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THE COMMISSIONER OF INCOME TAX Versus M/s RNS INFRASTRUCTURE LTD AND INCOME TAX SETTLEMENT COMMISSION

2016 (2) TMI 273 - KARNATAKA HIGH COURT

Settlement Commissioner adjudication - whether the Settlement Commission on receipt of an application under Section 245C, and on receipt of the report called for from the Commissioner of Income Tax, adjudicate on the report so filed and assign reasons in order to allow the application to be proceeded with? - Held that:- Settlement Commission has satisfied itself that the application of the assessee has made, what is claimed as, a full and true disclosure of the income which has not been disclose .....

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re by the applicant. - Writ Petition Nos.44007 of 2014 & 2745-2750 of 2015 (T-IT) - Dated:- 18-1-2016 - ANAND BYRAREDDY, J For the Petitioner : Shri K.V.Aravind, Adv. For the Respondent : Shri A. Shankar, Advocate for Shri S. Sukumar, Adv. and Shri Krishna S Dixit, Additional Solicitor General JUDGEMENT The facts leading up to these petitions are as follows:- The respondent is said to be an assessee within the jurisdiction of the petitioner. A search is said to have been conducted at the busines .....

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.12.2012. The respondent is said to have filed a return of income pursuant thereto. And further, during the pendency of the said proceedings, the assessee is said to have filed an application under Section 245C of the IT Act before the Settlement Commission, as on 6.2.2014, in Form no. 34B. The Settlement Commission is said to have issued notice to Respondent no.1 under Section 245D(1) of the IT Act. It had then passed an order under Section 245D(1) to proceed with the application vide proceedin .....

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ly disclosed. And hence sought that the application be rejected. The Settlement Commission however chose to proceed with the further enquiry. It is the petitioner's contention that the Settlement Commission was required to adjudicate on the objection filed by the petitioner. Such adjudication, it is asserted, is mandatory and should be conducted with due application of mind and must be followed by a reasoned order. For otherwise, the exercise of calling for a report from the Commissioner of .....

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e fully and truly the income which has not been disclosed before the Assessing Officer and fails to explain the manner in which such income has been derived and fails to pay the additional amount of income tax payable on such income, the Settlement Commission cannot proceed with the application. If the Commissioner objects regarding compliance of the above requirements, the Settlement Commission cannot assume jurisdiction to consider the application without adjudicating the objection. Hence, the .....

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is not a true and full disclosure of the additional income. Reliance is placed on the following authorities by the learned counsel for the petitioner in seeking that the petition be allowed. 1. Commissioner of Income Tax vs. Income Tax Settlement Commission, (2014) 365 ITR 0087 (Bom); 2. Commissioner of Income Tax (Central) vs. Income Tax Settlement Commission (ITSC), (2014) 361 ITR 068 (Bom); 3. Ajmera Housing Corporation and another vs. Commissioner of Income Tax; (2010) 326 ITR 3. On the oth .....

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d that the Settlement Commission has been empowered to declare whether the application under consideration is invalid on the basis of the report of the Commissioner and nothing more. There is no mandate contemplated under Section 245D(2C), for an adjudication on the objection filed. It is pointed out that the Commissioner having objected to the application on the ground that there was no full and true disclosure, has provided the amount of unaccounted income said to have been detected by the Inv .....

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sioner under Rule 9 of the Income Tax Settlement Commission (Procedure) Rules, 1997 (Hereinafter referred to as the 1997 Rules', for brevity) and on being satisfied that there is full and true disclosure by the applicant. 4. In the light of the above contentions, the point that arises for consideration is, whether the Settlement Commission on receipt of an application under Section 245C, and on receipt of the report called for from the Commissioner of Income Tax, adjudicate on the report so .....

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which has not been disclosed before the AO; (ii) the manner in which such income has been derived and (iii) the additional amount of income tax payable on such income. 22. 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 245C(1) of the Act. Additionally, the amount of income tax payable on such undisclosed income is to be computed .....

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hus in its order at Annexure -B to the petition: "DECISION 10. We have carefully considered the submissions of the learned A.R and the facts available on record. It cannot prima facie be inferred at this stage that the disclosure made in the Settlement Application is not full and true. So far as other conditions are concerned, they stand satisfied by the Applicant. We, therefore, allow the Settlement Application to be proceeded with under Section 245D(1) of the Act." From the above, it .....

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hus : "26. The procedure laid down in Section 245D of the Act, contemplates that on receipt of the application under Section 245C(1) of the Act, the Settlement Commission is required to forward a copy of the application filed in the prescribed form (No.34B), containing full details of issues for which application for settlement is made, the nature and circumstances of the case and complexities of the investigation involved, save and except the annexures, referred to in item No.11 of the for .....

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45D(1) is made, by the Settlement Commission, r.8 of the 1987 Rules mandates that a copy of the annexure to the application, together with a copy of each of the statements and other documents accompanying such annexure shall be forwarded to the CIT and further report shall be called from the CIT. The Settlement Commission can also direct the CIT to make further enquiry and investigations in the matter and furnish his report. Thereafter, after examining the record, CIT's report and such furth .....

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assessee against item No.10 of the prescribed form, and the material gathered by the Revenue by way of its own investigation. It is evident from the language of section 245C(1) of the Act that the report of the CIT is primarily on the nature of the case and the complexities of the investigation, as the annexure filed in support of the disclosure of undisclosed income against item No.11 of the form and the manner in which such income had been derived are treated as confidential and are not suppli .....

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the assessee has made a full and true disclosure of his undisclosed income. We feel that the report(s) of the CIT 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 determination of the said question. It is plain from the language of sub-section (4) of section 245D of the Act that the jurisdiction of the Settlement Commission to pass such orders .....

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pplication against item No.11 of the form." (emphasis supplied) Even assuming that the Settlement Commission has glossed over the initial report submitted by the Commissioner of Income Tax (CIT), as the procedure contemplates a further report to be submitted by the CIT, after examination of the annexure to the application, statements and other documents accompanying such annexure and on the basis of a further enquiry, if any, all of which is not made available to the CIT in the first instan .....

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essarily have to be passed under Section 245D(4) only after obtaining the report of the Commissioner under Rule 9 of the 1987 Rules and after being satisfied that there is full and true disclosure by the applicant. It is also to be noticed that the legislature in its wisdom removed the provision of Sub-section (1A) of Section 245D by Finance Act (no.2), 1991. The scope and effect of the amendment was explained by the Board of Direct Taxes vide Circular no.621, dated 21.12.1991, thus: "Simpl .....

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ceeded with or reject the application. Further, sub-section (IA) of Section 245D provides for filing of objection by the Commissioner against proceeding with the application made under section 245C. 65.1 The above provisions cause delay, at times, in the disposal of applications filed before the Settlement Commission under section 245C. In order to expedite the disposal of such applications, sub-section (1) of section 245D has been amended to provide that the Commissioner shall furnish the repor .....

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