K.s.thirumalaivasan v. The Chairman, Income Tax Settlement Commission, Principal Bench, New Delhi

IN THE HIGH COURT OF JUDICATURE AT MADRAS K.S.Thirumalaivasan ..Petitioner vs. 1. The Chairman, Income Tax Settlement Commission, Principal Bench, New Delhi. 2. Income Tax Settlement Commission, Additional Bench, 640, Anna Salai, Chennai-35. 3. Principal Commissioner of Income Tax, Central-II, Chennai. 4. The Assistant Commissioner of Income Tax (AO), Central Circle-I(4), No.46, M.G.Road, Chennai-34. ..Respondents PRAYER : Writ Petition filed under Article 226 of theConstitution of India, praying for the issue of a Writ ofCertiorarified Mandamus to call for the records relating to theorder of the second respondent made in Settlement ApplicationNos.TN/CN51/2014-15/69/IT dated 26.09.2016 and consequentialprovisional order/warrant of attachment of movable propertiesu/s 281B of IT Act, 1961 in respect of petitioner'sPAN:AAEPT1716C/CC-1(4)/2016-17 dated 28.10.2016 issued by the4th respondent and quash the same and consequently, direct the1st respondent to constitute a Special Bench under Section 245BA(5) of Income Tax Act, 1961 to hear the petitioner's SettlementApplication dated 25.03.2015 uninfluenced by the findings of theimpugned order of the 2nd respondent dated 26.09.2016 andforbearing the 4th respondent from proceeding further withAssessment Proceedings in pursuance to the Assessment noticesdated 27.10.2016 issued under Section 142(1) r/w Section 129 ofIncome Tax Act, 1961 in respect of the petitioner's assessmentfor Assessment years 2007-08 to 2013-14. For petitioner : Mr.N.ViswanathanFor Respondent : Mr.A.P.Srinivas Senior Standing Counsel The order passed by the Settlement Commission rejectingthe application filed by the petitioner under Section 245D (4)of the Income Tax Act is under challenge in the present writpetition. 2. The learned counsel appearing for the petitionersterroneously contended that the petitioner has made true andfull disclosure of his income, at the time of filing anapplication under Section 245C of the Act. The entire facts aremisconstrued by the Settlement Commission and the explanationsoffered by the petitioner were not considered with reference tothe details and particulars provided. It is contended that theSettlement Commission entertained the application, scrutinizedthe same and formed an opinion that the petitioner has made fulland true disclosure of the income. Under Sub-clause (1) (2) &(3) to Section 245D of the Act, orders were passed and thoseorders would reveal that the petitioner has made full and truedisclosure of the income and the said fact was admitted by theCommission. While so, there is no reason to deviate the findingsalready arrived and form an opinion for the purpose of rejectionof the application itself under Section 245(D)(4). The factswhich are not controverted at three stages cannot be disputed atthe final stage. In this regard, the learned counsel for thepetitioner made a submission that the Authority, whoinvestigated the matter, decided the issue finally andthereafter, the application was rejected. 3. However, the Authority concerned has not been impleadedin his personal capacity so as to raise an allegation ofmalafide. It is a established principle that in the event ofraising the malafide allegation against the Authority, the saidallegations are to be substantiated with reference to someevidence and documents and the Authority concerned must beimpleaded as party in the writ proceedings in his personalcapacity. General contentions or allegations made against theAuthority cannot be entertained in the writ proceedings, in viewof the fact that the petitioner has not substantiated any suchallegations nor impleaded the Authority in his personalcapacity. Therefore, this Court is not inclined to entertain thecontention raised on behalf of the writ petitioner. 4. The learned counsel appearing for the petitionersolicited the attention of this Court with reference to the https://hcservices.ecourts.gov.in/hcservices/ orders passed by the Settlement Commission at various stages.The Settlement Commission, after entertaining the application,gone into the facts and circumstances and made an observationthat the petitioner has provided full and true disclosure andaccordingly, came to the final stage for the purpose of settlingthe issues. Unfortunately, the Settlement Commission, at thefinal stage, misconstrued the facts which were alreadyadjudicated and formed an erroneous opinion and dismissed theapplication filed under Section 245C of the Act. Thus, the writpetition is to be allowed. 5. The learned counsel appearing for the petitioner made asubmission that the petitioner has no additional income of hisown and further, he has paid a sum of Rs.1 Crore towards tax.All those factors were not taken into consideration whilepassing the final order by the Settlement Commission. Thus, theorder is untenable and to be set aside. 6. The learned Senior Standing Counsel appearing for therespondent disputed the said contention by stating that theSettlement Commission is empowered to form an opinion at everystage regarding the true and full disclosure of income. Merelybecause the application filed under Section 245C is entertained,it will not provide a right to the assessee. Investigations areconducted throughout and the additional materials orinformations received by the Authorities Competent are producedbefore the Settlement Commission, the Commissioner has filed areport in this regard. Thus, the application is liable to berejected at any stage of the proceedings under Section 245D ofthe Act, if the Settlement Commission could able to form anopinion that there was no true and full disclosure. This beingthe spirit of the procedures contemplated under Section 245D ofthe Act, the mere admission of an application or passing of anorder under Sub-clause (1)(2)(3) would not be a ground to setaside the final order passed by the Settlement Commission. 7. Various stages contemplated under Section 245D of the Actwere discussed by the High Court in the case of Abdul rahim Vs.Income Tax Settlement Commission, Chennai, reported in [2018] 96taxmann.com 571(Madras). The relevant paragraphs are extractedhereunder: “16. It is to be noted at this juncture that theSettlement Commission is vested with power to rejectthe Settlement Application at three stages, as providedunder Section 245D of the said Act. Rejection at thethreshold is contemplated under Section 245D(1).Rejection after notice to the Revenue and on perusingthe report filed by the Revenue could be madeunder Section 245D(2). While rejection under Section https://hcservices.ecourts.gov.in/hcservices/ 7. Various stages contemplated under Section 245D of the Actwere discussed by the High Court in the case of Abdul rahim Vs.Income Tax Settlement Commission, Chennai, reported in [2018] 96taxmann.com 571(Madras). The relevant paragraphs are extractedhereunder: “16. It is to be noted at this juncture that theSettlement Commission is vested with power to rejectthe Settlement Application at three stages, as providedunder Section 245D of the said Act. Rejection at thethreshold is contemplated under Section 245D(1).Rejection after notice to the Revenue and on perusingthe report filed by the Revenue could be madeunder Section 245D(2). While rejection under Section https://hcservices.ecourts.gov.in/hcservices/ 245D(1) is a dismissal at the admission stage,rejection under Section 245D(2) is after notice to therevenue and on being satisfied with non disclosure oftrue and full undisclosed income. The third stage ofrejection is contemplated under Section 245D(4), afterdirecting the Revenue to furnish records and thereafterto conduct an investigation or enquiry. In all thesestages, the satisfaction of the Commission with regardto true and full disclosure of income must continue toexist so as to carry over the proceedings from onestage to another and finally, to pass an orderdetermining the terms of settlement as providedunder Section 245D(6). In other words, true and fulldisclosure is the life line, satisfaction of the sameshould remain to live in the mind of the Commissiontill the final order is passed. On the other hand, ifthe Commission finds, at any stage of the proceedingsunder Section 245D that the applicant has not comebefore the Commission with clean hands and bydisclosing true and full income, it is empowered toreject the application, thereby driving the applicantto face the regular assessment proceedings. Theapplicant cannot, as a matter of right, seek theCommission to carry over the application from one stageto another, notwithstanding the fact as to whether trueand full disclosure of income was made or not. In otherwords, the applicant who approaches the Commission,bypassing the regular assessment proceedings, mustprovide material facts without any suppression andestablish that the disclosure of income in theapplication is true and full in its strict sense.Otherwise, the applicant cannot find fault with theCommission in showing him the door to face the regularassessment proceedings. The term "true and fulldisclosure" does not mean that whatever the amountshown by the applicant, which according to him isundisclosed income, is in fact, the true and fulldisclosure. It may be the disclosure of undisclosedincome in the view of the applicant. But whether suchdisclosure is "true and full", in its strict sense, isa question that should fetch an answer in favour of thepetitioner/applicant at all stages even after hearingthe revenue. In other words, such disclosure should notgive room for deduction of concealed fact with regardto any other income either after getting a report fromthe Revenue or conducting an investigation or enquiryat the instance of the Commission.” 8. The Delhi High Court considered the scope of Section 245Din the case of Rohit Kumar Gupta Vs. Principal Commissioner of Income Tax, Central-II, reported in [2019] 109 taxmann.com 257(Delhi), and held as follows: 8. The Delhi High Court considered the scope of Section 245Din the case of Rohit Kumar Gupta Vs. Principal Commissioner of Income Tax, Central-II, reported in [2019] 109 taxmann.com 257(Delhi), and held as follows: “45. The above decision interprets Section245D (4) as a substantive provision from where thepowers of the ITSC to pass 'such order as if it thinksfit' arises. The next question that arises is whetherthe expression 'such orders if it thinks fit' wouldinclude the power to pass an order rejecting anapplication. If the interpretation placed by thePetitioners on this provision is accepted it wouldmean that after having allowed the applications to beproceeded with in terms of its order passedunder Section 245D (1) of the Act, the ITSC cannot atthis stage, after the report of the Commissioner hasbeen submitted to it pursuant to an orderunder Section 245D (2C) of the Act, dismiss theapplication at all and that it would necessarily haveto pass an order providing for the terms ofsettlement. However, this does not appear to be acorrect understanding of the ambit of the expression'such orders it deems fit.' 47. The Court is unable to understand how theabove decision helps the Petitioners in support oftheir contention that the ITSC cannot at the stage ofpassing of final order under Section 245D(4) of theAct, reject an application for failure of the Applicantto make a full and true disclosure and the manner inwhich the undisclosed income was derived.” 9. Relying on the said judgment, the learned Senior StandingCounsel is of the opinion that in the present case, theSettlement Commission formed an opinion that the petitioner hadnot made full and true disclosure with reference to certainincriminating evidence. Therefore, the order of rejection is inconsonance with the provisions of the Act. 10. This Court is of the considered opinion that it is apre-requisite condition that an assessee, who approaches theSettlement Commission under Section 245C of the Act, mustdisclose true and full income. How to form an opinion regardingtrue and full disclosure of the assessee. Undoubtedly, it is adifficult procedure to be adopted and further, various facts andcircumstances are also to be ascertained. Thus, the proceduresare contemplated under Section 245D of the Act. Various stagesare provided for the purpose of deciding the application filedunder Section 245C. While the process of adjudication of anapplication is in progress, the Authorities Competent areempowered to provide additional informations, report enablingthe Commission to decide the issues in a proper perspective. The benefit of settlement is an enabling provision permitting theassessee to resolve the disputes in a peaceful manner. Thus, thespecial provision is to be dealt with in accordance withprocedures contemplated under Section 245D of the Act. While theapplication is in the process of adjudication, the AuthorityCompetent is empowered to file reports and produce materials todispute the application on the ground that the true and fulldisclosure is not made. During that process, at any stage, ifthe Commission could able to form an opinion that there was notrue and full disclosure of income, then the assessee must facethe regular assessment proceedings and the settlement cannot bearrived. benefit of settlement is an enabling provision permitting theassessee to resolve the disputes in a peaceful manner. Thus, thespecial provision is to be dealt with in accordance withprocedures contemplated under Section 245D of the Act. While theapplication is in the process of adjudication, the AuthorityCompetent is empowered to file reports and produce materials todispute the application on the ground that the true and fulldisclosure is not made. During that process, at any stage, ifthe Commission could able to form an opinion that there was notrue and full disclosure of income, then the assessee must facethe regular assessment proceedings and the settlement cannot bearrived. 11. The settlement of cases under Section 245C cannot beconstrued as an absolute right of an assessee. It is only afacility provided to the assessee to settle the cases in apeaceful manner. When the settlement being not a right, theprocedures contemplated are to be followed scrupulously. All theassessments are to be made by the regular Assessing Officer byfollowing the provisions of the Act. Thus, the application filedunder Section 245C is a special provision contemplated for thepurpose of settling the cases in a speedy manner, only in theevent of furnishing the true and full disclosure of income by anassessee along with the application. 12. Doubts raised based on incriminating evidence by theDepartment and the particulars produced by the assessee aresufficient enough to form an opinion that there was no true andfull disclosure. The true and full disclosure contemplated underthe provision must be understood that the said disclosure mustbe an acceptable disclosure with reference to the documents andevidences available with the Department. The very settlement isa consensus to arrive a settlement and the parties are expectedto be fair and honest. With this idea, the concept of true andfull disclosure is contemplated in the provision. 13. As far as the writ proceedings are concerned, suchdisputed facts and circumstances with reference to the documentsand evidence cannot be adjudicated under Article 226 of theConstitution of India. Such an adjudication must be done by theCompetent Authority by conducting a full-fledged enquiry/trial.In the event of rejection of an application filed under Section245C, the matter shall go before the Assessing Officer beforewhom the assessee would get an opportunity to submit hisexplanation or documents or otherwise. Thus, the High Courtunder Article 226 cannot adjudicate or made any finding withreference to the disputed facts. Thus, the contention raised bythe writ petitioner in this regard need not be considered. 14. The learned counsel appearing for the petitionermade a submission that the Principal Commissioner and JointCommissioner of Income Tax accept the statement of the writpetitioner regarding the income details. However, the SettlementCommission is empowered to go into the details of such admissionand conduct an enquiry. If there is any doubt regarding suchstatement or such admission, then the Commission shall rejectthe application enabling the regular Assessing Officer to assessthe income by following the procedures contemplated under theIncome Tax Act. Thus, mere admission of an authority would notbe a conclusive factor for the Settlement Commission to form anopinion under Section 245D. Various stages are to be followedand the Commission is empowered to go into those details andmaterials and form an independent opinion and pass an orderaccordingly. 15. For the purpose of considering the writ petition, it issufficient that the findings of the Settlement Commission arelooked into and the said findings are hereunder: 15. For the purpose of considering the writ petition, it issufficient that the findings of the Settlement Commission arelooked into and the said findings are hereunder: 13.In the course of business, it is seen thatthe applicant has received this sum of Rs.56 crores.He has credited the same in the P&L Account. Theentire sum was received as a sale consideration andonce the sum is credited in the P&L Account it isliable to tax. Even gifts are business receipts ifreceived in the course of, or incidental to business.CIT vs. Paramanand Hukumchand 146 ITR 430 (Mad). Thisvery principal is laid down in the case of BoyingVs.CIT 250 ITR 667 (Mad). Further when such unclaimedcredit is credited in the P&L Account it is alsoliable to taxation. CIT Vs.TVS Sundaram lyengar & SonsLtd. [1996] 222 ITR 344(SC). Thus, the argument of theCIT (DR) is in accordance with law. The A.R. duringthe course of arguments on 20.09.2016 categoricallyadmitted that the sum of Rs.53.60 crores cannot taxedunder the head other sources (Section 56). He admittedcategorically that it was received as a contractreceipt and credited so in the P&L Account. It was atransaction entered into on account of commercialexpediency according to the A.R. It was received inthe course contract only according to A.R. This wasonly a business transaction between the applicant andthe RRIPL. Thus, when the A.R. admits so, it naturallyfollows that the sum credited in the P&L Account tothe extent of Rs.53.60 crores is to be taxed u/s 28(iv). If it is stated that it is received gratuitoussection 56 would apply in so far as the sum iscredited and is in excess of Rs.50,000. When this wasclearly pointed out to the A.R., the A.R. argued that either the application be allowed or the matter sentback to the A.O. to follow the regular legal course.14.The argument of the CIT(DR) that the entire sumof Rs.53.60 crores should be added as income andsubjected to tax is valid. The applicant has notdischarged the onus that the sum is due to be paid tosomeone else and it is his liability. The letter givenby the Company Secretary cannot be taken note of,because he was an erstwhile employee and presently,the Company is under liquidation. Only Rs.4 crores(approx) is due from the applicant to RRIPL accordingto financial statements on regular contract. Thus,this sum which is credited in the P&L Account by theapplicant is to be brought to tax u/s 28(iv) and theapplicant failed to disclose this sum. The records ofRRIPL are not produced to show that entries arereversed and they have to receive the sum of Rs.53.60crores from the applicant. The investment inredeemable preference shares is held by the applicantin his name and it was invested out of the contractreceipts received and credited in P&L Account.Investment in other companies in his own name does notamount to paying back the sum. He has also failed todisclose Rs.13.09 crores redeemed in the F.Ys 2009-10to 2011-12 as income or explained as to why it is nothis income. He has not explained how the money wasutilized. This information about redeeming sharesworth Rs.13.09 crores is brought to light throughletter of Shri Jayapandi. Application of this fund isnot explained. Thus on all the above counts thedisclosure made is not full and true. 16.The applicant has also not established as tohow and why only 3% of inflated contract value is tobe treated as his income. On all these counts it isclearly seen that the applicant has not made full andtrue disclosure. The applicant states at one stagethat the transaction is financial in nature and noprofit was generated while at another point of time hestates through A.R . that he received 3% on account ofaccommodation entry. There is no consistency in theexplanations given. 16.The applicant has also not established as tohow and why only 3% of inflated contract value is tobe treated as his income. On all these counts it isclearly seen that the applicant has not made full andtrue disclosure. The applicant states at one stagethat the transaction is financial in nature and noprofit was generated while at another point of time hestates through A.R . that he received 3% on account ofaccommodation entry. There is no consistency in theexplanations given. 17.The applicant is to note that the law does notgive scope to withdraw an application. However as percase law when the disclosure is not full and true andthe application is not maintainable the Commission isfree to reject the application and not provide for theterms of settlement. 16. The entire findings of the Settlement Commission revealthat certain contra materials were produced by the Departmentbefore the Settlement Commission and disputed statements arealso made. All such disputed statements and evidences cannot beadjudicated by the High Court. 17. This being the factum, this Court is not inclined toentertain the writ petition and further, the procedures followedfor deciding the issues as well as the decision arrived are inconsonance with the provisions of the Act and there is noperversity or infirmity as such. Accordingly, the writ petitionstandsdismissed.Nocosts.Consequently,connectedmiscellaneous petitions are also closed. s/d- Assistant Registrar(CCC) True Copy Sub-Assistant RegistrarssbTo1.The Chairman, Income Tax Settlement Commission, Principal Bench, New Delhi.2.Income Tax Settlement Commission, Additional Bench, 640, Anna Salai, Chennai-35.3.Principal Commissioner of Income Tax, Central-II, Chennai.4.The Assistant Commissioner of Income Tax (AO), Central Circle-I(4), No.46, M.G.Road, Chennai-34. +1 CC to Mr.N. Viswanathan, Advocate sr 23783.+1 Cc to Mr.A.P. Srinivas, Advocate sr 23301. W.P.No.41407 of 2016 KJ(CO)SP(29/06/2021)