2010 (8) TMI 35 - SC - Income Tax

Settlement commission full and true disclosure by the party first disclosure was Rs. 1.94 crores second disclosure was Rs. 11.41 crores Held that - It is trite law that a taxing statute is to be construed strictly. - In a taxing Act one has to look merely at what is said in the relevant provision. There is no presumption as to a tax. Nothing is to be read in nothing is to be implied. There is no room for any intendment. There is no equity about a tax. As afore-stated in the scheme of Chapter XIX-A there is no stipulation for revision of an application filed under Section 245C(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. - the application filed by the assessee before the Settlement Commission was not maintainable as the assessee had not made a full and true disclosure of their undisclosed income were kept open. - the disclosure of Rs. 11.41 crores as additional undisclosed income in the revised annexure filed on 19th September 1994 alone was sufficient to establish that the application made by the assessee on 30th September 1993 under Section 245C(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. - 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. - The Commissioner will be entitled to costs quantified at Rs. 50, 000/-.

1. ISSUES PRESENTED and CONSIDERED

- Whether the application filed under Section 245C(1) of the Income Tax Act, 1961 ("the Act") by the assessee contained a full and true disclosure of undisclosed income and the manner in which such income was derived, as mandated by the statute.

- Whether the Settlement Commission was justified in proceeding with the application despite subsequent revisions and additional disclosures of undisclosed income by the assessee, particularly the revised annexure filed on 19th September, 1994.

- The legality and validity of the order passed by the Settlement Commission under Section 245D(4) of the Act, especially regarding the determination of total income, imposition of penalty, and grant of immunity.

- Whether the High Court was justified in exercising its writ jurisdiction under Article 226 of the Constitution to set aside the Settlement Commission's order and remand the matter for fresh adjudication.

- The scope and extent of judicial review over orders passed by the Settlement Commission under Chapter XIX-A of the Act.

- The procedural correctness and natural justice compliance concerning the non-supply of the revised annexure to the Commissioner before the Settlement Commission's decision to proceed with the application.

- Whether the scheme of Chapter XIX-A of the Act permits revision of the application or annexures filed under Section 245C(1).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Full and True Disclosure Requirement under Section 245C(1) of the Act

Legal Framework and Precedents: Section 245C(1) mandates that an assessee's application to the Settlement Commission must contain a "full and true disclosure" of the undisclosed income and the manner in which it was derived. This is a pre-condition for maintainability. The form prescribed (Form No. 34B) requires detailed particulars of the issues, nature, and circumstances of the case, and the additional income tax payable. Precedents emphasize that full and true disclosure is a sine qua non for the validity of the application.

Court's Interpretation and Reasoning: The Court underscored that full and true disclosure is mandatory and non-negotiable. The scheme of Chapter XIX-A contemplates a one-time comprehensive disclosure, not piecemeal or revised disclosures. The Court highlighted that revision of the application or annexures is not contemplated by the statute and would amount to a fresh application, which is prohibited by Section 245C(3) that bars withdrawal once an application is filed.

Evidence and Findings: The assessee initially disclosed Rs. 1.94 crores of additional income, but subsequently filed a revised annexure declaring Rs. 11.41 crores, and later made further disclosures during hearings. The Court found that these multiple and incremental disclosures demonstrated non-compliance with the full and true disclosure requirement.

Application of Law to Facts: The Court held that the revised annexure alone was sufficient to establish that the initial application was not maintainable, as it lacked full and true disclosure. The Settlement Commission erred in entertaining the application despite this.

Treatment of Competing Arguments: The assessee argued that the Settlement Commission had the jurisdiction to proceed and that subsequent disclosures were permissible. The Court rejected this, holding that the statutory scheme does not allow revision or piecemeal disclosure.

Conclusion: The application under Section 245C(1) was not maintainable as it lacked full and true disclosure, a fundamental statutory requirement.

Issue 2: Legality of the Settlement Commission's Order and the Penalty Imposed

Legal Framework: Section 245D(4) empowers the Settlement Commission to pass an order determining total income and impose penalty, with the power to grant immunity from prosecution and other penalties. The penalty must be commensurate with the undisclosed income and statutory provisions.

Court's Interpretation and Reasoning: The Court noted that the Settlement Commission imposed a token penalty of Rs. 50 lakhs against a minimum leviable penalty of Rs. 562.87 lakhs as per its own assessment. The Court found this to be a gross misdirection and unjustified leniency.

Evidence and Findings: The Commissioner's reports indicated undisclosed income ranging from Rs. 42.58 crores to Rs. 187.09 crores, with unexplained expenses, loans, and surpluses exceeding Rs. 14 crores not considered by the Settlement Commission. This omission distorted the income determination and penalty calculation.

Application of Law to Facts: The Court held that the Settlement Commission's order was perverse and failed to properly assess the total undisclosed income and levy an appropriate penalty.

Treatment of Competing Arguments: The assessee contended that the penalty was justified and that the Settlement Commission had discretion. The Court disagreed, emphasizing the need for penalty to reflect the gravity of non-disclosure and the statutory minimums.

Conclusion: The Settlement Commission's order on penalty and income determination was flawed and required reconsideration.

Issue 3: Procedural Fairness and Natural Justice Regarding Non-Supply of Revised Annexure

Legal Framework: Rules 6 and 8 of the Income Tax Settlement Commission (Procedure) Rules, 1987, prescribe that the Commissioner receives the application excluding annexures initially, and only upon the Commission's decision to proceed, the annexures and supporting documents are supplied for the Commissioner's further report.

Court's Interpretation and Reasoning: The Court acknowledged that the annexure is confidential and not supplied initially. However, the filing of a revised annexure after the hearing and without informing the Commissioner violated principles of natural justice, as the Commissioner was deprived of the opportunity to respond or object to the revised disclosure.

Evidence and Findings: The revised annexure disclosing Rs. 11.41 crores was filed after the hearing on whether to proceed, and was not supplied to the Commissioner. The Commissioner was thus handicapped in making a report or objecting to maintainability.

Application of Law to Facts: The Court held that this procedural irregularity prejudiced the revenue and was contrary to natural justice.

Treatment of Competing Arguments: The assessee argued that no prejudice was caused as the annexure is confidential and not supplied initially. The Court rejected this, emphasizing that withholding the revised annexure deprived the Commissioner of a fair opportunity to contest.

Conclusion: The procedural irregularity justified interference with the Settlement Commission's order.

Issue 4: Scope of Judicial Review over Settlement Commission's Orders

Legal Framework and Precedents: The Settlement Commission's order under Section 245D(4) is conclusive and ordinarily not subject to reopening under the Act. However, judicial review is available on grounds of jurisdictional error, procedural irregularity, or violation of natural justice. Precedents establish that courts may examine the decision-making process but not substitute their own findings on facts.

Court's Interpretation and Reasoning: The Court found that the High Court's interference was justified as the Settlement Commission had committed jurisdictional and procedural errors, including entertaining an application without full and true disclosure and violating principles of natural justice.

Evidence and Findings: The High Court had set aside the Settlement Commission's order and remanded the matter for fresh consideration. The Supreme Court upheld this, rejecting the assessee's contention that judicial review was impermissible.

Application of Law to Facts: The Court emphasized that judicial review is concerned with the legality and propriety of the decision-making process and can intervene where the statutory scheme is violated.

Treatment of Competing Arguments: The assessee argued that the High Court lacked jurisdiction to entertain the writ petition. The Court rejected this, noting the assessee's prior concession and the existence of jurisdictional errors.

Conclusion: Judicial review by the High Court was proper and necessary in the circumstances.

Issue 5: Whether Revision of Application or Annexure is Permissible under Chapter XIX-A

Legal Framework: Section 245C(3) prohibits withdrawal of an application once filed. The scheme does not contemplate revision or amendment of the application or annexures after filing.

Court's Interpretation and Reasoning: The Court held that permitting revision would amount to a fresh application, circumventing the statutory prohibition on withdrawal and revision, and rendering the provision meaningless.

Evidence and Findings: The assessee's filing of revised annexure and subsequent disclosures were held to be impermissible and contrary to the statutory scheme.

Application of Law to Facts: The Court concluded that the Settlement Commission erred in allowing the revised annexure and subsequent disclosures to be entertained.

Treatment of Competing Arguments: The assessee argued that subsequent disclosures were part of the process. The Court rejected this, stressing the statutory mandate for a single, full, and true disclosure.

Conclusion: Revision of the application or annexure is not permitted under Chapter XIX-A.

3. SIGNIFICANT HOLDINGS

"Section 245C(1) of the Act mandates 'full and true disclosure' of the particulars of undisclosed income and the manner in which such income was derived, which is a pre-condition for a valid application. Unless the Settlement Commission records its satisfaction on this aspect, it will not have jurisdiction to pass any order on the matter covered by the application."

"The scheme of Chapter XIX-A does not contemplate revision of the income disclosed in the application or annexures filed under Section 245C(1). Permitting revision would amount to a fresh application, which is prohibited by Section 245C(3) of the Act."

"The Settlement Commission's order imposing a token penalty of Rs. 50 lakhs against a minimum leviable penalty of Rs. 562.87 lakhs, without proper consideration of unexplained expenses, loans, and surpluses, was a gross misdirection and could not stand."

"Non-supply of the revised annexure declaring additional income to the Commissioner before the Settlement Commission's order to proceed with the application violated principles of natural justice and prejudiced the revenue."

"Judicial review of the Settlement Commission's orders is permissible on grounds of jurisdictional error, procedural irregularity, or violation of natural justice, and the High Court was justified in setting aside the Settlement Commission's order and remanding the matter for fresh adjudication."

"The Settlement Commission cannot entertain an application that does not contain a full and true disclosure of the undisclosed income and the manner in which it was derived. The presence of multiple incremental disclosures negates the validity of the application."

"The Court disapproved the High Court's view that proceedings should not be set aside despite finding non-fulfillment of the full and true disclosure requirement, emphasizing that such failure is fatal to the maintainability of the application."

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