THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 02.07.2013
+ WP(C) NO. 1609/2013
COMMISSIONER OF INCOME TAX ... Petitioner
versus
INCOME TAX SETTLEMENT
COMMISSION & ORS. ... Respondents
Advocates who appeared in this case:
For the Appellant : Mr Kamal Sawhney, Adv. with Mr. Shashank Singh, Adv.
For the Respondent : Mr Mukul Rohtagi, Ms Prem Lata Bansal, Sr. Advs. with
Mr Saurabh Kirpal, Mr Mahesh Agarwal, Mr Akshay,
Mr Ankit Shah, Ms Manasi, Advs. for the Respondents 2 to 5
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED, THE
ACTING CHIEF JUSTICE
HON'BLE MR JUSTICE R.V.EASWAR
JUDGMENT
BADAR DURREZ AHMED, ACJ
1. This writ petition is directed against the order dated 24.01.2013
passed by the Income Tax Settlement Commission, Principal Bench, New
Delhi under Section 245D(2C) of the Income Tax Act, 1961 (hereinafter
referred to as `the said Act'). By virtue of the impugned order dated
24.01.2013, the Income Tax Settlement Commission (hereinafter referred
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to as `the Settlement Commission') held the settlement applications of the
Respondent Nos. 2 to 5 to be "not invalid" and were therefore allowed to
be proceeded with inasmuch as the said settlement applications had, in
the view of the Settlement Commission, prima facie, fulfilled all the
conditions prescribed under Section 245C(1) and 245D(2C) of the said
Act. The petitioner (Commissioner of Income-tax) is aggrieved by the
said order dated 24.01.2013 inasmuch as according to the petitioner, the
settlement applications filed on behalf of the respondents 2 to 5 ought not
to have been proceeded with and ought to have been held as "invalid"
because the settlement applications failed to satisfy the pre-requisites
stipulated in Section 245C of the said Act. Those pre-requisites being,
full and true disclosure, the manner in which the undisclosed income had
been derived and the additional amount of income tax payable.
2. On behalf of the petitioner, it was sought to be contended that as
there was no true and full disclosure by the respondents 2 to 5 in their
applications for settlement, the Settlement Commission ought not to have
proceeded with their applications and ought to have passed an order
under Section 245D(2C) holding the applications to be invalid. It was
also contended that the manner of deriving the undisclosed income had
not been indicated by the respondents 2 to 5 and, therefore, on this
ground also, the order under Section 245D(2C) passed by the Settlement
Commission ought to have been one holding the settlement applications
to be invalid. Strong reliance was placed by the learned counsel
appearing for the petitioner on the Supreme Court decision in the case of
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Ajmera Housing Corporation v. Commissioner of Income Tax: 326
ITR 642 (SC) to contend that where there was an established case of
absence of full and true disclosure on the part of the applicant, the
settlement application ought to be rejected at the threshold by the
Settlement Commission.
3. In this backdrop, the learned counsel for the petitioner sought to
argue on the merits of the matter and to establish that there was in fact
substance in his contention that the respondents 2 to 5 had not made a full
and true disclosure and that they had also not indicated the manner in
which the undisclosed income had been derived. At the threshold itself,
the learned counsel appearing on behalf of the respondents 2 to 5 took
serious objection to the maintainability of the present petition. It was
contended on behalf of the respondents 2 to 5 that the writ petition
challenging the order dated 24.01.2013 passed under Section 245D(2C)
of the said Act as also the earlier orders dated 30.11.2012 and 28.12.2012
passed under Section 245D(1) of the said Act was not maintainable
inasmuch as those orders were merely orders of `admission'. Reliance
was placed by the learned counsel for the respondents 2 to 5 on a decision
of the Supreme Court in the case of Commissioner of Income Tax v. K.
Jayaprakash Narayanan: 184 Taxman 85 (SC). Reliance was also
placed on a decision of a Division Bench of this Court in the case of
Commissioner of Central Excise, Vishakapatnam v. True Woods
Private Ltd.: 2006 (199) ELT 388 (Del) as also on a decision of the
Bombay High Court in the case of Union of India v. Customs and
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Central Excise Settlement Commission, Mumbai: 2009 (234) ELT 634
(Bom). The learned counsel for the respondents 2 to 5 emphasized that
the impugned orders were only orders of admission and only indicated a
prima facie view. It was open for the Settlement Commission to alter that
view in the course of further proceedings till the final order was passed
under Section 245D(4) of the said Act. It was therefore contended that
there is no cause for concern on the part of the Department at this stage as
the matter is still under examination by the Settlement Commission and a
final decision has not been taken by it. It was also contended that the writ
petition would not be maintainable as this Court, in judicial review, is not
concerned with the merits of the matter, as it would be, had it been
exercising an appellate jurisdiction. It is only the decision making
process which can be challenged and can be the subject matter of judicial
review in a writ petition. Since there is no allegation of any procedural
violation or lack of jurisdiction, the present writ petition which is
essentially aimed at a look into the merits of the matter, would not be
maintainable. It was also contended that the impugned order dated
24.01.2013 itself records that the issues raised by the Commissioner of
Income Tax would be open during the course of proceedings under
Section 245D(4) of the said Act and that the settlement applications were
held to be not invalid only upon a prima facie view that the respondents 2
to 5 had fulfilled the conditions prescribed under Section 245C(1) and
245D(2C) of the said Act. It was submitted that an order of admission,
such as the order impugned herein, does not foreclose any argument or
any contention of the Department even with regard to the "true and full
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disclosure" and "the manner in which the income has been derived". As
such, there is no occasion, according to the learned counsel for the
respondents 2 to 5, to interfere with the proceedings pending before the
Settlement Commission.
4. Before we examine the submissions made by the learned counsel
for the parties, it would be appropriate to set out some of the facts.
Respondents 2, 3 and 4 had filed settlement applications under Section
245C(1) of the said Act in respect of the Assessment Years 2006-07 to
2012-13 on 16.11.2012. The applications filed by respondents 3 and 4
who are the parents of respondent 2 were rejected by the Settlement
Commission by an order dated 23.11.2012 on the ground that the
applicants had not paid the full amount of the additional tax and interest
which was payable on or before the filing of the applications. It was
therefore held by the Settlement Commission that the said applications of
respondents 3 and 4 could not be allowed to be proceeded with and
accordingly the applications were rejected. On the very same day, i.e. on
23.11.2012, the respondents 3 and 4 submitted fresh applications under
Section 245C(1) after allegedly paying the amount of additional tax and
interest that was payable prior to the filing of the settlement applications.
Subsequently on 17.12.2012, the respondent 5 (wife of respondent 2)
submitted her settlement application for the above mentioned assessment
years. The settlement applications were allowed to be proceeded with by
virtue of an order dated 30.11.2012 in respect of respondents 2 to 4. A
similar order was passed in respect of respondent 5 on 28.12.2012. Those
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orders were passed under Section 245D(1) of the said Act and had not
been challenged by the Revenue. Even in the present writ petition, the
Commissioner of Income-tax had initially not challenged the said orders
dated 30.11.2012 and 28.12.2012 passed under Section 245D(1) of the
said Act. It is only by way of the amended writ petition which has been
filed subsequently that the petitioner also seeks to challenge the said
orders dated 30.11.2012 and 28.12.2012.
5. After the passing of the orders under Section 245D(1), reports were
called from the Commissioner of Income-tax under Section 245D(2B) of
the said Act on the validity of the settlement applications. That report
was received by the Settlement Commission on 09.01.2013 and the
applications were heard in the context of Section 245D(2C) of the said
Act by the Settlement Commission on 21.01.2013. Thereafter the
impugned order dated 24.01.2013 was passed in respect of the four
settlement applications. The petitioner being aggrieved by the said order
as also the earlier orders passed under Section 245D(1) is before us by
way of the present writ petition.
6. It must also be pointed out that in the report submitted by the
Commissioner of Income-tax under Section 245D(2B) of the said Act, it
was contended that the settlement applications should not be held to be
valid as the applicants had neither disclosed their full and true income nor
the manner in which such income had been derived. In response to the
said report, a write-up had been submitted on behalf of the respondents 2
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to 5 seeking to clarify each of the allegations of the Department and the
gist of the same has been extracted in the impugned order dated
24.01.2013 which we need not elaborate inasmuch as we do not intend to
examine the merits of the matter. After examining the report and the
counter arguments of the respondents 2 to 5, the Settlement Commission
held that all the four applicants had fulfilled the conditions prescribed
under Section 245C(1) as, in its view, there was no adverse material on
record to suggest otherwise. The Settlement Commission noted and
observed that the issues raised by the Commissioner of Income-tax in his
report dated 08.01.2013 would be open for the Bench during the course of
proceedings under Section 245D(4). By virtue of the impugned order
dated 24.01.2013, the Settlement Commission also directed that the
confidential part of the application should be forwarded to the
Commissioner of Income-tax who would have an opportunity to examine
the same during the course of proceedings under Section 245D(4) of the
said Act. The Settlement Commission reiterated that:-
"The decision to hold these SAs `not invalid' is without
prejudice to initiation of penalty and launching of
prosecution proceedings, if required, on facts available
on the records at the relevant time in subsequent
proceedings by the Commission."
It was further clarified that the settlement applications were held to
be not invalid and were allowed to be proceeded with inasmuch as the
Settlement Commission was of the view that the applicants had "prima
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facie" fulfilled the conditions prescribed under Section 245C(1) and
245D(2C) of the said Act.
7. We shall now briefly examine the scheme of the said Act insofar as
it is relevant for our purposes. Under section 245C of the said Act, an
assessee is entitled to make an application for settlement. The application
has to be made in such form and such manner as may be prescribed. The
application must contain (i) a full and true disclosure of the assessee's
income which has not been disclosed before the assessing officer; (ii) the
manner in which such income has been derived; (iii) the additional
amount of income tax payable on such income; and (iv) such other
particulars as may be prescribed. Furthermore the assessee is also
required to pay the additional amount of tax and interest thereon, on or
before the date of making the application and the proof of such payment
should be attached with the application. Section 245C(1) stipulates that
when such an application is received by the Settlement Commission for
having the case settled, the same is to be disposed of in the manner as
indicated in the said Act.
8. Section 245D of the said Act sets out the procedure which is to be
adopted by the Settlement Commission on receipt of an application under
Section 245C. Section 245D(1) stipulates that on receipt of an
application under Section 245C, the Settlement Commission is required
to, 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
WP(C)1609/2013 Page 8 of 32
made by him be allowed to be proceeded with. Thereafter on hearing the
applicant, the Settlement Commission is required to, within a period of 14
days from the date of the application, by an order in writing, reject the
application or allow the application to be proceeded with. The proviso to
Section 245D(1) stipulates that where no order is passed within the above
mentioned period by the Settlement Commission, either allowing the
application or rejecting the application, the application shall be deemed to
have been allowed to be proceeded with.
9. Sub-section (2B) of Section 245D of the said Act stipulates that the
Settlement Commission shall call for a report from the Commissioner and
the Commissioner shall furnish the said report within 30 days of receipt
of the communication from the Settlement Commission. Section
245D(2C) of the said Act prescribes that where a report of the
Commissioner, which has been called for under sub-section (2B), has
been furnished within the specified period, the Settlement Commission
may, on the basis of the report and within a period of 15 days of receipt
of the report, by an order in writing, declare the application in question as
invalid and in such eventuality, the Settlement Commission is enjoined to
send a copy of such order to the applicant and the Commissioner. The
first proviso to Section 245D(2C) ensures that an application shall not be
declared invalid by the Settlement Commission unless an opportunity has
been given to the applicant of being heard. The second proviso thereto
stipulates that where the Commissioner has not furnished the report
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within the specified period, the Settlement Commission is enjoined to
proceed further in the matter without the report of the Commissioner.
10. Under Section 245D(3), the Settlement Commission, inter alia, in
respect of an application which has not been declared invalid under
Section 245D(2C) of the said Act may call for the records from the
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 Commissioner to make or cause
to be made such further enquiry or investigation and to furnish a report on
the matters covered by the application and any other matter relating to the
case. The Commissioner is required to furnish the report within a period
of 90 days of receipt of the communication from the Settlement
Commission. It is further provided that where the Commissioner does
not furnish a report within the said period of 90 days, the Settlement
Commission may proceed to pass an order under sub-section (4) without
such report.
11. Under Section 245D(4) of the said Act, the Settlement
Commission, after examination of the records and the report of the
Commissioner, if any, received under, inter alia, sub-section (2B) or sub-
section (3) and after giving an opportunity to the applicant as also to the
Commissioner to be heard, may pass such order as it thinks, in
accordance with the provisions of the said Act, on the matters covered by
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the application and any other matter relating to the case not covered by
the application, but referred to in the report of the Commissioner.
12. Section 245D(6) is also of some importance. It provides that every
order passed under sub-section (4) of Section 245D is to 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 is to be
paid and all other matters to make the settlement effective. It is
specifically provided that the terms of settlement are to indicate that the
settlement would be void if it was subsequently found by the Settlement
Commission that it had been obtained by fraud or misrepresentation of
facts. As a corollary to sub-section (6), sub-section (7) of Section 245D
provides that where a settlement becomes void under sub-section (6), the
proceedings in respect to the matters covered by the settlement shall be
deemed to have been revived from the stage at which the application was
allowed to be proceeded with by the Settlement Commission and the
income tax authority concerned, may, notwithstanding anything
contained in any other provision of the said Act, complete such
proceedings at any time before the expiry of two years from the end of
the financial year in which the settlement became void.
13. From the above provisions, it is apparent that the settlement
application passes through several stages before the final order providing
for the terms of settlement is passed by the Settlement Commission. The
first stage is under Section 245D(1). This is followed by the next step
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under Section 245D(2C) and finally by the order passed under Section
245D(4). In the present case, the final order under Section 245D(4) is yet
to be passed. The orders under Section 245D(1) and 245D(2C) are not
final orders and they are subject to the final orders that may be passed
under Section 245D(4). It is, therefore, clear that the issue of full and
true disclosure on the part of the applicants and the manner in which the
undisclosed income was derived is still open for discussion and debate
and the Settlement Commission would have to give its final decision on
these aspects before an order of settlement is passed under Section
245D(4) of the said Act. Therefore, on a plain reading of the provisions,
it is apparent that the submission made by the learned counsel for the
respondents 2 to 5 merits acceptance insofar as it was contended by him
that the entire issue remains open and at any stage of the proceedings till
the order under Section 245D(4) is passed by the Settlement Commission,
the issue with regard to full and true disclosure and the manner in which
the undisclosed income had been derived would be open and can be
raised by the Revenue. In fact, it was clarified by the learned counsel for
the respondents 2 to 5 that the said respondents do not even contend that
once an application has been proceeded with under Section 245D(1) and
has not been held to be invalid under Section 245D(2C), the validity of
the same in terms of the requisite conditions stipulated in Section
245C(1) cannot be gone into at the subsequent stages up to the passing of
the order under Section 245D(4) of the said Act.
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14. Before we examine the case law on the subject, it would also be
appropriate if we refer to the provisions of Section 245F of the said Act.
The said section deals with the powers and procedures of the Settlement
Commission. Sub-section (1) stipulates that in addition to the powers
conferred on the Settlement Commission under the said Act, it would also
have all the powers which are vested in an income tax authority under the
said Act. Sub-section (2) of Section 245F further stipulates that where an
application under Section 245C has been allowed to be proceeded with
under Section 245D, the Settlement Commission shall, until an order is
passed under sub-section (4) of Section 245D, have, subject to the
provisions of sub-section (3) of that section, exclusive jurisdiction to
exercise the powers and perform the functions of an income tax authority
under the said Act in relation to the case. We must also notice the
proviso to Section 245F(2) which makes it clear that where an application
has been made under Section 245C on or after the first day of June, 2007,
the Settlement Commission shall have exclusive jurisdiction from the
date on which the application was made. In the present case, we find
that all the four applications made by the respondents 2 to 5 had been
made after the first day of June, 2007 and therefore it is the aforesaid
proviso which would apply. In other words, in the present case, the
Settlement Commission had exclusive jurisdiction in respect of the cases
of respondents 2 to 5 from the dates on which the applications under
Section 245C were made by the said respondents. We have specifically
referred to this proviso, because the learned counsel for the petitioner had
made an argument that if an application under Section 245C is allowed to
WP(C)1609/2013 Page 13 of 32
be proceeded with by virtue of an order under Section 245D(1) or under
Section 245D(2C), the Settlement Commission would have exclusive
jurisdiction and the ongoing investigation, which the income tax
authorities were conducting insofar as respondents 2 to 5 were concerned,
would be stultified. We find that this argument is not available to the
Department inasmuch as in the present case, it is not the passing of the
order under Section 245D(1) or under Section 245D(2C) which would
enable the Settlement Commission to have exclusive jurisdiction in
relation to the case but, because of the proviso to Section 245F(2), it
would be the date on which the application is made under Section 245C
which would trigger the Settlement Commission's exclusive jurisdiction
insofar as the case of the applicant is concerned.
15. For the sake of completeness, it would also be appropriate for us to
refer to the second proviso to Section 245F(2) of the said Act which, inter
alia, makes it clear that where an application which has been made on or
after the first day of June, 2007 is rejected under Section 245D(1) or is
declared invalid under Section 245D(2C), the Settlement Commission,
inspite of such an application, would have exclusive jurisdiction upto the
date on which the application is rejected or declared invalid as the case
may be. In the present case, the Settlement Commission would have
exclusive jurisdiction in relation to the cases on and from the date on
which the applications under Section 245C were made by respondents 2
to 5 and not from the dates of the orders passed under Section 245D(1)
and 245D(2C) of the said Act. Obviously, as the applications have not
WP(C)1609/2013 Page 14 of 32
been rejected or declared invalid, the exclusive jurisdiction of the
Settlement Commission continues till the Settlement Commission passes
the final order under Section 245D(4) of the said Act.
16. The learned counsel for the respondents 2 to 5 had, as pointed out,
placed strong reliance on an order passed by the Supreme Court in the
case of CIT v. K. Jayaprakash Narayanan (supra). The order was
passed on a Special Leave Petition and the same reads as under:-
"1. Delay condoned. This Special Leave Petition is
filed against the decision of the Settlement Commission
admitting the application of the Assessee under Section
245D of the Income-tax Act, 1961. It is the case of the
Department that the Assessee had failed to make full
and true disclosure in the first instance and that the said
declaration made at a later date by way of second
declaration cannot be the ground for admitting the
application under Section 245D. Since this Special
Leave Petition is filed only against the order of the
Settlement Commission admitting the application of the
Assessee under Section 245D, we do not wish to
interfere at this stage. However, we make it clear that
on the point of maintainability of the Application, it
would be open to the Department to raise the
contention before the Settlement Commission who
would be entitled to examine that question at the final
hearing of the matter.
2. The Special Leave Petition is disposed of
accordingly."
(underlining added)
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17. It is apparent that the Supreme Court was considering a matter
wherein the decision of the Settlement Commission admitting an
application of an assessee under Section 245D of the said Act was in
question. One of the specific pleas taken by the Department was that the
assessee had failed to make a full and true disclosure in the first instance
and that a declaration made at a later date could not be ground for
admitting an application under Section 245D. The Supreme Court
refrained from interfering with the order passed by the Settlement
Commission inasmuch as it was only an order admitting the application
of the assessee under Section 245D. The Supreme Court made it clear
that even on the point of maintainability of the application, it would be
open to the Department to raise the contention before the Settlement
Commission which would be entitled to examine that question at the final
hearing of the matter. From this, it is abundantly clear that the point of
maintainability of an application under Section 245C(1) does not get
foreclosed by virtue of the Settlement Commission passing an order
under Section 245D(1) or Section 245D(2C) of the said Act and that such
an issue could be examined by the Settlement Commission at the final
hearing of the matter, that is, at the stage of passing an order under
Section 245D(4) of the said Act.
18. The next decision on which strong reliance had been placed by the
learned counsel for the respondents 2 to 5 was that of a Division Bench of
this Court in the case of True Woods Pvt. Ltd. (supra). Though that was
a case pertaining to the Customs and Central Excise Settlement
WP(C)1609/2013 Page 16 of 32
Commission and was one under the Central Excise Act, 1944, the
material provisions are similar and, therefore, the observations and
findings would be relevant for our purposes. In that case, the Customs
and Central Excise Settlement Commission had, by a majority of 2:1,
admitted a settlement application filed before it by the applicant in terms
of Section 32D of the Central Excise Act, 1944. A writ petition had been
filed by the Revenue assailing the correctness of the said order. The
Division Bench noted that the Commission had, by the order impugned
therein, simply admitted the applications filed by the applicants. The
order was by a majority and took a view different from the one taken by
the Chairman of the Commission who was of the view that the
applications ought to be rejected on the ground that the applicants had not
made a full and true disclosure of their liability as required under Section
32E(1) of the Central Excise Act, 1944 which is equivalent to Section
245C(1) of the said Act. The majority opinion left the issue open on the
ground that neither side had conclusively proved its version regarding the
filing of the declarations or their genuineness and had reserved liberty for
the Revenue to urge the question regarding the genuineness of the
applications filed by the applicants or the correctness of the duty liability
disclosed by them including the manner in which the same had been
determined, at the final hearing. We can immediately notice the
similarity in the facts between the present case and the case before the
Division Bench in True Woods Pvt. Ltd. (supra). Here, too, the
Settlement Commission has not returned a conclusive finding with regard
to the issue of full and true disclosure and the manner in which the
WP(C)1609/2013 Page 17 of 32
undisclosed income had been derived by the applicants. It has left the
issue open to be decided at the final hearing of the matter.
19. The Division Bench, in True Woods Pvt. Ltd. (supra), observed
as under:-
"5. In the light of the above, we find consideration
merit in the contention urged on behalf of the
respondents that there is no final opinion expressed by
the Commission regarding the making of a full and true
disclosure of their liability by the applicants. The
question whether the applicants are entitled to any relief
in terms of Chapter V of the Central Excise Act, 1944
is therefore open to be examined and answered by the
Commission while passing a final order on the
applications filed before it. The Revenue shall be free
to urge that the applicants are not entitled to any relief
as the requirement of a full and true disclosure
stipulated under Section 32E remains unsatisfied."
20. Then, after referring to the Supreme Court decision in the case of
Commissioner of Income-tax, Jalpaiguri v. Om Prakash Mittal, 2005
(184) ELT 3 (SC), the Division Bench, in True Woods Pvt. Ltd.
(supra), observed as under:-
"7. The above passage, argued the learned counsel
for the petitioner, makes it incumbent upon the
Settlement Commission to record a specific finding to
the effect that the applicant has made a full and true
disclosure before it can admit the application or take
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any further steps on the basis thereof. It was contended
that the foundation for settlement before the
Commission is an application made by the assessee
which must contain a full and true disclosure of the
relevant particulars required under the provisions
concerned. In the absence of any such finding, argued
the learned counsel, the assumption of jurisdiction by
the Commission would be wholly uncalled for."
21. The argument referred to in the above extract was rejected by the
Division Bench in True Woods Pvt. Ltd. (supra) in the following
words:-
"8. We regret our inability to accept the line of
reasoning. It is true that the foundation for settlement
is an application from the asessee 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 records 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
WP(C)1609/2013 Page 19 of 32
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."
(underlining added)
22. From the above, it is clear that in True Woods Pvt. 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
WP(C)1609/2013 Page 20 of 32
application is full and true. At the same time, there could also be
situations in which the Commission may not be able to, at the stage of
admission of the application, record a finding with any amount of
certainty. It is in such a situation that it would be permissible for the
Commission to keep the question open to be examined at a later stage or
at the stage of disposal of the application. As in the case of True Woods
Pvt. Ltd. (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, in
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 of the 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,
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.
WP(C)1609/2013 Page 21 of 32
23. The Division Bench in True Woods Pvt. Ltd. (supra), explained
the decision of the Supreme Court in Om Prakash Mittal's Case (supra)
as one simply emphasizing the significance of a true and full disclosure
but, one which stopped 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 Special Leave Petition preferred by the
Revenue against the decision of the Division Bench in True Woods Pvt.
Ltd. (supra) was also dismissed by the Supreme Court by an order dated
10.07.2006.
24. We are of the view that the order of the Supreme Court in K.
Jayaprakash Narayanan (supra) and the decision of the Division Bench
of this Court in True Woods Pvt. Ltd. (supra) clinch the issue in favour of
the respondents. As such, this Court ought not to interfere with the
impugned orders. However, we need to examine the decision of the
Supreme Court in the case of Ajmera Housing (supra) which has been
strongly relied upon by the learned counsel for the petitioner. In fact, the
learned counsel for the petitioner went to the extent of submitting that in
view of the decision of the Supreme Court in Ajmera Housing (supra),
the orders/decisions in K. Jayaprakash Narayanan (supra) and True
Woods Pvt. Ltd. (supra) would no longer be good law.
25. In Ajmera Housing (supra), an order had been passed by the
Income Tax Settlement Commission under Section 245D(1) on
17.11.1994, allowing the settlement application filed on behalf of the
WP(C)1609/2013 Page 22 of 32
assessee to be proceeded with. That order was not challenged by the
Revenue. The Settlement Commission proceeded with the said
settlement application and passed a final order under Section 245D(4) of
the said Act on 29.01.1999. That settlement order was challenged by the
Revenue before the Bombay High Court which set aside the same on,
inter alia, the ground that no finding had been returned by the Settlement
Commission as to whether there was a full and true disclosure of income
on the part of the assessee/applicant. The Bombay High Court also held
that the order dated 17.11.1994 passed under Section 245D(1) of the said
Act was void and remitted the case to the Settlement Commission for a
decision afresh and kept all the questions open. The applicant/assessee,
being aggrieved by the said decision of the Bombay High Court, went up
in appeal before the Supreme Court which, by an order dated 11.07.2006,
set aside the Bombay High Court order and remitted the matter to the
High Court for a fresh decision. In the second round, the Bombay High
Court again set aside the Income Tax Settlement Commission's order
dated 29.01.1999 and remanded the case to the Settlement Commission
for fresh adjudication. While doing so, the Bombay High Court observed
as under:-
"In view of the facts and the legal position noted above,
even though we find that the respondents had not made
full and true disclosure of their income while making
applications under Section 245C, it would not be proper
to set aside the proceeding. However, at the same time,
the Commission appears to have misdirected itself on
several important aspects while passing the final order.
The Settlement Commission had not supplied the
WP(C)1609/2013 Page 23 of 32
annexure Dated 19.9.1994 declaring additional income
of Rs.11.41crore and thus, due opportunity was not
given to the Revenue to place (sic) its stand properly.
Huge amount of unexplained expenses, unexplained
loans and unexplained surplus, total of which is more
than Rs.14 crore, was not taken into consideration
while passing the final order. Thirdly, the Settlement
Commission has imposed token penalty of Rs.50 lakhs
while in its own assessment leviable penalty would be
562.87 (sic Rs.562.87). In fact if the amounts, which
were not taken into consideration while assessing the
total undisclosed income, are also taken into
consideration, the amount of leviable penalty may be
much more. Taking into consideration the multiple
disclosures and the fact that the respondents had failed
to make true and full disclosure initially as well as at
the time of second disclosure, we do not find any
justifiable reasons to reduce or waive the amount of
penalty so drastically.
Taking into consideration all these circumstances, in
our considered opinion, it will be in the interest of
justice to set aside the final order passed by the
Settlement Commission and to remand the matter back
to the Settlement Commission for hearing parties afresh
and to pass orders as per law. Facts and circumstances
noted in respect of writ petition No. 2191 of 1999 are
also relevant for the remaining writ petitions and,
therefore, it will be necessary that the final orders
passed in all these proceedings should be set aside."
(underlining added)
26. The matter was again carried to the Supreme Court by the
applicants/assessee. It is at that stage that the decision in Ajmera
WP(C)1609/2013 Page 24 of 32
Housing (supra) was rendered by the Supreme Court. At the outset, we
may point out that the Supreme Court recorded its disapproval with the
view of the Bombay High Court that it would not be proper to set aside
the proceedings before the Settlement Commission even though it was
convinced that the assessee had not made full and true disclosure of their
income while making an application under Section 245C of the said Act.
27. In Ajmera Housing (supra), the Supreme Court considered the
provisions of the said Act with regard to settlement. In the context of
Section 245C of the said Act, the Supreme Court observed as under:-
"27. It is clear that disclosure of "full and true"
particulars of undisclosed income and "the manner" in
which such income had been derived are the
prerequisites for a valid application under Section 245-
C(1) of the Act. Additionally, the amount of income tax
payable on such undisclosed income is to be computed
and mentioned in the application. It needs little
emphasis that Section 245-C(1) of the Act mandates
"full and true" disclosure of the particulars of
undisclosed income and "the manner" in which such
income was derived and, therefore, unless the
Settlement Commission records its satisfaction on this
aspect, it will not have the jurisdiction to pass any order
on the matter covered by the application."
28. It is clear that it is mandatory for the Settlement Commission to
record its findings with regard to the issues of "full and true disclosure"
of particulars of undisclosed income and "the manner" in which such
income was derived by the assessee. It is also clear that unless the
WP(C)1609/2013 Page 25 of 32
Settlement Commission records its satisfaction on these aspects, it would
not have the jurisdiction to pass any order under Section 245D(4) of the
said Act setting out the terms of settlement.
29. The Supreme Court further observed as under:-
"34. In our opinion, even when the Settlement
Commission decides to proceed with the application, it
will not be denuded of its power to examine as to
whether in his application under Section 245-C(1) of
the Act, the assessee has made a full and true disclosure
of his undisclosed income. We feel that the report(s) of
the Commissioner and other documents coming on
record at different stages of the consideration of the
case, before or after the Settlement Commission has
decided to proceed with the application would be most
germane to the determination of the said question."
30. These observations are extremely significant for the purposes of
the present case. The Supreme Court has made it clear that even when
the Settlement Commission decides to proceed with the application when
it passes an order under Section 245D(1) or Section 245D(2C), it would
not be denuded of its power to examine as to whether the assessee has
made a full and true disclosure of his undisclosed income in the
application for settlement. The Supreme Court specifically noted that the
report of the Commission and other documents would be coming on
record of the Settlement Commission at different stages of the
consideration of the case, before or after the Settlement Commission has
WP(C)1609/2013 Page 26 of 32
decided to proceed with the application, and, all these would be germane
to the determination of the said question.
31. In the context of the factual matrix of the case before it, the
Supreme Court observed that a disclosure made in a settlement
application cannot be permitted to be revised inasmuch as no such
revision is contemplated under the scheme of the Act. In this context, the
Supreme Court observed as under:-
"35. It is plain from the language of sub-section (4) of
Section 245-D of the Act that the jurisdiction of the
Settlement Commission to pass such orders as it may
think fit is confined to the matters covered by the
application and it can extend only to such matters
which are referred to in the report of the Commissioner
under sub-section (1) or sub-section (3) of the said
section. A "full and true" disclosure of income, which
had not been previously disclosed by the assessee,
being a precondition for a valid application under
Section 245-C(1) of the Act, the scheme of Chapter
XIX-A does not contemplate revision of the income so
disclosed in the application against Item 11 of the form.
Moreover, if an assessee is permitted to revise his
disclosure, in essence, he would be making a fresh
application in relation to the same case by withdrawing
the earlier application. In this regard, Section 245-C(3)
of the Act which prohibits the withdrawal of an
application once made under sub-section (1) of the said
section is instructive inasmuch as it manifests that an
assessee cannot be permitted to resile from his stand at
any stage during the proceedings. Therefore, by
revising the application, the applicant would be
achieving something indirectly which he cannot
WP(C)1609/2013 Page 27 of 32
otherwise achieve directly and in the process rendering
the provision of sub-section (3) of Section 245-C of the
Act otiose and meaningless. In our opinion, the scheme
of said Chapter is clear and admits no ambiguity."
xxxx xxxx xxxx xxxx xxxx
"37. As aforestated, in the scheme of Chapter XIX-A,
there is no stipulation for revision of an application
filed under Section 245-C(1) of the Act and thus the
natural corollary is that determination of income by the
Settlement Commission has necessarily to be with
reference to the income disclosed in the application
filed under the said section in the prescribed form."
xxxx xxxx xxxx xxxx xxxx
"41. We are convinced that, in the instant case, the
disclosure of Rs. 11.41 crores as additional undisclosed
income in the revised annexure, filed on 19-9-1994
alone was sufficient to establish that the application
made by the assessee on 30-9-1993 under Section 245-
C(1) of the Act could not be entertained as it did not
contain a "true and full" disclosure of their undisclosed
income and "the manner" in which such income had
been derived. However, we say nothing more on this
aspect of the matter as the Commissioner, for reasons
best known to him, has chosen not to challenge this part
of the impugned order."
32. It is obvious that revision of a disclosure made in a settlement
application would clearly imply that the initial disclosure was neither true
nor full. In the case before the Supreme Court, the disclosure had been
revised and it is for that reason that the Supreme Court expressed its
opinion that the same was neither true nor full. However, the Supreme
WP(C)1609/2013 Page 28 of 32
Court did not pursue that avenue any further inasmuch as the
Commissioner had chosen not to challenge that part of the impugned
order. On the facts of the case before it, the Supreme Court refrained
from interfering with the remand order passed by the Bombay High Court
in the second round even though it had expressed its disapproval with
regard to certain observations made by the said High Court as already
noticed above. The matter was ultimately remanded because of the fact
that an opportunity had not been given to the Revenue to place its stand
properly nor were the huge amount of unexplained expenses, unexplained
loans and unexplained surplus taken into consideration by the Settlement
Commission while passing the final order as also because the Settlement
Commission had imposed a token penalty of Rs.50 lakhs while on the
assessee's own assumption, penalty would have amounted to Rs.562.87
lakhs. This would be clear from the observations of the Supreme Court
set out hereinbelow:-
"45. Ultimately the High Court observed that:
(i) since the Settlement Commission had not supplied
the annexure filed on 19-9-1994, declaring additional
income of Rs. 11.41 crores, due opportunity had not
been given to the Revenue to place its stand properly;
(ii) huge amount of unexplained expenses, unexplained
loans and unexplained surplus, total of which was more
than Rs. 14 crores, was not taken into consideration
while passing the final order; and
(iii) the Settlement Commission had imposed token
penalty of Rs. 50 lakhs while on its own assessment
leviable penalty would have been Rs. 562.87 lakhs.
WP(C)1609/2013 Page 29 of 32
Further, if the amount which had not been taken into
consideration while assessing the total undisclosed
income was to be taken into account, the amount of
leviable penalty would have been much more.
In the light of these facts, the High Court formed the
opinion that it would be in the interest of justice to set
aside the final order passed by the Settlement
Commission and to remand the case back to it for fresh
adjudication on the assessee's application.
46. Bearing in mind the aforestated factual position, as
emanating from the material on record, we find it
difficult to persuade ourselves to agree with the learned
counsel for the assessee that there was no justification
for the order of remand by the High Court and that the
order passed by the Settlement Commission should
have been affirmed. We are satisfied that under the
given scenario, the High Court was correct in making
the order of remand and no good ground is made out
for interference in exercise of our jurisdiction under
Article 136 of the Constitution."
33. After having examined the decision of the Supreme Court in
Ajmera Housing (supra) in detail, we do not find anything therein which
would run counter to the order of the Supreme Court in K. Jayaprakash
Narayanan (supra) or the decision of a Division Bench of this Court in
True Woods Pvt. Ltd. (supra). Furthermore, the writ petition was
entertained by the Bombay High Court in Ajmera Housing Case (supra)
after a final order under Section 245D(4) had been passed. This is not the
case before us. Here, as already pointed out above, the proceedings are
pending before the Settlement Commission and the final order is yet to be
passed by the Settlement Commission under Section 245D(4). All the
WP(C)1609/2013 Page 30 of 32
conclusions made by the Settlement Commission up till now, in the
present case, are only prima facie conclusions and do not foreclose the
issues raised by the Revenue in the present proceedings. We have
already noted that the Supreme Court in Ajmera Housing (supra) itself
has observed that even when the Settlement Commission decides to
proceed with the settlement application, it is not denuded of its power to
examine as to whether the said application is in accord with the
conditions stipulated in Section 245C(1) of the said Act including the
conditions of the applicant making a full and true disclosure of his
undisclosed income as also the manner in which the said undisclosed
income was derived by him.
34. The learned counsel for the petitioner had also taken a point that
the settlement applications of respondents 3 and 4 had been rejected for
failure to pay the additional tax and therefore the subsequent applications
of the said respondents 3 and 4 filed on 23.11.2012 ought not to have
been entertained. In our opinion, the learned counsel for the respondents
2 to 5 has given a complete answer to this argument. He has referred to
Section 245K(2) of the said Act which stipulates that where a person has
made an application under Section 245C on or after the first day of June,
2007, and if such application has been allowed to be proceeded with
under Section 245D(1), such person shall not subsequently be entitled to
make an application under Section 245C. It was contended by the
learned counsel for the respondents 2 to 5 that this bar from making
another application under Section 245C would only apply if the earlier
WP(C)1609/2013 Page 31 of 32
application had been allowed to be proceeded with under Section
245D(1). But, in the present case, the earlier applications filed by
respondents 3 and 4 had not been allowed to be proceeded with under
Section 245D(1) and had been rejected at the threshold for want of
payment of the full amount of the additional tax and interest due. Prima
facie, we are in agreement with the submission made by the learned
counsel for the respondents. However, since we are not inclined to
interfere with the impugned orders, we feel that this issue can also be left
open to be decided by the Settlement Commission at the time of further
proceedings till the order under Section 245D(4) is passed. For all these
reasons, we agree with the learned counsel for the respondents 2 to 5 that
this is not the stage at which this Court ought to interfere with the
impugned orders and the proceedings pending before the Settlement
Commission. The writ petition is accordingly dismissed. We make it
clear that we have not expressed any opinion on the merits of the issues
as to whether the respondents 2 to 5 had made a full and true disclosure
and had indicated the manner in which the undisclosed income had been
derived. Those and related issues on merits are for the Settlement
Commission to decide. There shall be no order as to costs.
BADAR DURREZ AHMED, ACJ
R.V.EASWAR, J
JULY 02, 2013
pk
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