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TMI Blog2013 (7) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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) pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tlement 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 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 prescri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso 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 apparen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 argume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 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 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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Housing (supra) was rendered by the Supreme Court. At the outset, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 jurisd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enge 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 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding before the Settlement Commission and the final order is yet to be passed by the Settlement Commission under Section 245D(4). All the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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