed. At the stage of sub-section(1) of section
                  245D of the Act, therefore, prime scrutiny of the Commission
                  would be whether application of the assessee is in order and in
                  conformity with the requirements of sub-section(1) of section
                  245C which would include filing of an application in the
                  prescribed manner and also making necessary disclosures as
                  required therein. There are also additional requirements of sub-
                  section(1) of section 245C such as payment of requisite tax and
                  interest thereon which would have been payable under the
                  provisions of the Act, had the income disclosed in the
                  application been declared by the assessee in the return of
                  income before the Assessing Officer. It would thus be well
                  within the jurisdiction of the Settlement Commission to
                  examine whether the application for settlement fulfills such
                  requirements or not. Such scrutiny of-course would be
                  summary in nature. We may recall that the Settlement
                  Commission upon receipt of such an application within seven
                  days thereof, has to issue notice to the assessee and pass a final
                  order either rejecting the application or allowing the application
                  to be proceeded within fourteen days of the date of application.
                  Proviso to sub-section(1) of section 245D makes it further clear
                  that when no such order is passed rejecting the application

WP(C) 4398/2017                                                        Page 20 of 48
                  within the period prescribed, the application shall be deemed to
                  have been allowed to be proceeded with.

                  9. Two things therefore, emerge. Firstly, that at the stage of
                  section 245D(1) of the Act, the Commission would have ample
                  powers to examine whether an application of an assessee made
                  under section 245C(1) of the Act fulfills the legal requirements
                  particularly, those provided in section 245C(1) of the Act.
                  Secondly, that such inquiry however, shall have to be summary
                  in nature. The later provisions of sections 245D would also
                  demonstrate that any decision of the Commission to allow the
                  application to be proceeded with would only be prima facie in
                  nature. We would elaborate this aspect a little later. At this
                  stage, therefore, we find that under section 245D(1) of the Act,
                  if the Commission on a summary inquiry comes to the
                  conclusion that an application filed by the assessee under
                  section 245C(1) of the Act does not fulfill the legal
                  requirements, it would be within the jurisdiction of the
                  Commission to reject the same. However, if it is allowed to be
                  proceeded with, such decision would be tentative in nature.
                                             xx

                  "12. The twin requirements for an assessee making an
                  application for settlement under section 245C(1) of the Act, of
                  containing full and true disclosure of income which has not
                  been disclosed before the Assessing Officer and the manner in
                  which such income has been derived, are thus of considerable
                  importance and would be open for the Settlement Commission
                  to examine the fulfillment thereof at several stages of the
                  settlement proceedings. If therefore, while at the threshold,
                  considering the question whether such application should be
                  allowed to be proceeded with or be rejected, the Commission
                  examined such questions on the basis of disclosure made by the
                  applicants and the supporting material produced along with the
                  applications, we do not see that the Commission committed any
                  legal error. As already noted, it was well within the jurisdiction
                  of the Commission at the stage of sub-section(1) of section
                  245D of the Act to examine whether application for settlement


WP(C) 4398/2017                                                        Page 21 of 48
                  fulfills the statutory requirements contained in sub-section(1) of
                  section 245C of the Act. At this stage we may refer to the
                  decision of the Supreme Court in case of Ajmera Housing
                  Corporation and another(supra). It was a case in which the
                  assessee had made certain disclosures in the initial application
                  under section 245C(1) of the Act. Such disclosures were
                  however, revised and additional income was disclosed in the
                  revised annexures. The Apex Court held that the assessee had
                  no right to revise an application under section 245C(1) of the
                  Act and further that such revised annexure making further
                  disclosure of undisclosed income alone was sufficient to
                  establish that the initial application made by the assessee could
                  not be entertained as it did not contain true and full disclosure
                  of the undisclosed income and the manner in which such
                  income had been derived.

21.      Referring to the aforesaid provisions, a Division Bench of this Court
in Commission of Income-tax Vs. Income-tax Settlement Commission,
[2014] 360 ITR 407 (Delhi), had observed and referred to the different
stages the Settlement Commission examines the application and can reject
the same. The first stage is when an order under Section 245 D(1) of the
Act is passed, followed by the order under Section 245D (2C) of the Act and
finally the order under Section 245 D (4) of the Act. The first two orders
under Section 245 D (1) and (2C) are not final orders and they are subject to
final orders to be passed under Section 245 D (4) of the Act. The issue of
"full and true" disclosure on the part of the applicant and the manner in
which the undisclosed income was derived from is open for discussion and
debate at each stage, notwithstanding, the fact that it may have been
examined earlier under Sub-section (1) or (2C) of Section 245D of the Act.
The entire issue remains open till an order under Section 245 D (4) is
passed. At each stage, the Settlement Commission can examine the issue of


WP(C) 4398/2017                                                        Page 22 of 48
"full and true" disclosure and the manner in which the undisclosed income
has been derived.
22.      In Commissioner of Income-tax            Vs. M/s. Godwin Steels Pvt.
Ltd.,[2013] 353 ITR 353 (Delhi), reference was made to Section 245(D) (5)
which requires that before passing an order under Sub-section (4) members
of the Settlement Commission shall consider the material brought on record
and referring to the nature of consideration required and determination by
the Settlement Commission, it was observed:

                  27. Applying the ratio laid down in the aforesaid judgments
                  to the case before us, we find that the ITSC has not disposed of
                  the application before them in the manner required by law. The
                  report of the CIT filed before the ITSC under Rule 9 of the
                  Settlement Commission (Procedure) Rules is very elaborate
                  and we have also made a reference to the same. It would appear
                  that the ITSC has not accorded due weightage, credibility or
                  consideration to the serious objections taken by the CIT in his
                  report. Section 245D(5) reads as under:-
                        (5) Subject to the provisions of Section 245BA, the
                        materials brought on record before the Settlement
                        commission shall be considered by the Members of the
                        concerned Bench before passing any order under Sub-
                        section (4) and, in relation to the passing of such order,
                        the provisions of Section 245BD shall apply.
                        [Emphasis supplied]

                  The aforesaid sub-section requires that the materials brought on
                  record before ITSC shall be considered by the members
                  before passing any final order under sub-section (4). The word
                  consideration means an independent examination of the
                  evidence and materials brought on record before the ITSC by
                  the members and application of mind thereto with a view to
                  independently assess the materials and evidence, whether


WP(C) 4398/2017                                                      Page 23 of 48
                  adduced by the assessee-applicant or by the CIT and come to a
                  conclusion by themselves. In Bikhubhai Vithlabhai Patel. v.
                  State of Gujarat [2008] (4) SCC 144 the Supreme Court
                  considered the expression as considered necessary and
                  opined that the term consider means to think over and it
                  connotes that there should be active application of the mind.
                  Earlier in CIT vs. Rai Bahadur Hardutroy Motilal Chamaria
                  [1967] 66 ITR 443, a three Judges Bench of the Supreme
                  Court, while dealing with the power of the first appellate
                  authority under the Income Tax Act to enhance the assessment,
                  observed that the word consideration (in its verb form) means
                  that there must be something in the assessment order to show
                  that the income tax officer applied his mind to the particular
                  subject matter or the particular source of income with a view to
                  its taxability or to its non-taxability and not to any incidental
                  connection. It is necessary to remember that the ITSC is not
                  deciding a case inter-parties; they are assessing or estimating
                  the amount on which, in the interests of the country at large, the
                  tax payer ought to be taxed. The observations made by the
                  Court of Appeal in England in King Vs. Income Tax Special
                  Commissioners [1936] 1K.B. 487 are relevant. Lord Wright
                  observed that the Special Commissioners were not in the
                  position of judges deciding an issue between two particular
                  parties, that their obligation is wider than that, that they were
                  exercising statutory authority and statutory duty which they are
                  bound to carry out and it is their obligation to exercise their
                  judgment on such material as comes before them and to obtain
                  any material which they think is necessary and which they
                  ought to have, and on that material to make the assessment or
                  the estimate which the law requires them to make. These
                  observations made in relation to the proceedings before the
                  Special Commissioners of income tax, who proceeded to hear
                  the appeal filed by the assessee despite notice given by him to
                  withdraw the appeal, apply with equal force to the ITSC which
                  has been given a special position and authority under the
                  Income Tax Act. However, in the present case, the ITSC seems
                  to have entrusted the job of verification and application of mind
                  to the officers assisting it. It may be true that in all cases it may


WP(C) 4398/2017                                                          Page 24 of 48
                  not be expected of the members constituting the Bench to
                  themselves verify every material or evidence brought before
                  them in the matter of settling the case. However, in cases where
                  there are copious material and evidence collected by the income
                  tax authorities in respect of which an in-depth examination of
                  the explanation of the assessee-applicant is called for, it is
                  necessary that the members constituting the Bench themselves
                  examine the materials and evidence and come to their own
                  conclusion. In such cases they are not expected to merely
                  endorse the report of the officers assisting them.

                  28. Section 245B(3) provides for appointment of members
                  of the ITSC from amongst persons of integrity and
                  outstanding ability, having special knowledge of, and
                  experience in, problems relating to direct taxes and business
                  accounts. This requirement is obviously designed not only to
                  take advantage of such knowledge, ability and experience but
                  also to ensure that cases involving complexity of business
                  accounts are properly unravelled and the significance of the
                  accounts is properly appreciated and incorporated in the
                  settlement. Section 245-I provides for finality of the order of
                  the ITSC in respect of matters covered by the order of
                  settlement. This section casts a duty upon the ITSC to
                  thoroughly examine the evidence and material placed before
                  them in order to ensure that unscrupulous assessees do not take
                  undue advantage of the finality of the order of settlement. It is
                  no doubt open to the ITSC to take the assistance of its officers
                  in the matter of doing the ground work and carrying out the
                  verification of the record, seized materials, documents, account
                  books etc., but in the present case, having regard to the grave
                  charges levelled against the assessee-applicant in the report of
                  the CIT, the ITSC ought to have itself examined independently
                  the claim of the assessee-applicant and the officers of the
                  Income Tax Department that everything stood reconciled or
                  explained by the assessee. This important step in the decision
                  making process does not appear to have been carried out by the
                  ITSC.



WP(C) 4398/2017                                                       Page 25 of 48
         The aforesaid paragraphs highlight the importance of the need to have
detailed and in-depth examination of the contentions of both the Assessee
and the Revenue, for the Settlement Commission is invested with the power
to determine the tax payable, which power is exercised in the interest of the
society at large. Therefore, it is necessary that the Settlement Commission
should consist of members of integrity and outstanding ability having
special knowledge and experience in problems relating to direct taxes and
business accounts, who can dwell into intricate issues and questions in a
pragmatic and practical way, without being strictly bound by strict rules of
procedure. Further, the assessee must fully cooperate, and make "full and
true" disclosure and state the manner in which he had derived undisclosed
income. The object and purpose is that the undisclosed income, which is
brought to tax must be the fair and true income of the assessee, which was
hitherto not declared and taxed.       If an order is obtained by fraud or
misrepresentation of fact, it cannot be said that there was true and fair
disclosure. Neither will there be a true and fair disclosure in case the
undisclosed income is revised upwards. The provisions do not postulate
revision of the undisclosed income.         Declaration contemplated under
Section 245C(1) of the Act is in the nature of warranty that a disclosure
made must be true and fair disclosure. This is the necessary pre-condition
for invoking jurisdiction of the Settlement Commission.
23.      Commissioner of Central Excise Vs. True Woods Pvt. Ltd and Anr.,
(2005) 125 DLT 203 (DB), was a case relating to matter arising out of the
proceedings under Section 32F of the Central Excise Act, 1944 wherein an
application was allowed to be proceeded without majority Bench recording



WP(C) 4398/2017                                                  Page 26 of 48
their view on "full and true" disclosure, though the minority view had
opined in negative. The Division Bench had held:-

                  8. We regret our inability to accept that line of reasoning.
                  It is true that the foundation for settlement is an application
                  from the assessee in which the assessee must make a full and
                  true disclosure as required under the provision of section 245C
                  of the income tax act or section 32E of the central excise act,
                  but it is equally true that the requirement of a full and true
                  disclosure need not be examined and authoritatively determined
                  at the threshold of any proceedings initiated before the
                  Commission under Chapter V. 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. There
                  may, however, 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. In any such situation, it
                  will not be legally impermissible for the Commission to keep
                  the question open as it has done in the instant case to be
                  examined at a later stage or at the stage of final disposal of the
                  application. What is important is that there must be full and
                  true disclosure to the satisfaction of the Commission before any
                  relief can be granted to the applicants which implies that the
                  requirement of such a full and true disclosure is a continuing
                  requirement that needs to be satisfied from the beginning of the
                  proceedings till the conclusion thereof. The Commission may
                  consequently be justified in throwing out the application at any
                  stage if it comes to the conclusion that the disclosure made by
                  the assessee is either incomplete or untrue. The passage relied
                  upon by the learned counsel for the petitioner simply
                  emphasises the significance of a full and true disclosure but
                  stops short of making such a disclosure or a finding on the
                  satisfaction of that requirement as a condition precedent for the
                  assumption of jurisdiction.

         The aforesaid passage was quoted in Income-tax Settlement
Commission (Supra), to observe as under:


WP(C) 4398/2017                                                        Page 27 of 48
                  22. From the above, it is clear that in True Woods (P.) Ltd.
                  (supra), 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. Led.
                  (supra), 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, it its wisdom, left the
                  issues open to be determined at the stage of final hearing under
                  Section 245D(4) of the said Act. It may very well be that the
                  Settlement Commission, at that stage, may agree with the
                  Revenue on the basis material on record and the report
                  submitted by the Commissioner of income-tax that the
                  applications were not maintainable under Section 245C(1) of
                  the said Act. In fact, the Settlement Commission may, at any
                  stage till it passes a final order under Section 245D(4), examine
                  the issues and if there is sufficient material on record,


WP(C) 4398/2017                                                        Page 28 of 48
                  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.

24.      An order under Section 245D(1) of the Act has to be passed within a
rigid time frame of 15 days. Principal Commissioner/Commissioner is
unrepresented at this stage. The scrutiny or the inquiry at this stage, is
summary in nature. This however, does not take away or dilute the power of
the Settlement Commission to reject the application for settlement which in
its opinion does not satisfy the legal requirements and more particularly the
two pre-conditions mentioned in Sub-Section(1) of section 245C of the Act.
We must affirmatively acknowledge and accept that the Settlement
Commission at the stage of 245D (1) can examine and go into the question
whether the applicant fulfils the legal requirements and conditions for
invoking jurisdiction of the Settlement Commission; like pendency of
proceedings, payment of tax and interest on the undisclosed income etc. The
Settlement Commission would also without doubt examine the two core
conditions, "full and true" disclosure of undisclosed income and the manner
in which the said income was derived. Onus to show that the pre-conditions
for allowing the application to be proceeded with is on the applicant.
Application can be rejected or not allowed to be proceeded with where the
Settlement Commission forms an "opinion" that "full and true" disclosure of
undisclosed income and manner in which it was derived has not been made
or for other grounds and stipulations set out in the proviso or on failure to
furnish the particulars prescribed. The Gujarat High Court in Vishnu Bha
Mafatlal Patel Vs. Assistant Commissioner of Income-tax, (supra) has


WP(C) 4398/2017                                                   Page 29 of 48
observed that the Statute does not provide for grounds on which the
Settlement Commission may reject an application or allow the application to
be proceeded with, but there are sufficient indications in the Statute itself as
to the purpose and nature of scrutiny at the preliminary or final stage.
Scrutiny could be whether the application was in order and in conformity
with the requirements of sub-section (1) to section 245C, which would
include filing of the application in the prescribed manner, making necessary
disclosure as required, and requirements as to payment of requisite tax on
undisclosed income and interest thereon. Thus, there has to be application of
mind as Section 245D(1) of the Act requires an order to be passed in writing
by the Settlement Commission allowing or rejecting the application to be
proceeded with or by default the application is to be proceeded with. At the
same time, necessarily, the inquiry on the said aspects at that the initial stage
cannot be elaborate and exhaustive given the limited and rigid time frame
prescribed, with a default stipulation when no order is passed.
25.      An order under 245D(1) when allowing an application for settlement
to be proceeded with, is interim or interlocutory in nature for there is no
finality attached to the preliminary findings recorded as the proceeding do
not come to a closure and end, but an order of rejection concludes the
proceedings and has different consequences. In this sense the opinion
formed by the Settlement Commission in case of rejection under Section
245D(1) is conclusive and final. Notwithstanding that the onus to show and
establish that the application should be allowed to be proceeded with, the
negative finding cannot be merely a "tentative" or "prima facie" as in case if
the proceedings are allowed to be proceeded with. Necessarily and as a
sequitur it follows that if the Settlement Commission is unable to form a


WP(C) 4398/2017                                                    Page 30 of 48
decisive opinion to give a definitive finding for rejection after the initial and
preliminary hearing, proceeding to the second stage is the only option. The
deemed approval provision when the Settlement Commission is unable to
decide and form an opinion supports the above interpretation.
26.      Sub-section 3 to Section 245 C states that an application once made
under sub-section 1 shall not be allowed to be withdrawn. We would also
record consequences when an application is rejected or declared invalid. As
per sub-section (2) to Section 245F, subject to Sub-Sections (3) and (4), the
Settlement Commission has exclusive jurisdiction to exercise the powers
and functions of the income tax authority from the date application for
settlement is made till an order of rejection under 245D(1) or invalidity
order under Section 245D(2C) or an order under Section 245D(4) of the Act
is passed. Section 245HA deals with abatement of proceeding before the
Settlement Commission and that on abatement, proceeding before the
Income Tax Authority recommence or revive as if no application under
Section 245C(1) had been made. Abatement of proceedings has been
defined for the purpose of the Section 245F as to include an order of
rejection under 245D(1) or invalidity order under 245D(2C) of the Act. On
abatement in terms of Sub-Section (3), the Assessing Officer/Income Tax
Authority is entitled to use all the material and other information produced
by the assessee before the Settlement Commission, result of the inquiry held
or the evidence recorded before the Settlement Commission as if this
material was produced, inquiry was held or evidence was recorded before
the said authority. Rejection or invalidity denies the assessee benefit of
Section 245H of Act. Thus, rejection and invalidity of an application which
has the effect of abatement has serious and adverse consequences for the


WP(C) 4398/2017                                                    Page 31 of 48
applicant, whose application is rejected. These are mandated and required to
prevent potential of abuse of the provisions eloquently highlighted in B.N.
Bhattacharjee (supra). Accordingly, B.N. Bhattacharjee (Supra), also
observes that an order rejecting an application under 245D(1) is to refuse
relief outright, which order would affect the applicant adversely, and,
therefore, first proviso to Section 245 D(1) obligates the Settlement
Commission to hear the applicant.             Apart from the specific provision,
hearing was justified and required for fairplay. In this context, it was held
that consideration of the application, at this stage in limine was a prima
facie exercise.
27.      We would now refer to the reasoning given in the impugned order
dated 8th May, 2017 by the Settlement Commission to reject the settlement
application in the case of the first, second and third petitioner which read:-

                  "6. The applicant firm claims to be dealing in production and
                  trading of mustard oil, trading of mustard seeds and trading of
                  mustard cakes etc. The activities of the group are spread in
                  Tonk District in Rajasthan. In the SoF of the firm, it is said that
                  the main basis of earning undisclosed income was through
                  suppression of the gross profit rate. A comparison was made of
                  the GP rate with one M/s Rajesh Products which is a related
                  concern, as also with two other assessees. By comparing the GP
                  rate of these three entities, it was stated that since there was a
                  manipulation of GP rate, the higher rate shown by M/s Rajesh
                  Traders was adopted to work out the undisclosed income in
                  different years from AY 2010-11 to 2016-17. The relevant
                  contentions of the applicant firm are reproduced below:-
                    "on a careful analysis of the two tabulations given above, it
                    shall be clear that the gross profit percentage of RT
                    Industries is less than that of other similar entities and also
                    the Rajesh Products. The reason for the same is that, in RT
                    Industries, the Applicant was indulging in inflation of

WP(C) 4398/2017                                                        Page 32 of 48
                    purchases of mustard seeds from the farmers, due to which a
                    lower rate of GP has been· shown by it in its case. The
                    applicant has not maintained complete record of the inflation
                    of purchases. The applicant has admittedly been suppressing
                    its income by inflating the amount of purchases of mustard
                    from the illiterate farmers on one . pretext or the other and
                    manipulating its gross profit rate. It is evident from its GP
                    rate which is lower than to the GP rate being shown by other
                    comparable as also M/s Rajesh Traders referred to above in
                    similar line of business."

                  7. The applicant has stated that while working out the higher
                  GP rate, the unaccounted investments / personal expenses were
                  also seen so as to explain that unaccounted investments
                  resulting from the undisclosed income. It was also mentioned
                  during the course of hearings that the present surrender on
                  account of GP rate amounting to Rs.3.20 crores is closer to the
                  figure of Rs.3.35 crores made during the course of search by
                  Sh. Trilok Chand Jain in answer to question No.26 of his
                  statement. It was mentioned during pleading that since these
                  two figures are closer to each other, it only shows the present
                  surrender of Rs.3.20 crores is correct and should be acceptable.

                  8. As far as the two partners are concerned, it was stated in the
                  SoF that this unaccounted income of the firm flowed to the two
                  partners who invested these amounts in making advances to
                  farmers and such income being undisclosed, and interest
                  ranging upto 12% p.a. having being charged, led to income
                  which was not disclosed and that formed the basis of surrender
                  in the case of two partners.

                  9. On being asked to establish the basis of surrender, the AR
                  could not show us any evidence to suggest that there was
                  suppression of income to the extent claimed by the applicants.
                  Further, the claim made in the SoF that "the applicant has
                  admittedly been suppressing its income by inflating the amount
                  of purchases of mustard from the illiterate farmers on one
                  pretext or the other and manipulating its gross profit rate",
                  remained a hollow claim not backed by any kind of evidence,

WP(C) 4398/2017                                                       Page 33 of 48
                  found during the course of search or otherwise. Rather, the
                  applicant firm has maintained that entries in the seized material
                  find place in the regular books of account. The SoF mentions
                  categorically that "the entries in the papers found and seized are
                  basically soudha entries made in the "soudha register" and have
                  been entered in the regular books of account of the applicant.
                  Thus, all entries relating to exhibits AS7, AS8, AS9, AS10,
                  ASll, AS12, AS23, AS26 etc. which are seized documents are
                  claimed to be appearing in the regular books of account.
                  Similarly, entries relating to AS14, AS15, AS16 and AS22
                  relating to banking transactions between RT Industries and
                  Rajesh Products which are claimed to be duly recorded in the
                  books of account. Similarly, entries appearing in AS24 and
                  AS25 are said to contain details of oil seeds and various ledger
                  accounts which are all claimed to be part of the regular books
                  of account."

                  10. As regards, the two partners, when questioned about
                  evidence to suggest that the unaccounted income was advanced
                  to farmers at a interest rate of 12 %, remained a hollow claim.
                  No evidence has been led either from the seized material or
                  from any subsequent documentation or from books of account,
                  disclosed or undisclosed to suggest that the unaccounted
                  income was earned in this manner and to this extent. There is
                  not an iota of evidence to suggest which farmers were advanced
                  these monies, when were the amounts advanced and at what
                  rate. Thus, both in the case the firm and the partners, the mode
                  of earning income and manner of earning income remained
                  unsubstantiated. The authenticity of earning the income and the
                  manner as claimed by the firm and invested by the partners is
                  highly suspect. The comparison made by the firm with the
                  trading results of Rajesh products is also questionable. If profit
                  results of other entities are compared, it is possible that we
                  come across instances of still better gross profit. In that
                  situation, why should the comparison be restricted to Rajesh
                  Products or to other entities brought before us by the applicant.
                  Rajesh products is also not a trustworthy comparison on
                  account of two factors. One, it is a related concern, and
                  therefore, any comparison will be self serving. And two,

WP(C) 4398/2017                                                        Page 34 of 48
                  because Sh. Trilok Chand Jain had himself referred to this
                  entity during the questioning at the time of the search, and
                  made this as a basis of surrender (which was later retracted). In
                  fact, the applicant firm, in the SoF at para 6, while summarizing
                  the surrender of Rs.18.00 crores, has stated at item 9 that a
                  surrender of Rs.3.20 crores is on account of unaccounted
                  transactions of Rajesh Products. Thus, that entity has
                  admittedly also entered into unaccounted transactions which
                  make its books of account also unreliable. So the very
                  comparison of a suspect entity would be undesirable. As
                  regards the partners, there was not an iota of evidence to
                  suggest that first the income flowed to the partners in the
                  manner claimed and then that it was advanced to the farmers at
                  a rate of 12%. Rather, there was evidence to suggest that if at
                  all an advancement of monies was made, it was at the rate of
                  11/2 percent to two parties, which were not even farmers. Thus,
                  the very foundation of surrender of the applicants and the
                  partners appears to be a concocted story which has no basis,
                  and no evidence and therefore no credibility."

28.      In the case of the fourth and fifth petitioners, the Settlement
Commission has held:-

                  "11. Coming to the cases of the other two applicants i.e. Sh.
                  Rajesh Kumar Jain, HUF and Sh. Ashok Kumar Jain, HUF,
                  who are not partners in the applicant firm, it is observed that
                  they have claimed to have earned income from earning
                  commission/brokerage on the sale/purchase of properties for
                  last several years. It was claimed that the applicants have acted
                  as mediators/facilitators for sale/purchase of properties and the
                  commission earned there from at the rate of 1.5 to 2%, was not
                  offered for taxation before the Department. Asked about
                  evidence in this regard, it was stated there were seized
                  documents and some rough papers/notings on which the
                  amounts pertaining towards selling/purchase properties have
                  been mentioned. It was claimed that these were only rough
                  figures on which the interest calculation was at the rate of 2%
                  which has now being offered as undisclosed income. The Ld.

WP(C) 4398/2017                                                       Page 35 of 48
                  AR offered to exhibit copies of these seized documents, some
                  of which were examined by the Commission during the course
                  of hearing. Admittedly, some rough sheets have been seized
                  which indicate property dealing and in some of these
                  documents commission income/ percentage of such
                  commission has been indicated. It is also true that these
                  documents were found from the premises of the two applicants.
                  However, there is no indication or hardly any indication that the
                  present applicants were the facilitators/ mediators in the
                  transaction which resulted in commission income. Even if, Sh.
                  Ashok Kumar Jain and Sh. Rajesh Kumar Jain were facilitators,
                  then the question to be answered is how were the HUFs
                  concerned with these transactions. These were matters brought
                  to the hilt by virtue of professional expertise/ knowledge of the
                  individuals. The role of the HUFs in the transactions, if any, is
                  doubtful,. to say the least. If, it was only professional expertise,
                  then the applicants should have been the individuals rather than
                  their HUFs. Needless to say, once again that the claim of the
                  applicants have no evidentiary backing. The other claim that
                  the applicants also earned from a business of money lending
                  and this became a source of income, is also only a claim made
                  without any evidence being led on the issue. If there was any
                  such income, the pertinent question would be as to whom was
                  the money was lent, for what period and at what rate. During
                  the course of hearing, no evidence on these transactions could
                  be brought to our knowledge."

29.      Thereupon, the Settlement Commission in the concluding paragraphs
had summarised their final findings on the five applications in the following
words:-

                  "12. Considering the entire material on record and the evidence
                  brought to our notice, it can not be said with any reasonable
                  certainty that a full and true disclosure has been made in these
                  cases. As noted by the Apex Court in the case of Ajmera
                  Housing Corporation Vs. CIT 193 Taxman 193, the disclosure
                  of full and true particulars of undisclosed income and the


WP(C) 4398/2017                                                         Page 36 of 48
                  manner in which such income has been derived, are the
                  prerequisites of a valid application u/s 245C(l). The Apex Court
                  noted that unless the Settlement Commission records its
                  satisfaction on this aspects, it will not have jurisdiction to pass
                  any order on matters covered by the applications.

                  13. We therefore hold, that the applicants have failed to
                  establish the sources of undisclosed income, the extent of such
                  income and the manner of such income before us. The claims
                  made in the SoFs are uniformly lacking the foundation of
                  credible evidence and hence are unreliable. As such, prima
                  facie, the conditions prescribed u/s 245C(l) are not fulfilled.
                  Accordingly, we cannot allow these applications to be
                  proceeded with."
30.      The      first   petitioner   had   declared   undisclosed     income         of
Rs.3,20,40,338/-. Impugned order records admission of the first petitioner
that they had inflated their expenses, i.e. payments made to the
farmers/traders to procure oilseeds, and in this manner they had reduced or
deflated their gross profits. There was substantial difference in 'moisture
content' acceptable and found, 'oil content' acceptable and found, extent of
dust in oil seeds, type of bardana used etc. and manipulations of price to
inflate the purchases. The petitioner No.1 had however expressed inability
to precisely work out and give an exact figure of the undisclosed income
earned in absence of 'duplicate accounts'. Therefore, they had deduced or
computed the undisclosed income on basis of the gross profit rate in the
comparable or same line of business. The second admission made by the
first petitioner was that the gross profit rate earlier declared by them was
lower when compared with other cases in the same line.




WP(C) 4398/2017                                                        Page 37 of 48
31.      Application of gross profit rate in comparable cases to compute and
furnish particulars of undisclosed income is not objected to and adversely
commented upon by the Settlement Commission.
32.      Selection of comparables was objected to, for the reasons recorded by
the Settlement Commission. While reliance placed on the gross profit rate
declared by Rajesh Products, a sister concern, who were subjected to search
was clearly a suspect and unreliable, there was no evidence or material to
reject the trading results of the other two entities, namely, Goyal Udyog and
Goyal Products for the assessment years 2011-12 to 2013-14 averaging
4.05% and 5.71%, respectively. Their trading results were rejected by
observing that the Settlement Commission may come across cases or
instance of still better gross profit. However, there was no evidence and
material to establish better results. The observation is therefore hypothetical.
The reasoning would only show the uncertainty in the mind of the
Settlement Commission and that they were unable to opine on whether the
profit results of the two entities could be used as a comparison. Use of the
word possible with reference to ''other'' two entities would indicate that
the Settlement Commission was unable to conclude and had predicated their
case on the assumption or possibility of still better results. Inspite of the
uncertainty and doubt, the settlement application by the first petitioner was
rejected observing that the gross profit rate of the two entities was
untrustworthy on this surmise.
33.      Revenue had argued that the average gross profit rate declared by
M/s. Rajesh Products was higher than gross profit rate declared by M/s.
Goyal Udyog and M/s. Goyal Products. A valid argument. However, this
was not the ground or reason given by the Settlement Commission to reject


WP(C) 4398/2017                                                    Page 38 of 48
the gross profit rates of M/s Goyal Udyog and M/s Goyal Products. We
would not add and include a reason in the impugned order though not so
recorded and then take on record and examine the explanation by the
petitioner and answer the same in this Writ Petition. Impugned order must
be tested and subjected to judicial review on its merits without adding or
subtracting the reasons given therein. Paragraph 10 of the impugned order
notices the contention that undisclosed income of Rs.3.20 crores as
surrendered was close to the figure of Rs.3.35 crores mentioned by Trilok
Chand Jain in his statement recorded during the course of search. This, as
per the petitioner No.1, would reflect that the surrender of Rs.3.20 crores
was the correct, true and full disclosure of the undisclosed income. In
support, the first petitioner had referred to the sauda entries in the sauda
register and the entries appearing in the regular books of accounts. Thus, as
per the first petitioner they had made true, full and correct disclosure of the
undisclosed income of Rs.3.20 crores and the manner and modus operandi
adopted by them to earn the undisclosed income. These arguments though
noted have not been considered and pondered upon while recording the
tentative reasons to reject the settlement application of the first petitioner.
34.      Paragraphs 12 and 13 of the impugned order state that the conclusions
drawn were tentative and ''prima facie'' and not conclusive and firm findings
on merits. The expression prima facie specifically used in the last
paragraph of the impugned order, would manifest that the negative finding
was subject to confirmation and to some extent therefore conjectural. This is
also clear from the penultimate paragraph of the impugned order wherein
the Settlement Commission observed that upon consideration of the entire
material on record and evidence brought to their notice, they cannot with


WP(C) 4398/2017                                                     Page 39 of 48
''reasonable certainty'' hold that full and true disclosure had been made.
These observations in the conclusions are not only with reference to the first
petitioner, but would equally apply to rejection of applications filed
petitioner Nos.2 to 5.
35.      We would, therefore, observe that the finding of the Settlement
Commission that the petitioner No.1 had not declared and made full and true
disclosure is not an affirmative but an inconclusive and plausible view,
which required a deeper and detailed scrutiny at the second stage. The
Settlement Commission should have as per the statutory mandate called the
Principal Commissioner/Commissioner to submit their report as second
stage examination under Section 245D(2C) was required. It is at that second
stage after the Revenue has submitted their report that more in-depth
scrutiny and verification takes place, notwithstanding the earlier preliminary
scrutiny under Section 245D(1) of the Act. At each passing stage, the
scrutiny and examination becomes more extensive and decisive. The
relevance of rejection at the initial stage under sub-section (1) to Section
245D is to throw out frivolous applications and applications palpably not
maintainable for want of full and true disclosure and manner in which the
undisclosed income was earned.
36.      Petitioner Nos.2 and 3 had 50% share in the partnership firm R.T.
Industries and 33.3% share in another partnership firm Ridhi Siddhi Food
Products. Petitioner Nos. 2 and 3 had surrendered undisclosed income of
Rs.46,02,472/- and Rs.46,24,341/-, respectively being the suppressed
interest income earned on loans advanced out of unaccounted share of
profits from R.T. Industries, earned year after year. They had admitted to
undisclosed withdrawals and other expenditures, which included investment







WP(C) 4398/2017                                                  Page 40 of 48
made for purchase of properties. The Settlement Commission has opined
that the two petitioners had failed and not referred to any evidence in the
form of seized material, subsequent documentation or books of accounts in
support of their contention that unaccounted for money was advanced to
farmers at an interest of 12% per annum and, therefore, the claim was a
hollow one. Thus, the mode and manner of earning undisclosed income had
remained unsubstantiated.     There was no evidence to show that the
unaccounted for money or income of R.T. Industries was transferred to the
two partners in the manner claimed. At the same time, the impugned order
refers to documents produced by the petitioners that money had been
advanced on interest @ 1.5% to two parties. The Settlement Commission
observed that the parties were not farmers. Hence, the entire story of two
partners lending money to the farmers was concocted having no basis and
credibility.
37.      Questioning the said finding as incoherent and on Wednesbury
principles, Counsel has submitted that the two petitioners being the partners
would have benefitted and utilized the unaccounted income of R.T.
Industries. Undeclared income earned as partners of the first petitioner was
invested by the two petitioners in purchase of properties or given as loan to
various persons, mainly farmers, against standing crops to earn interest,
which varied from 9% to 12% per annum. Their plea of investment in
properties was based upon documents found and seized. It was also stated
that the partners had not maintained day-to-day record of transactions and
interest rate charged. In one or two cases of short term advance, even higher
interest was charged. Reference was made to loose sheets, namely, AS-3
and AS-5 in which rate of interest was mentioned as 1.4% and 1.5%. These


WP(C) 4398/2017                                                 Page 41 of 48
were short-term advances given to third parties other than farmers. The two
petitioners had prepared a tabulation of year-wise income earned after
considering the entire seized records. Petitioner Nos.2 and 3 had
accordingly       declared   additional   income    of   Rs.46,02,472/-           and
Rs.46,24,341/-, respectively.
38.      Our attention was drawn to the income tax returns filed by the
Petitioner Nos.2 and 3 under Section 139 of the Act in which they had
shown interest from parties under the head "income from other sources" or
"income from other sources", which it is stated included interest income.
They have also relied upon details of mode and manner of earning interest
income mentioned in the settlement application. Submission is that interest
income was disclosed and accounted for by the second and third petitioners
in their returns of income, prior to search and seizure operations and,
therefore, the settlement application should not have been dismissed on
mere ''tentative'' or presumptive prima facie opinion, without a firm and
authoritative finding.
39.      What is important and relevant at this stage is the observation of the
Settlement Commission in the last sentence of paragraph 10 that the very
foundation of the surrender made by the two petitioners appears to be
concocted story etc. The word appears would reflect that the Settlement
Commission had not reached or made any firm and final decision. The
findings as per the observations were tentative and prima facie. In view of
the legal position explained above, the settlement application at the initial
stage cannot be dismissed when firm opinion as to frivolousness or
concoction is lacking and merits of the settlement application cannot be
ascertained and determined.


WP(C) 4398/2017                                                   Page 42 of 48
40.      Petitioner Nos.4 and 5, namely, Rajesh Kumar Jain HUF and Ashok
Kumar Jain HUF, had declared unaccounted income of Rs.45,68,410/- and
Rs.40,46,545/-, respectively, earned from lending money on interest and
commission/brokerage received in property transactions. The petitioners
had acted as mediators and facilitators in sale and purchase of properties and
earned commission/brokerage @ 1.5% to 2%. The Settlement Commission
in paragraph 11 has stated that the petitioner Nos.4 and 5 had referred to
seized documents and rough papers/noting relating to sale and purchase of
properties. As reliance was placed on these rough papers some of them were
examined by the Settlement Commission. Calculations were made to show
and establish payment of commission @2%. The impugned order records
and accepts that the rough sheets seized refer to and indicate property
transactions and in some documents, even percentage of such commission it
was shown was computed. However, the settlement applications have been
rejected as there was no indication or hardly any indication that the two
HUFs were acting as facilitators or mediators in the property transactions.
Even if the Ashok Kumar Jain and Rajesh Kumar Jain were acting as
mediators or facilitators, question would arise whether the income should be
taxed in the hands of the two HUFs, or the two individuals, as this was a
matter of personal, and professional expertise or knowledge. Indeed, it
would be true and correct that undisclosed income earned by Ashok Kumar
Jain and Rajesh Kumar Jain cannot be treated as undisclosed income of
Ashok Kumar Jain HUF and Rajesh Kumar Jain HUF. At the same time,
this would be matter of detailed verification. Firm and conclusive finding
would require examination of the past position; whether the two HUFs were
engaged and had earned income by way of commission or brokerage.


WP(C) 4398/2017                                                  Page 43 of 48
However, the Settlement Commission was itself uncertain and has not given
any firm or conclusive opinion as it has observed that the role of the HUFs
in the transactions, if any, was doubtful to say the least. The Settlement
Commission had also observed that the claim was lacking evidentiary
backing, notwithstanding the fact that the Settlement Commission itself had
recorded that rough sheets seized indicated property dealings and payment
of commission. Statement that the two petitioners had not made any
reference or given particulars of the deals as well as full details of the
commission/brokerage earned, is contested. The petitioners had accepted
that they had not kept complete records of the brokerage/commission earned
as the papers were destroyed or torn off after the deal had materialized.
However, they had filed details and calculations. Uncertainty in the mind of
the Settlement Commission is clearly reflected when they had used the word
doubtful with reference to the role of the HUFs in the transactions.
Therefore, it was urged that the claim did have evidentiary backing. Thus,
the Settlement Commission was doubtful and uncertain as to whether the
HUFs had earned the income by way of commission. We would observe
that question could well arise whether the property transactions were sales
and purchases made by the two petitioners, and not mere earnings as
commissions earned. However, this is not an aspect examined and the
reason given for rejection.
41.      On the same ground, the income from money lending was rejected as
a claim made without evidence being led.         However, the Settlement
Commission observed that if there was income, the question would arise as
to whom the money was lent, for what period and at what rate, again
indicative of the fact that the Settlement Commission was not sure and


WP(C) 4398/2017                                                Page 44 of 48
unable to form any opinion one way or the other. The petitioners submit that
it is the case of the Revenue that the two HUFs` were lending money and
were earning interest.
42.      Petitioner Nos. 4 and 5, have drawn our attention to returns filed by
the two HUFs under Section 139 of the Act. It is submitted that ''other
income'' mentioned in the returns included income earned by way of
commission etc. from sale and purchase of property. In the settlement
applications, fourth and fifth petitioner had given tabulations and details of
the commission earned by them, which was duly corroborated                         and
supported by evidence in the form of income tax returns filed by the
petitioners prior to the date of search. Thus, the ''prima facie'' finding of the
Settlement Commission that the fourth and the fifth petitioner had made a
wrong declaration as to the manner of earning undisclosed income, is
nothing but a surmise, which is incorrect and baseless. This contention is
without prejudice to the contention of the fourth and fifth petitioners that the
Settlement Commission had erroneously and contrary to law dismissed the
application filed by the fourth and fifth petitioners on tentative opinion and
''prima facie'' assumption, without forming a conclusive and final opinion.
43.      We are conscious and aware that scope of judicial review and
exercise of writ jurisdiction while examining an order of the Settlement
Commission is limited and primarily confined to considering whether the
Settlement Commission has committed grave or patent error of jurisdiction
and failed to abide by and act in accordance with the provisions of the Act.
The Settlement Commission is a fact finding body, whose orders have been
given finality. A writ court would hesitate and not go into the merit of the
decision taken by the Settlement Commission to reappraise disputed


WP(C) 4398/2017                                                    Page 45 of 48
questions of fact, specially, in view of the nature of the jurisdiction and
questions, which come up before the Settlement Commission. What is
amiable and can be scrutinized while exercising power of judicial review is
the decision making process and not merits of the decision. While
examining and scrutinizing the decision making process, there is a limited
scope for the writ Court to appreciate the facts under the grounds of
illegality, irrationality and pre-procedural impropriety [see State of U.P. &
Anr. Vs. Johri Mal (2004) 4 SCC 714 and R. B. Shreeram Durga Prasad
and Fatehchand Nursing Das v. Settlement Commission (IT and WT) and
Anr., (1989) 176 ITR 169 (SC)].
44.      In Jyotendrasinhji Vs. S.I. Tripathi and Ors., (1993) 201 ITR 611
(SC), the Supreme Court observed that given the nature of power that
Settlement Commission enjoys, it may be difficult to predicate the reasons
and considerations, which had induced the Settlement Commission to make
a particular order, unless the Settlement Commission chooses to give
reasons. Where reasons are given, the scope of enquiry would be limited
and confined to decision making process and not with the decision on merits
i.e. whether the order is contrary to any provision of the Act, has caused
prejudice to any party apart from bias, fraud, malice etc., which constitute a
separate and independent category. The aforesaid principles were reiterated
in M/s Godwin Steels Pvt. Ltd.(supra) quoted above. This judgment
observes that procedural defects would be such as violation of mandatory
procedural requirement or violation of principles of natural justice or where
there was no nexus between the reasons given and the decision taken by the
Settlement Commission. The Court may not interfere either when allegations
of the error of fact or error of law are raised as was held by Karnataka High


WP(C) 4398/2017                                                  Page 46 of 48
Court in N. Krishan vs. Settlement Commission(IT & WT), (1989) 180 ITR
585 (Karnt.).
45.      Lastly, we would like to deal with the objection with regard to
territorial jurisdiction. A five-Judges Bench of this Court in Sterling Agro
Industries Ltd. & Ors. Vs. Union of India & Ors., W.P. (C) No.6570/2010
decided on 1st August, 2011 has drawn a distinction between cause of action
jurisdiction and doctrine of forum conveniens. It has been observed that if a
miniscule part of the cause of action has accrued within the jurisdiction of
the Court, a writ petition would be maintainable before the said High Court.
However, the expression cause of action must be understood in the light
of the decision of the Supreme Court in Alchemist Ltd. and Anr. v. State
Bank of Sikkim and Ors., (2007) 11 SCC 335, which means material
essential or integral part of the cause of action. Therefore, even if a small
part of cause of action had arisen within the jurisdiction of a court, the writ
petition before the said court would be maintainable. In the context of the
present case, we need not dilate further on the said issue for what is
impugned and challenged before us is the order of the Settlement
Commission under Section 245D (1), which is an order passed without
having the views of the Revenue. Principal Bench of the Settlement
Commission located and functions from Delhi. The order was passed in
Delhi. In the context of the present writ petition, we would record that
notice in this writ petition was issued by a Division Bench of this Court on
19th May, 2017. In these circumstances, it would not be appropriate to
invoke doctrine of forum conveniens.
46.      In view of the aforesaid discussion, we allow the present writ petition
and set aside and quash the impugned order of the Settlement Commission


WP(C) 4398/2017                                                    Page 47 of 48
dated 8th May, 2017 rejecting the settlement applications of the petitioners
under Section 245D(1) of the Act, with an order of remand to the Settlement
Commission to pass a fresh order under the said section within a period of
fourteen (14) days from the date a copy of this order is received by them or
served on them by the petitioners or the Revenue, whichever is earlier. In
order to cut delay, we direct the parties to appear before the Settlement
Commission on 20th of September, 2018, when a date of hearing would be
fixed. Observations made in the judgment are for disposal of the present
writ petition and would not be construed as observations on merits on
different issues raised in the settlement application including question of
pre-conditions, which are required to be satisfied. In the facts and
circumstances of the case, there would be no order as to costs.




                                                    (SANJIV KHANNA)
                                                         JUDGE



                                                 (CHANDER SHEKHAR)
                                                       JUDGE

SEPTEMBER 13th, 2018
NA/ssn




WP(C) 4398/2017                                                   Page 48 of 48

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