R.t. Industries & Ors v. Income Tax Settlement Commission & Anr

$~ * IN THE HIGH COURT OF DELHI AT NEW DELHI + W.P.(C) 4398/2017 % Reserved on: 20[th] August, 2018 Date of Decision:13[th] September, 2018 R.T. INDUSTRIES & ORS ..... Petitioner Through Mr. N.P. Sahni and Mr. Ruchesh Sinha, Advocates. versus INCOME TAX SETTLEMENT COMMISSION & ANR. ..... Respondent Through Mr. Ruchir Bhatia, Advocate. CORAM:HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE CHANDER SHEKHAR SANJIV KHANNA, J. Petitioner No.1, M/s. R.T. Industries is a partnership firm based in the Tonk district in the State of Rajasthan and primarily engaged in production and trading of mustard oil, mustard seeds, oil cake etc. Petitioner Nos.2 and 3, Trilok Chand Jain and Gyan Chand Jain are the partners of R.T. Industries and claim that they were engaged in business of lending money on interest. Petitioner Nos.4 and 5, are Rajesh Kumar Jain (HUF) and Ashok Kumar Jain (HUF) and claim that they had earned income from commission/brokerage on sale/purchase of properties. 2.On 10.12.2015 search and seizure operations under Section 132 of the Income Tax Act, 1961 (the Act, for short) were conducted in the case of the petitioners and others associated with them. Simultaneously, survey operations under Section 133A at some locations were undertaken. 3.During the aforesaid operations, cash of Rs. 34,89,000/- and jewellery worth Rs. 1,49,73,682/- were found out of which Rs.34,00,000/- in cash and jewellery valued at Rs.23,53,853/- was seized. Incriminating documents in the form of loose papers, registers, dairy etc. were also found and seized. Trilok Chand Jain in his statement recorded on 10[th] December, 2015 had admitted and surrendered undisclosed income of more than Rs. 18 Crores for the entire group in the hands of different assessees. Subsequently, Trilok Chand Jain vide his letter dated 18[th] November,2016 had retracted the surrender. 4.Consequent to the search, the petitioners were served with notices under Section 153A for the assessment years 2010-11 to 2015-16. As returns were not filed, notices for prosecution under Section 276CC of the Act were also issued and served on the petitioners. The petitioners on the other hand claim that they had filed their returns after seeking extension of time on two occasions. 5.On 28[th] April, 2017, five separate applications under Section 245C (1) of the Act were filed by the five petitioners before the Income Tax Settlement Commission (the Settlement Commission, for short), the first respondent before us. The applications were for the assessment years 2010-11 to 2016-17. On the same date itself intimation regarding filing of the applications before the Settlement Commission was served on the Assistant Commissioner of Income Tax, Central-I, Jaipur, the Assessing Officer and Respondent No. 2 before us. 6.The Settlement Commission by notice dated 28[th] April, 2017 had informed the petitioners that the applications would be taken up for hearing on 9[th] May, 2017. However, by notice dated 2[nd] May, 2017, hearing on the applications before the Settlement Commission was preponed to 8[th] May, 2017. 7.On 8[th] May, 2017, the Settlement Commission had heard ex-parte arguments addressed by the petitioners for allowing the applications to be proceeded with under Section 245D(1) of the Act. 8.The Settlement Commission by the impugned order under Section 245D(1) of the Act also dated 8[th] May, 2017 has rejected the settlement applications, holding that the petitioners had failed to establish sources of undisclosed income, extent of such income and manner in which such income was derived. The statement of affairs filed by the petitioners, it was observed, were uniformly lacking from ―foundation of credible evidence and were unreliable‖. The Settlement Commission held that "prima facie" the conditions prescribed in Section 245C (1) of the Act were not fulfilled. We shall subsequently refer to and quote from the impugned order. 8.The Settlement Commission by the impugned order under Section 245D(1) of the Act also dated 8[th] May, 2017 has rejected the settlement applications, holding that the petitioners had failed to establish sources of undisclosed income, extent of such income and manner in which such income was derived. The statement of affairs filed by the petitioners, it was observed, were uniformly lacking from ―foundation of credible evidence and were unreliable‖. The Settlement Commission held that "prima facie" the conditions prescribed in Section 245C (1) of the Act were not fulfilled. We shall subsequently refer to and quote from the impugned order. 9. As the primary issue raised in the present writ petition relates to the scope and ambit of the enquiry at the stage of passing of the order under Section 254D(1) of the Act, we deem it proper to begin by reproducing and examining Sections 245 C(1), sub-sections (1), (2), (2B), (2C), (2D), (3), (4), (4A), (5), (6) and (6A) of Section 245 D and sub-sections (1) and (2) of Section 245F and Sections 245-J of the Act, which are as under:- “245C. Application for settlement of cases.- (1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided: —Provided that no such application shall be made unless, (i) in a case where proceedings for assessment or reassessment for any of the assessment years referred to in clause (b) of sub-section (1) of section 153A or clause (b) of sub-section (1) of section 153B in case of a person referred to in section 153A or section 153C have been initiated, the additional amount of income-tax payable on the income disclosed in the application exceeds fifty lakh rupees, —(ia) in a case where (A) the applicant is related to the person referred to in clause (i) who has filed an application (hereafter in this sub-section referred to as ―specified person‖); and (B) the proceedings for assessment or re-assessment for any of the assessment years referred to in clause (b) of sub-section (1) of section 153A or clause (b) of sub-section (1) of section 153B in case of the applicant, being a person referred to in section 153A or section 153C, have been initiated, the additional amount of income-tax payable on the income disclosed in the application exceeds ten lakh rupees, (ii) in any other case, the additional amount of income-tax payable on the income disclosed in the application exceeds ten lakh rupees, and such tax and the interest thereon, which would have been paid under the provisions of this Act had the income disclosed in the application been declared in the return of income before the Assessing Officer on the date of application, has been paid on or before the date of making the application and the proof of such payment is attached with the application. ——Explanation.For the purposes of clause (ia), (a) the applicant, in relation to the specified person referred to —in clause (ia), means, (i) where the specified person is an individual, any relative of the specified person; (ii) where the specified person is a company, firm, association of persons or Hindu undivided family, any director of the company, partner of the firm, or member of the association or family, or any relative of such director, partner or member; (iii) any individual who has a substantial interest in the business or profession of the specified person, or any relative of such individual; ——Explanation.For the purposes of clause (ia), (a) the applicant, in relation to the specified person referred to —in clause (ia), means, (i) where the specified person is an individual, any relative of the specified person; (ii) where the specified person is a company, firm, association of persons or Hindu undivided family, any director of the company, partner of the firm, or member of the association or family, or any relative of such director, partner or member; (iii) any individual who has a substantial interest in the business or profession of the specified person, or any relative of such individual; (iv) a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the specified person or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member; (v) a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the specified person; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member; —(vi) any person who carries on a business or profession,(A) where the specified person being an individual, or any relative of such specified person, has a substantial interest in the business or profession of that person; or (B) where the specified person being a company, firm, association of persons or Hindu undivided family, or any director of such company, partner of such firm or member of the association or family, or any relative of such director, partner or member, has a substantial interest in the business or profession of that person; (b) a person shall be deemed to have a substantial interest in a —business or profession, if (A) in a case where the business or profession is carried on by a company, such person is, at any time during the previous year, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend, whether with or without a right to participate in profits) carrying not less than twenty per cent of the voting power; and (B) in any other case, such person is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the profits of such business or profession. xxxxx 245-D. Procedure on receipt of an application under Section —245-C. (1) On receipt of an application under section 245C, the Settlement Commission shall, 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, and on hearing the applicant, the Settlement Commission shall, within a period of fourteen days from the date of the application, by an order in writing, reject the application or allow the application to be proceeded with: Provided that where no order has been passed within the aforesaid period by the Settlement Commission, the application shall be deemed to have been allowed to be proceeded with. (2) A copy of every order under sub-section (1) shall be sent to the applicant and to the Principal Commissioner or Commissioner. (2A) Where an application was made under section 245C before the 1st day of June, 2007, but an order under the provisions of sub-section (1) of this section, as they stood immediately before their amendment by the Finance Act, 2007, has not been made before the 1st day of June, 2007, such application shall be deemed to have been allowed to be proceeded with if the additional tax on the income disclosed in such application and the interest thereon is paid on or before the 31st day of July, 2007. —Explanation.In respect of the applications referred to in this sub-section, the 31st day of July, 2007 shall be deemed to be the date of the order of rejection or allowing the application to be proceeded with under sub-section (1). (2A) Where an application was made under section 245C before the 1st day of June, 2007, but an order under the provisions of sub-section (1) of this section, as they stood immediately before their amendment by the Finance Act, 2007, has not been made before the 1st day of June, 2007, such application shall be deemed to have been allowed to be proceeded with if the additional tax on the income disclosed in such application and the interest thereon is paid on or before the 31st day of July, 2007. —Explanation.In respect of the applications referred to in this sub-section, the 31st day of July, 2007 shall be deemed to be the date of the order of rejection or allowing the application to be proceeded with under sub-section (1). —(2B) The Settlement Commission shall, (i) in respect of an application which is allowed to be proceeded with under sub-section (1), within thirty days from the date on which the application was made; or (ii) in respect of an application referred to in sub-section (2A) which is deemed to have been allowed to be proceeded with under that sub-section, on or before the 7th day of August, 2007, call for a report from the Principal Commissioner or Commissioner, and the Principal Commissioner or Commissioner shall furnish the report within a period of thirty days of the receipt of communication from the Settlement Commission. (2-C) Where a report of the Principal Commissioner or Commissioner called for under sub-section (2-B) has been furnished within the period specified therein, the Settlement Commission may, on the basis of the report and within a period of fifteen days of the receipt of the report, by an order in writing, declare the application in question as invalid, and shall send the copy of such order to the applicant and the Principal Commissioner or Commissioner: Provided that an application shall not be declared invalid unless an opportunity has been given to the applicant of being heard: Provided further that where the Principal Commissioner or Commissioner has not furnished the report within the aforesaid period, the Settlement Commission shall proceed further in the matter without the report of the Principal Commissioner or Commissioner. (2-D) Where an application was made under sub-section (1) of Section 245-C before the 1st day of June, 2007 and an order under the provisions of sub-section (1) of this section, as they stood immediately before their amendment by the Finance Act, 2007, allowing the application to have been proceeded with, has been passed before the 1st day of June, 2007, but an order under the provisions of sub-section (4), as they stood immediately before their amendment by the Finance Act, 2007, was not passed before the 1st day of June, 2007, such application shall not be allowed to be further proceeded with unless the additional tax on the income disclosed in such application and the interest thereon, is, notwithstanding any extension of time already granted by the Settlement Commission, paid on or before the 31st day of July, 2007. —(3) The Settlement Commission, in respect of (i) an application which has not been declared invalid under sub-section (2-C); or (ii) an application referred to in sub-section (2-D) which has been allowed to be further proceeded with under that sub-section, may call for the records from the Principal Commissioner or 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 Principal Commissioner or 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 Principal Commissioner or Commissioner shall furnish the report within a period of ninety days of the receipt of communication from the Settlement Commission: (ii) an application referred to in sub-section (2-D) which has been allowed to be further proceeded with under that sub-section, may call for the records from the Principal Commissioner or 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 Principal Commissioner or 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 Principal Commissioner or Commissioner shall furnish the report within a period of ninety days of the receipt of communication from the Settlement Commission: Provided that where the Principal Commissioner or 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) After examination of the records and the report of the Principal Commissioner or Commissioner, if any, received —under (i) sub-section (2-B) or sub-section (3), or (ii) the provisions of sub-section (1) as they stood immediately before their amendment by the Finance Act, 2007, and after giving an opportunity to the applicant and to the Principal Commissioner or Commissioner to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Principal Commissioner or Commissioner. (4-A) The Settlement Commission shall pass an order under —sub-section (4) (i) in respect of an application referred to in sub-section (2-A) or sub-section (2-D), on or before the 31st day of March, 2008; (ii) in respect of an application made on or after the 1st day of June, 2007 but before the 1st day of June, 2010, within twelve months from the end of the month in which the application was made.] (iii) in respect of an application made on or after the 1st day of June, 2010, within eighteen months from the end of the month in which the application was made. (5) Subject to the provisions of Section 245-BA, the materials brought on record before the Settlement Commission shall be considered by the Members of the Bench concerned before passing any order under sub-section (4) and, in relation to the passing of such order, the provisions of Section 245-BD shall apply. (6) Every order passed under sub-section (4) shall 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 shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts. (6-A) Where any tax payable in pursuance of an order under sub-section (4) is not paid by the assessee within thirty-five days of the receipt of a copy of the order by him, then whether or not the Settlement Commission has extended the time for payment of such tax or has allowed payment thereof by instalments, the assessee shall be liable to pay simple interest at one and one-fourth per cent for every month or part of a month on the amount remaining unpaid from the date of expiry of the period of thirty-five days aforesaid. xxxxx —245-F. Power and procedure of Settlement Commission. (1) In addition to the powers conferred on the Settlement Commission under this Chapter, it shall have all the powers which are vested in an income tax authority under this Act. (6-A) Where any tax payable in pursuance of an order under sub-section (4) is not paid by the assessee within thirty-five days of the receipt of a copy of the order by him, then whether or not the Settlement Commission has extended the time for payment of such tax or has allowed payment thereof by instalments, the assessee shall be liable to pay simple interest at one and one-fourth per cent for every month or part of a month on the amount remaining unpaid from the date of expiry of the period of thirty-five days aforesaid. xxxxx —245-F. Power and procedure of Settlement Commission. (1) In addition to the powers conferred on the Settlement Commission under this Chapter, it shall have all the powers which are vested in an income tax authority under this Act. (2) Where an application made under Section 245-C has been allowed to be proceeded with under Section 245-D, the Settlement Commission shall, until an order is passed under sub-section (4) of Section 245-D, 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 this Act in relation to the case: Provided that where an application has been made under Section 245-C on or after the 1st day of June, 2007, the Settlement Commission shall have such exclusive jurisdiction from the date on which the application was made: —Provided further that where (i) an application made on or after the 1st day of June, 2007, is rejected under sub-section (1) of Section 245-D; or (ii) an application is not allowed to be proceeded with under sub-section (2-A) of Section 245-D, or, as the case may be, is declared invalid under sub-section (2-C) of that section; or (iii) an application is not allowed to be further proceeded with under sub-section (2-D) of Section 245-D, the Settlement Commission, in respect of such application shall have such exclusive jurisdiction up to the date on which the application is rejected, or, not allowed to be proceeded with, or, declared invalid, or, not allowed to be further proceeded with, as the case may be. xxxx —245-J. Recovery of sums due under order of settlement. Any sum specified in an order of settlement passed under sub-section (4) of Section 245-D may, subject to such conditions, if any, as may be specified therein, be recovered, and any penalty for default in making payment of such sum may be imposed and recovered in accordance with the provisions of Chapter XVII, by the Assessing Officer having jurisdiction over the person who made the application for settlement under Section 245-C. 10.Settlement Commission has been constituted under Section 245B of the Act. Section 245BA delineates and outlines jurisdiction and powers of Settlement Commission. Sub-section (1) to Section 245C states that an assessee at any stage of a case relating to him can make an application to the Settlement Commission in the prescribed form containing full and true disclosure of his income not disclosed before the Assessing Officer; the manner such income was derived; the additional amount of tax payable on undisclosed income and other particulars as prescribed. Proviso prescribes other conditions including the minimum amount of tax that should be payable on the undisclosed income and that the tax and the interest on the undisclosed income has to be paid on or before the date of making of the application. Proof of payment is to be attached with the application. 11.Section 245D vide as many as 15 sub-sections sets forth in detail the procedure to be followed by the Settlement Commission. We are primarily concerned with sub-section (1) to Section 245D, which states that the Settlement Commission shall within 7 days of the receipt of the application issue notice to the applicant to explain as to why the application should be allowed to be proceeded with and within a period of 14 days from the date of application pass an order in writing allowing or rejecting the application 11.Section 245D vide as many as 15 sub-sections sets forth in detail the procedure to be followed by the Settlement Commission. We are primarily concerned with sub-section (1) to Section 245D, which states that the Settlement Commission shall within 7 days of the receipt of the application issue notice to the applicant to explain as to why the application should be allowed to be proceeded with and within a period of 14 days from the date of application pass an order in writing allowing or rejecting the application to be proceeded. The proviso states that if no order is passed within the stated period, the application is deemed to have been allowed to be proceeded with. Sub-section (2) states that the order passed under sub-section (1) would be communicated to the Principal Commissioner or Commissioner. Thus, at this stage only the applicant is heard and the statute does not mandate oral hearing or written representation by the Principal Commissioner or Commissioner. As the Principal Commissioner/ Commissioner do not get opportunity to respond and ague at this stage, their stand and stance remains unknown. 12.Sub-section (2B) to Section 245D states that the Settlement Commission shall within thirty days of the application being allowed to be proceeded with, call for report from the Principal Commissioner or Commissioner and that the Principal Commissioner/Commissioner shall within thirty days of the receipt of the communication submit their report to the Settlement Commission. The Settlement Commission in terms of Sub-Section (2C) to Section 245D of the Act can within a period of 15 days of the submission of the report, pass an order and declare the settlement application as invalid. However, before an order of rejection is passed, opportunity of hearing is required and mandated. In case of failure of the Principal Commissioner/Commissioner to furnish their report within the specified period, the settlement application proceeds without their report. 13.Where the application is not declared invalid or has been allowed to be proceeded with on account failure of the Principal Commissioner/Commissioner to file report under Sub-Section (2C) to Section 245D of the Act, the Settlement Commission may call for records from the Principal Commissioner/Commissioner. If on examination of 13.Where the application is not declared invalid or has been allowed to be proceeded with on account failure of the Principal Commissioner/Commissioner to file report under Sub-Section (2C) to Section 245D of the Act, the Settlement Commission may call for records from the Principal Commissioner/Commissioner. If on examination of records the Settlement Commission feels that further inquiry or investigation is necessary, they can direct the Principal Commissioner/Commissioner to make or cause to make further inquiry or investigation and furnish a report on the matters covered by the application and also other matters relating to the case. The report is to be furnished within 90 days from the date of receipt of the communication from the Settlement Commission. Sub-section (4) to Section 245D states that Settlement Commission may after examining the records and the report of the Principal Commissioner/Commissioner, if any, received under sub-section (2B) or sub-section (3) and after giving an opportunity of hearing to the applicant and the Principal Commissioner/Commissioner and examining further evidence as may be placed or obtained by it, pass an order in accordance with the provision of the Act as it thinks fit on the matters covered by the application and other matters relating to the case not covered by the application. These can be matters referred to in the report of the Principal Commissioner/Commissioner. Sub-section (4A) prescribes time limits for passing of orders under sub-section (4) to Section 245D. Sub-section (5) states that the material brought on record shall be considered by Settlement Commission before passing an order under Section 245D (4) of the Act. Sub-section (6) mandates that every order under sub-section (4) to Section 245D of the Act shall include demand by way of tax, penalty or interest, the manner in which sum due would be paid and all other matters to make the settlement effective and also stipulate that the settlement would be void if it is subsequently found by the Settlement Commission that the settlement has been obtained by fraud or misrepresentation of facts. Sub-section (6A) states that in case tax is not paid within thirty-five days from receipt of the order under Section 245D(4) of the Act or the extended period, tax as determined, interest etc. would be payable. Sub-Section 6A authorises the jurisdictional Assessing Officer to recover demands of the additional tax and interest (and also penalty imposed for default) not paid in terms of order under Section 245D(4) of the Act. receipt of the order under Section 245D(4) of the Act or the extended period, tax as determined, interest etc. would be payable. Sub-Section 6A authorises the jurisdictional Assessing Officer to recover demands of the additional tax and interest (and also penalty imposed for default) not paid in terms of order under Section 245D(4) of the Act. 14.Provisions with regard to payment of additional tax, and interest (and penalty in default) in terms of the decision by the Settlement Commission under Section 245D(4) of the Act and payment/recovery post the decision does indicate and affirms that there could well be cases where the tax payable as computed as per the settlement application could be enhanced requiring deposit of additional tax and interest, notwithstanding the statutory requirement to make ―full and true‖ disclosure of undisclosed income and pre-deposit of tax and interest before the settlement application is filed. In the context of the present writ petition we need not elaborate, except record that the requirement of "full and true" disclosure of undisclosed income and the manner in which such income was derived are the two essential and core mandatory conditions, which every settlement application must satisfy. Failure to make "full and true" disclosure of undisclosed income and the manner by which such income was derived is fatal. However, the statute does not rule out possibility that an order under section 245D (4) of the Act could require payment of additional tax and interest. This pliancy envisaged by the provisions is limited and the order under section 245D (4) of the Act should not undermine the legislative dictum in the form of the strict pre-conditions. The legislature was conscious that inspite of full and true disclosure of undisclosed income and the manner in which it was earned, situations could arise when on interpretation of statutory provisions additional tax and interest is required to be paid. A strait-jacket command and stipulation that no additional tax and interest can be demanded in an order under Section 245D(4) of the Act is therefore not the mandate, albeit this leverage should not be exercised to dilute and undermine the condition of "full and true" disclosure of income not earlier disclosed and the manner in which such income was derived. The provision does not permit and postulate piecemeal disclosures, which can be enhanced and increased during the proceedings before the Settlement Commission for the statute requires "full and true" disclosure in the settlement application and not incomplete or partial disclosure. Modification and amendment of the settlement application to comply with the statutory preconditions is not permissible. 15.On many occasions, an application for settlement could on the question of computation of undisclosed income have an element of estimation. Settlement provisions would well apply to the said cases and are not barred as long as the undisclosed income declared is ―full and true‖ and the manner in which it is derived is stated. The Settlement Commission –under Chapter XIX A has all powers as vested in the Income-tax authorities under the Act till a final order is passed. The Settlement Commission has exclusive jurisdiction to exercise power and performs functions of the Income-tax Authorities under the Act in relation to the case. However, unlike the Income-tax authorities, the Settlement Commission does not proceed to make an assessment but passes an order of settlement. The Supreme Court in TheCommission of Income-tax Vs. Om Prakash Mittal, [2005] 143 Taxman 373 (SC), has held that Section 245D(4) of the Act uses the word ‗order‘ and not ‗assessment‘ and observed that the order passed is not like an original assessment, regular assessment or re-assessment. In that sense, the Commission exercises plenary jurisdiction. 16.We would now refer to other case law dealing the power and nature of jurisdiction exercised by the Settlement Commission under Chapter XIX-A of the Act, which was introduced by Taxation Laws (Amendment) Act, 1975, pursuant to Wanchoo Committee Recommendations. Interpreting the provisions, the Supreme Court in CIT versus B.N. Bhattacharjee, (1979) 4 SCC 121 had expressed a degree of reservation and had cautioned that the provisions could become a panacea for tax evaders to avoid penalty and prosecution, nevertheless it was observed that functionally the Chapter provides settlement of a tax dispute as a compromise measure where the tax evader could make a true disclosure to buy quittance for himself. The State avoids protracted litigation, gains from accelerated recovery of taxes and need not take recourse to cumbersome recovery proceedings. The judgment highlights that the statutory provisions as enacted would work properly if the settlement arrived is fair, prompt and independent. This is possible if the Settlement Commission is to be composed of officers with integrity, wide knowledge and experience thereby preventing misuse. The Settlement Commission, it was observed, in terms of the statute stands vested with full powers to investigate cases, and on its jurisdiction being invoked quantify the amount of tax, penalty or interest. This judgment thereafter refers to the quasi-judicial nature of the proceedings as the Settlement Commission has the right to object to and reject the application from being proceeded with. However, a rejection requires hearing to be given to the assessee before an order under Section 245D(1) of the Act is passed. 17.Commissioner of Income Tax, Jalpaiguri versus Om Prakash Mittal, (2005) 2 SCC 751, opines that Section 245C(1) makes it clear that the assessee can approach Settlement Commission by way of an application at any stage of the proceedings against him by disclosing fully and truly his income, which has not been disclosed before the Assessing Officer. This disclosure must be voluntary and that the application must contain true and full disclosure of the hitherto concealed income and the manner in which it was derived. These were the fundamental and essential pre-conditions. 18.Aspect of "full and true" disclosure was highlighted and brought to forefront in Ajmera Housing Corporation and Another versus Commissioner of Income Tax, (2010) 8 SCC 739. The self-confessed tax evader must come clean with his past illegitimate affairs, discharge his tax liability as determined by the Settlement Commission to buy quittance for himself and in the process, accelerate recovery of taxes by the State, though less than what may have been recovered after protracted litigation and by recovery proceedings. Disclosure of "full and true" of particulars undisclosed income, and the manner in which said income has been derived are essential and mandatory pre-requisites of a valid application. Therefore, unless the Settlement Commission records their satisfaction on the said aspect, it would not have jurisdiction to pass an order on a matter covered by the application. Reference was made to form No. 34B, which in different columns, requires the assessee to make "full and true" disclosure and also give full details of issues for which application for settlement is made, nature and circumstances of the case, as well as complexities of investigation involved. This decision makes it clear that the question of "full and true" disclosure as well as manner in which the undisclosed income is derived can be examined at different stages and is finally decided while passing the order under Section 245D(4) of the Act. The Settlement Commission is not denuded of its power to examine the aforesaid two quintessential aspects, when the application is allowed to be proceeded with under Section 245D(1) of the Act or thereafter not declared invalid under Section 245D(2C) of the Act. These are steps in the proceedings. At each stage, the Settlement Commission is required to consider the two pre-conditions and an earlier observation on "full and true" disclosure would not affect the power of the Settlement Commission to reject an application on non satisfaction of the said requirements under sub-section (4) to Section 245D of the Act. 19.In view of the aforesaid statutory position, it is clear that the Settlement Commission can examine the questions and issues of maintainability of the settlement application at three different stages. The first is a very initial stage, when it in terms of Section 245D(1) of the Act, the Settlement Commission examines whether or not to allow an application to be proceeded with. The second stage is after the Principal Commissioner/Commissioner has filed its report before the Settlement Commission and the Settlement Commission passes an order under Section 245D(2C) of the Act. The third stage is when the final order under Section 245D(4) of the Act is passed. In the present writ petition, we are concerned with the first stage, i.e. under Section 245D(1) of the Act. 20.The Gujarat High Court has elaborately examined and dealt with the scope and ambit of inquiry at the stage of Section 245D(1) of the Act in Vishnubhai Mafatlal Patel Vs. Assistant Commissioner of Income Tax, Special Civil Application Nos. 12060,12061 and 12063 of 2012 decided on 4[th] December, 2012. Relevant paragraphs of the said judgment read as under:- "8. Under sub-section(1) of section 245D thus, the first stage of scrutinising the application of settlement made by an assessee is envisaged. The statute does not provide for grounds on which Settlement Commission may reject such an application or allow the application to be proceeded with. There are however, sufficient indications in the statute itself what would be the purpose and nature of scrutiny of Commission at that stage. As already noted, sub-section(1) of section 245C an assessee may make an application for settlement in the prescribed manner containing true and full disclosure of income not previously disclosed before the Assessing Officer and the manner in which such income had been derived as also the additional amount of income-tax payable on such income and such other particulars as may be prescribed. At the stage of sub-section(1) of section 245D of the Act, therefore, prime scrutiny of the Commission would be whether application of the assessee is in order and in conformity with the requirements of sub-section(1) of section 245C which would include filing of an application in the prescribed manner and also making necessary disclosures as required therein. There are also additional requirements of sub-section(1) of section 245C such as payment of requisite tax and interest thereon which would have been payable under the provisions of the Act, had the income disclosed in the application been declared by the assessee in the return of income before the Assessing Officer. It would thus be well within the jurisdiction of the Settlement Commission to examine whether the application for settlement fulfills such requirements or not. Such scrutiny of-course would be summary in nature. We may recall that the Settlement Commission upon receipt of such an application within seven days thereof, has to issue notice to the assessee and pass a final order either rejecting the application or allowing the application to be proceeded within fourteen days of the date of application. Proviso to sub-section(1) of section 245D makes it further clear that when no such order is passed rejecting the application within the period prescribed, the application shall be deemed to have been allowed to be proceeded with. 9. Two things therefore, emerge. Firstly, that at the stage of section 245D(1) of the Act, the Commission would have ample powers to examine whether an application of an assessee made under section 245C(1) of the Act fulfills the legal requirements particularly, those provided in section 245C(1) of the Act. Secondly, that such inquiry however, shall have to be summary in nature. The later provisions of sections 245D would also demonstrate that any decision of the Commission to allow the application to be proceeded with would only be prima facie in nature. We would elaborate this aspect a little later. At this stage, therefore, we find that under section 245D(1) of the Act, if the Commission on a summary inquiry comes to the conclusion that an application filed by the assessee under section 245C(1) of the Act does not fulfill the legal requirements, it would be within the jurisdiction of the Commission to reject the same. However, if it is allowed to be proceeded with, such decision would be tentative in nature. xx "12. The twin requirements for an assessee making an application for settlement under section 245C(1) of the Act, of containing full and true disclosure of income which has not been disclosed before the Assessing Officer and the manner in which such income has been derived, are thus of considerable importance and would be open for the Settlement Commission to examine the fulfillment thereof at several stages of the settlement proceedings. If therefore, while at the threshold, considering the question whether such application should be allowed to be proceeded with or be rejected, the Commission examined such questions on the basis of disclosure made by the applicants and the supporting material produced along with the applications, we do not see that the Commission committed any legal error. As already noted, it was well within the jurisdiction of the Commission at the stage of sub-section(1) of section 245D of the Act to examine whether application for settlement fulfills the statutory requirements contained in sub-section(1) of section 245C of the Act. At this stage we may refer to the decision of the Supreme Court in case of Ajmera Housing Corporation and another(supra). It was a case in which the assessee had made certain disclosures in the initial application under section 245C(1) of the Act. Such disclosures were however, revised and additional income was disclosed in the revised annexures. The Apex Court held that the assessee had no right to revise an application under section 245C(1) of the Act and further that such revised annexure making further disclosure of undisclosed income alone was sufficient to establish that the initial application made by the assessee could not be entertained as it did not contain true and full disclosure of the undisclosed income and the manner in which such income had been derived. 21.Referring to the aforesaid provisions, a Division Bench of this Court in Commission of Income-tax Vs. Income-tax Settlement Commission, [2014] 360 ITR 407 (Delhi), had observed and referred to the different stages the Settlement Commission examines the application and can reject the same. The first stage is when an order under Section 245 D(1) of the Act is passed, followed by the order under Section 245D (2C) of the Act and finally the order under Section 245 D (4) of the Act. The first two orders under Section 245 D (1) and (2C) are not final orders and they are subject to final orders to be passed under Section 245 D (4) of the Act. The issue of "full and true" disclosure on the part of the applicant and the manner in which the undisclosed income was derived from is open for discussion and debate at each stage, notwithstanding, the fact that it may have been examined earlier under Sub-section (1) or (2C) of Section 245D of the Act. The entire issue remains open till an order under Section 245 D (4) is passed. At each stage, the Settlement Commission can examine the issue of "full and true" disclosure and the manner in which the undisclosed income has been derived. 22.In Commissioner of Income-tax Vs. M/s. Godwin Steels Pvt. Ltd.,[2013] 353 ITR 353 (Delhi), reference was made to Section 245(D) (5) which requires that before passing an order under Sub-section (4) members of the Settlement Commission shall consider the material brought on record and referring to the nature of consideration required and determination by the Settlement Commission, it was observed: ―27. Applying the ratio laid down in the aforesaid judgments to the case before us, we find that the ITSC has not disposed of the application before them in the manner required by law. The report of the CIT filed before the ITSC under Rule 9 of the Settlement Commission (Procedure) Rules is very elaborate and we have also made a reference to the same. It would appear that the ITSC has not accorded due weightage, credibility or consideration to the serious objections taken by the CIT in his report. Section 245D(5) reads as under:- ―(5) Subject to the provisions of Section 245BA, the materials brought on record before the Settlement commission shall be considered by the Members of the concerned Bench before passing any order under Sub-section (4) and, in relation to the passing of such order, the provisions of Section 245BD shall apply.‖ [Emphasis supplied] materials brought on record before the Settlement commission shall be considered by the Members of the concerned Bench before passing any order under Sub-section (4) and, in relation to the passing of such order, the provisions of Section 245BD shall apply.‖ [E