2005 Supreme(SC) 313

2005(3) Supreme 344
Supreme Court of India
(From Income Tax Settlement Commission, Additional Bench, Calcutta)
Mrs. Ruma Pal, Arijit Pasayat and C.K. Thakker, JJ.
Commissioner of Income Tax, Jalpaiguri —Appellant
versus
Om Prakash Mittal —Respondent
Civil Appeal No. 5334 of 1999
Decided on 22-2-2005
Counsel for the Parties :
For the Appellant : Mohan Parasaran, Additional Solicitor General, T.A. Khan, Pritish Kapoor, B.V. Balram Das and Ms. Sushma Suri, Advocates.
For the Respondent : C.S. Agarwal, Sr. Advocate, Sanjeev Kr. Singh, Pradeep Kr. Malik and Bhargava V. Desai, Advocates.

Important point
Voluntary disclosure and making a full and true disclosure of the income are necessary pre-conditions for invoking the Commission’s jurisdiction.

Headnote:(i) Income Tax Act, 1961—Sections 245C, 245D and 245F—Procedure on receipt of application for settlement—Voluntary disclosure of concerned income—Powers and procedure of Settlement Commission—Fundamental ­requirement of the application u/s 245C—Full and true disclosure of the income has to be made—If an order is obtained by fraud or misrepresentation of facts, it cannot be said that there was true and fair disclosure—There is no provision for revision of an application made in terms of Section 245C.

       Held : The Commission’s power of settlement has to be exercised in accordance with the provisions of the Act. Though the Commission has sufficient elbowroom in assessing the income of the applicant and it cannot make any order with a term of settlement which would be in conflict with the mandatory provisions of the Act like in the quantum and payment of tax and the interest. The object of the legislature, in introducing Section 245C is to see that protracted proceedings before the authorities or in Courts are avoided by resorting to settlement of cases. In this process an assessee cannot expect any reduction in amounts statutorily payable under the Act. (Para 14)

       The foundation for settlement is an application which assessee can file at any stage of a case relating to him in such form and in such manner as is prescribed. The statutory mandate is that the application shall contain “full and true disclosure” of the income which has not been disclosed before the assessing officer, the manner in which such income has been derived. The fundamental requirement of the application under Section 245C is that full and true disclosure of the income has to be made, along with the manner in which such income was derived. On receipt of the application, the Commission calls for report from the Commissioner and on the basis of the material contained in the report and having regard to the nature and circumstances of the case or complexity of the investigation involved therein, it can either reject the application or allow the application to be proceeded with as provided in Section 245D(1). It has to be noted that the Commission exercises power in respect of income which was not disclosed before the authorities in any proceeding, but are disclosed in the petition under Section 245C. It is not that any amount of undisclosed income can be brought to the notice of the Commission in the said petition. Commission exercises jurisdiction if the additional amount of tax on such undisclosed income is more than a particular figure (which at different points of time exceeded rupees fifty thousand or rupees one hundred thousand, as the case may be). The assessee must have in addition furnished the return of income which he is or was required to furnish under any of the provisions of the Act. In essence the requirement is that there must be an income disclosed in a return furnished and undisclosed income disclosed to the Commission by a petition under Section 245C. There is a purpose why the legislature has prescribed the condition relating to declaration of the order void when it is obtained by fraud or misrepresentation of facts. It cannot be said that there has been a true and fair declaration of income which is the pre-requisite for settlement by the Commission. If an order is obtained by fraud or misrepresentation of facts, it cannot be said that there was true and fair disclosure. It was noted here that unlike Section 139 of the Act which provides for filing of revised return, there is no provision for revision of an application made in terms of Section 245C. That shows clear legislative intent that the applicant for settlement has to make a true and fair declaration from the threshold. It is on the basis of the application received that the Commissioner calls for report to decide whether the application is to be rejected or permitted to be continued. The declaration contemplated in Section 245C is in the nature of voluntary disclosure of concealed income, but as noted above it must be true and fair disclosure. Voluntary disclosure and making a full and true disclosure of the income are necessary pre-conditions for invoking the Commission’s jurisdiction. (Paras 16 to 18)

       (ii) Income Tax Act, 1961—Sections 245C, 245D and 245F—Settlement order passed by the Commission—Validity—On search conducted in the premises of respondent certain ­seizures were made—Assessee filed an application for settlement in terms of Section 245C of the Act for year 1985-86—Settlement Commission passed an order in terms of Section 245D(4)—Assessee claimed to have received Rs. 1.5 crores from seven persons in cash—In the opinion of CBI the alleged lenders had no means or financial capacity to advance huge loan to the assessee and were mere name lenders—Prayer made by CIT for declaration of order passed by the Commission to be void and for withdrawal of benefits granted—Assessee’s case that order of the Commission was final in terms of Section 245-I—Whether the Commission was justified in refusing to accept the prayer made by the CIT—Commission directed to rehear the matter.

       Held : Sub-section (1) of Section 245C makes it clear that at any stage of a case relating to him an assessee may make an application to the Commission disclosing fully and truly his income which has not been disclosed before the Assessing Officer. To put it differently, an assessee cannot approach the Commission for settlement of his case in respect of an income which has already been disclosed before the Assessing Officer. The income disclosed as contemplated is in the nature of voluntary disclosure of concerned income. Section 245F dealing with powers and procedure of Settlement Commission provides that in addition to the powers conferred on the Settlement Commission under Chapter XIX-A, it has all the powers which are vested in the income-tax authority under the Act. Sub-section (2) is of vital importance and provides that where an application made under Section 245C has been allowed to be proceeded with under Section 245D, the Commission shall until an order is passed under sub-section (4) of Section 245D, subject to the provisions of sub-section (3) of that section have exclusive jurisdiction to exercise the powers and perform the functions of the income-tax authority under the Act in relation to the case. In essence, the Commission assumes jurisdiction to deal with the matter after it decides to proceed with the application and continues to have the jurisdiction till it makes an order under Section 245D. Section 245D(4) is the charging section and sub-section (6) prescribes the modalities to be adopted to give effect to the order. It has to be noted that the language used in Section 245D is “order” and not “assessment”. The order is not described as the original assessment or regular assessment or re-assessment. In that sense, the Commission exercises a plenary jurisdiction. (Paras 12 and 13)

       A bare reading of Section 245D(6) shows that every order passed under sub-section (4) has to provide the terms of the settlement and also to provide that the settlement shall be void if it is found subsequently by the Commission that it has been obtained by fraud or by misrepresentation of facts. The plea of the assessee that the initiation of proceeding to find out as to whether the order has been obtained by fraud or misrepresentation of facts has to be initiated by the Commission suo motu is not spelt out in the said sub-section. It is a statutory requirement that a condition has to be incorporated in the order passed under sub-section (4) specifying that settlement shall be void if it is subsequently found by the Commission that it has been obtained by fraud or misrepresentation of facts. The decision whether the order has been obtained by fraud or misrepresentation of facts is that of the Commission. But it is not a requirement that the Commission must suo motu initiate the action. If the revenue has material to show that the order was obtained by fraud or misrepresentation of facts it certainly can move the Commission for decision on that issue. Otherwise, even if in a given case there is material in abundance to establish that the order was obtained by fraud or misrepresentation of facts, yet the void order would continue to be operative because of the fortuitous circumstance that the Commission does not suo motu initiate the proceeding. Merely because Section 245I provides that the order of Settlement is conclusive it does not take away the power of the Commission to decide whether the settlement order had been obtained by fraud or misrepresentation of facts. Any other interpretation would render sub-section (6) otiose. The Commission had really missed the true scope and ambit of Section 245D(6). If the CIT was able to establish that the earlier decision was void because of misrepresentation of the facts, certainly it was open to the Commission to decide that issue. It cannot be called by any stretch of imagination to be review of the earlier judgment or the subsequent Bench sitting in appeal over the ­earlier Bench’s decision. Further the conclusions of the Commission regarding the genuineness of the loan transactions were arrived at without indicating reasons. It only referred to the respective stands and the submissions of the assessee’s counsel. That was not the proper way to deal with the matter. (Para 15)

       In the aforesaid background it would be proper to direct the Commission to re-hear the matter. It shall be open to the parties to place any further material which they may choose to place for consideration in support of their respective stands. The Commission shall decide the matter afresh keeping in view the observations made above. It is, however, made clear that we have not expressed any opinion on the facts of the case. (Para 19)