The main legal point established is that the Settlement Commission has the discretion to determine the necessity of a further enquiry or investigation under Section 245D(3) and is not mandated to order such enquiry in every case.

Dr. D.Y. Chandrachud, J.

The Commissioner of Income Tax (Central), Pune has challenged an order passed by the Settlement Commission on 29 August 2013 under the provisions of sub-section (2C) of Section 245D of the Income Tax Act 1961. By the order which has been impugned, the Settlement Commission has held as follows :

“In the totality of facts available to us at present, we are satisfied about the true and full nature of the disclosure made. The manner of making undisclosed income, in the facts of the case, as stated, is on sales kept outside the books resulting in understatement to sales. Needless to say, as observed by the Hon'ble High Court in this very case, that if at a later stage of the proceedings, facts come to our knowledge showing suppression of full material facts or mis-statements thereof, the law will take its own course.”

2. The Commission has accordingly held that the application filed by the Second Respondent is not an invalid application and should be allowed to be proceeded with further. Following the order which was passed by the Settlement Commission on 29 August 2013, further hearings took place before the Commission on 19 September 2013 and 7 October 2013. The grievance of the Petitioner is that the Commission has without ordering an enquiry by the Commissioner under Section 245D(3), directly proceeded under sub-section (4) and a letter was received from the Directorate of Investigation of the Settlement Commission on 4 October 2013 requiring the inspection of the factory premises of the Second Respondent. The contention of the Revenue is that in the present case it was necessary for the Settlement Commission to cause the Commissioner to make or cause to be made a further enquiry or investigation and to furnish a report on the matters covered by the application to the Settlement Commission.

3. Section 245D(3) provides as follows:

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

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

(ii) an application referred to in sub-section (2D) which has been allowed to be further proceeded with under that sub-section, 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 furnish a report on the matters covered by the application and any other matter relating to the case, and the Commissioner shall furnish the report within a period of ninety days of the receipt of communication from the Settlement Commission;

Provided that where the 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. The provisions of sub-section (3) of Section 245D would make it clear that where an application has not been declared to be invalid by the Settlement Commission under sub-section (2C), the Commission is empowered to call for records from the Commissioner and upon the examination of such records, if it is of the opinion that a further enquiry or investigation in the matter is necessary, it may direct the Commissioner to do so. The jurisdiction to determine as to whether a further enquiry or investigation is necessary is thus vested with the Settlement Commission. In the present case, from the compilation of correspondence which is placed on the record, it is clear that on 3 October 2013, the Commissioner of Income Tax (Central) Pune had addressed a communication to the Settlement Commission setting out that an enquiry under sub-section (3) of 245D was necessary in respect of certain specific issues. The grievance of the Petitioner, is that on 19 September 2013 at a hearing before the Commission it was indicated that the department would be heard on the issue relating to a Section 245D(3) en