The Learned Single Judge Noticed The Relianceplaced By The Department On The Decision Of The Hon'blesupreme Court In Ajmera Housing Corporation v. Contention Raised By The Learned Senior Counsel For Thedepartment Was That When Additional Amounts Wereoffered By The Assessee Before The Settlement

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY ,THE 11TH DAY OF FEBRUARY 2019 / 22ND MAGHA, 1940 WA.No. 858 of 2015 AGAINST THE ORDER/JUDGMENT IN WPC 30797/2008 of HIGH COURT OFKERALA DATED 10-11-2014 APPELLANT/S: THE COMMISSIONER OF INCOME TAX, KANNUR. BY ADV. SRI P.K.R. MENON, SR COUNSEL FOR GOI TAXES SRI.JOSE JOSEPH, SC FOR INCOME TAX RESPONDENT/S: 1SETTLEMENT COMMISSION (IT AND WT),ADDITIONAL BENCH, 488, 489, ANNASALAI, CHENNAI-600035(DELETED) (FIRST RESPONDENT IN THE WRIT APPEAL IN SUOMOTU DELETED FROM THE PARTY ARRAY AS PER ORDER DATED 20.05.2015 IN W.A.NO.858/2015). 2SRI K.T.P.MOHAMMED, MAZHAR, JOHN MILL ROAD, KANNUR. ADVS. SRI T.N. SEETHARAMAN, SRI S. ARUN RAJ OTHER PRESENT: THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 11.02.2019, THECOURT ON THE SAME DAY PASSED THE FOLLOWING: JUDGMENT Vinod Chandran, J. The appeal is filed by the Commissioner of IncomeTax from the judgment of the learned Single Judge,which sustained the order of the Settlement Commissionpassed under Section 245D(4). The premises of theassessee was searched under Section 132 of the IncomeTax Act, 1961 (for short “the Act”) and notices wereissued under Section 158BC. The respondent-assesseefiled a return of income on 12.07.2000, showing a totalincome of Rs.78,210/- for the block period. The assessee, when the block assessment proceedings werepending, filed an application before the SettlementCommission on 14.03.2002, offering an additional incomeof Rs.17,43,900/-. The Assessing Officer (for short“A.O.”) framed an assessment determining undisclosedincome of Rs.1,17,85,885/-. 2.In the course of the verification proceedings, the assessee offered a further additional income aggregating Rs.5,81,066/- vide its letter dated02.08.2004. Later on 13.03.2008 in the course ofhearing, the Commission directed the applicant'srepresentative and the A.O. to sit with the AdditionalDirector of Income Tax (Investigation) (of theSettlement Commission) to reconcile the disputes. As aresult of the exercise, the Commission suggestedcertain further additions on the basis of the cash flow statements, as also the evidences pointed out by theA.O., which resulted in a further addition ofRs.11,25,000/- under various heads. The assesseeacceded to the said additions of undisclosed income.The Settlement Commission, hence, concluded theproceedings under Section 245D by an order finding thetotal undisclosed income to be Rs.34,49,966/-. Thisincluded the original income as submitted by therespondent coming to Rs.17,43,900/- in his applicationunder Section 245C, as also the amounts conceded laterof Rs.5,81,066/- and Rs.11,25,000/- as suggested by theCommission. 3.The learned Single Judge noticed the relianceplaced by the Department on the decision of the Hon'bleSupreme Court in Ajmera Housing Corporation v. C.I.T.,[2010] 326 ITR 642 (SC),but, found the samedistinguishable on facts. Though there was apreliminary objection raised on the maintainability ofchallenge raised under Article 226, the learned SingleJudge found the same to be permissible. The constrainedjurisdiction exercised insofar as a judicial review wasrightly recalled as consideration of the decisionmaking process and not the decision as such. Whetherthe Settlement Commission exercised a jurisdictionproperly conferred on it and if it is so found, whetherthere was any error in such exercise was what could belooked into. We do not see any reason to interfere withthat portion of the judgment, nor was the same assailedby the respondent. contention raised by the learned Senior Counsel for theDepartment was that when additional amounts wereoffered by the assessee before the Settlement contention raised by the learned Senior Counsel for theDepartment was that when additional amounts wereoffered by the assessee before the Settlement Commission, it should be presumed that the originalapplication under Section 245C, did not contain a fulland true disclosure of the undisclosed income or how itwas derived. The learned Single Judge referred to hisown decision in W.P.(C) No.2637/2014 and found that inthe instant case the Commission found, there was nomaterial with the Department to justify a furtherdemand from the assessee. The amounts were offered bythe assessee to settle the matter finally and it wasdifficult to accept the contention of the Departmentthat merely by offering additional amounts; that too at the suggestion of the Commission, the originaldeclaration becomes one that was not full and true, forthe purpose of Section 245C. The order of the Settlement Commission was upheld, which also grantedimmunity from penalty and prosecution to therespondent-assessee. The operative portion of the judgment in W.P. (C) No.2637/2014 was extracted. Ajmera Housing Corporationwas specifically referred to and distinguished, finding that there the assessee had been consistently making applications before the Commissionoffering more amounts as undisclosed income than thatoffered in the original application. The facts in thepresent case was found to differ and reliance wasplaced on the decision of the Bombay High Court in Director of Income Tax (International Taxation) v.Income Tax Settlement Commission, [2014] 365 ITR 108(Bom). The Division Bench of the High Court of Bombayalso had distinguished the decision in Ajmera Housing Corporation. 6.The learned Senior Counsel for the Departmentwould argue that the offers made by the assesseeinsofar as the additional undisclosed income ought tohave resulted in a definite conclusion that theapplication made under Section 245C did not have fulland true disclosure. On that conclusion there could beno further consideration made by the SettlementCommission. The learned Counsel for the assessee, however, would point out that it cannot be the positionthat, in every case of additions made by the Commissionafter referring to the report under Section 9, there would be a rejection of the application on grounds offull and true particulars of income having not beendisclosed. If that be the case, there could be nosettlement by the Commission and Chapter XIX-A itselfwould be rendered meaningless. As a matter ofpractice, it is pointed out, that the Commission on ahearing; not on law but only on the figures as offeredby the assessee and objected to in the report filedunder Rule 9, would compute the undisclosed income anddetermine an amount. This is the spirit and tenor ofthe settlement contemplated under Chapter XIX-A. In thepresent case also, it is submitted that the assesseehad not voluntarily offered any amounts in addition tothat disclosed in the application under Section 245C.The Commission had specifically directed the assesseeto sit along with the A.O., as also the AdditionalDirector, an officer of the Settlement Commission, toreconcile those issues, which were arising from thereport of the Commissioner. The consent as recordedby the Commission is again only to arrive at an agreedsettlement. It cannot be taken as an admission of absence of full and true disclosure of income in theapplication under Section 245C. 7.We agree with the learned Single Judge that thejurisdiction conferred on the Commission under ChapterXIX-A, is akin to a statutory settlement. We are alsoof the opinion that in exercise of that jurisdictionthe Commission is empowered to make adjustments andadditions to the income as disclosed in the absence of full and true disclosure of income in theapplication under Section 245C. 7.We agree with the learned Single Judge that thejurisdiction conferred on the Commission under ChapterXIX-A, is akin to a statutory settlement. We are alsoof the opinion that in exercise of that jurisdictionthe Commission is empowered to make adjustments andadditions to the income as disclosed in the application under Section 245C. Sufficient support forthe above view is available from the procedure asdelineated in Section 245D. At the initial stage ofconsideration as to whether the application is to beproceeded with or not, the Revenue is not participated.As per the then existing provision a report is calledfor from the Commissioner; but the applicant-assesseealone is heard. It is then, that the relevant recordsare called for from the Commissioner and afterexamination of the same, if necessary, there could bedirections issued to the Commissioner to make furtherenquiry and furnish a report.Ajmera HousingCorporation noticed; at the initial stage, when the Commission considers whether to proceed or not, thereport called for from the Commissioner is based on thebare information furnished by the assessee and theannexure wherein the disclosure of income is made bythe assessee is kept confidential. We pause here tonotice that, even the initial report called for fromthe Commissioner was later given up by Finance Act,2007. It is after examination of the records, thereports filed by the Commissioner as also furtherevidences placed before it and after affording apersonal hearing to the applicant and the Commissionerthat the Commission passes an order under Section 245D;we emphasize; as it thinks fit. The examination ofrecords, the reports and further evidences as also thehearing, cannot be understood as a mere exercise todecide on whether the application under Section 245Chas fully and truly disclosed the income and how it wasderived. The power conferred to make orders, as theCommission thinks fit, is a carte-blanche to determinethe undisclosed income of the applicant, as deemed fitand reasonably arising from the materials before it. 8.The provisions under Chapter XIXA has beenconsidered by the Hon'ble Supreme Court in AjmeraHousing Corporation, whichwas on quite distinct facts,but according to us not distinguishable on facts fromthe instant case. The proceedings therein alsocommenced with a search under Section 132. Theassessments were completed for three years from 1989-90to 1991-92 determining the total income and prior tocompletion of that assessment, under Section 132(5)concealed income of the group was determined atRs.200.60 crores for the assessment year 1993-94. 9.The assessee then filed an application under Section 245C before the Settlement Commissiondisclosing an additional income of Rs.1,94,33,580/- forthe assessment years 1989-90 to 1993-94. The Revenueobjected to the same assailing the full and truedisclosure of income in the application and suggestedsettlement shall be at not less than Rs.223.55 crores.Arguments in the application were concluded and thematter was reserved. Later to which, the assesseeoffered a further additional income of Rs.11.41 crores. 9.The assessee then filed an application under Section 245C before the Settlement Commissiondisclosing an additional income of Rs.1,94,33,580/- forthe assessment years 1989-90 to 1993-94. The Revenueobjected to the same assailing the full and truedisclosure of income in the application and suggestedsettlement shall be at not less than Rs.223.55 crores.Arguments in the application were concluded and thematter was reserved. Later to which, the assesseeoffered a further additional income of Rs.11.41 crores. The Settlement Commission reopened the proceedings anddirected the Commissioner to submit a further reportunder Rule 8 of the 1987 Rules. During the course ofthe proceedings the assessee voluntarily offeredvarious amounts as undisclosed income for theassessment years, repeatedly. The Settlement Commissioneventually, concluded the proceedings determining thetotal income of the assessee at Rs. 42.58 crores forthe subject years and imposed a 'token' penalty ofRs.50 lakhs and granted immunity to the assesseeagainst prosecution. The High Court agreed with theDepartment that the first revision of income was notput to the Commissioner and remanded the matter. TheSupreme Court interfered with the remand, finding thatthe High Court failed to notice that the incomedetermined by the Commission was in tune with asubsequent report of the Commissioner. On freshconsideration a further remand was made by the HighCourt for determination of total income, penalty etc.without going into the maintainability of theapplication. 10. The Hon'ble Supreme Court found so on the full and true disclosure mandated by Section 245C: “26.A bare reading of the provision wouldreveal that besides such other particulars, asmay be prescribed, in an application forsettlement, the assessee is required todisclose: i) a full and true disclosure of theincome which has not been disclosed before theassessing officer; (ii) the manner in whichsuch income has been derived; and (iii) theadditional amount of income tax payable on suchincome. 27. It is clear that disclosure of “fulland true” particulars of undisclosed income and“the manner” in which such income had beenderived are the prerequisites for a validapplication under Section 245-C(1) of the Act.Additionally, the amount of income tax payableon such undisclosed income is to be computedand mentioned in the application. It needslittle emphasis that Section 245-C(1) of theAct mandates “full and true” disclosure of theparticulars of undisclosed income and “themanner” in which such income was derived and,therefore, unless the Settlement Commissionrecords its satisfaction on this aspect, itwill not have the jurisdiction to pass anyorder on the matter covered by theapplication.” The powers of the Commission as available under ChapterXIXA was delineated and stated so by the Hon'ble Supreme Court: “31. xx xx In our opinion, even when theSettlement Commission decides to proceed withthe application, it will not be denuded of itspower to examine as to whether in his The powers of the Commission as available under ChapterXIXA was delineated and stated so by the Hon'ble Supreme Court: “31. xx xx In our opinion, even when theSettlement Commission decides to proceed withthe application, it will not be denuded of itspower to examine as to whether in his application under Section 245-C(1) of the Act,the assessee has made a full and truedisclosure of his undisclosed income. We feelthat the report(s) of the Commissioner andother documents coming on record at differentstages of the consideration of the case, beforeor after the Settlement Commission has decidedto proceed with the application would be mostgermane to the determination of the saidquestion. It is plain from the language ofsub-section (4) of Section 245-D of the Actthat the jurisdiction of the SettlementCommission to pass such orders as it may thinkfit is confined to the matters covered by theapplication and it can extend only to suchmatters which are referred to in the report ofthe Commissioner under sub-section (1) or sub-section (3) of the said section. A “full andtrue” disclosure of income, which had not beenpreviously disclosed by the assessee, being aprecondition for a valid application underSection 245-C(1) of the Act, the scheme ofChapter XIX-A does not contemplate revision ofthe income so disclosed in the applicationagainst Item 11 of the form. Moreover, if anassessee is permitted to revise his disclosure,in essence, he would be making a freshapplication in relation to the same case bywithdrawing the earlier application. In thisregard, Section 245-C(3) of the Act whichprohibits the withdrawal of an application oncemade under sub-section (1) of the said sectionis instructive inasmuch as it manifests that anassessee cannot be permitted to resile from hisstand at any stage during the proceedings.Therefore, by revising the application, theapplicant would be achieving somethingindirectly which he cannot otherwise achievedirectly and in the process rendering theprovision of sub-section (3) of Section 245-Cof the Act otiose and meaningless. In ouropinion, the scheme of said Chapter is clearand admits no ambiguity.” Hence though the Commission was initially satisfied toproceed with the matter; the question of full and truedisclosure in the application always looms large in theproceeding and at any time could be a reason forrestraining itself from proceeding further if found inthe negative. 11. The decision inDirector of Income Tax (International Taxation)was in a circumstance, where at the conclusion of the hearing, the applicant made anadditional offer of Rs.150 crores in the spirit ofsettlement, which was accepted by the Commission. The Division Bench of the Bombay High Court distinguished the facts in Ajmera Housing Corporationand held: “The above observations of the apex courtmay at first blush seem to cover thepetitioner's case completely. However, beforethe above observations being relied upon by thepetitioner can be applied to the present facts,the following further observations of the apexcourt should be taken note of which read asunder: “We are convinced that, in the instantcase, the disclosure of Rs.11.41 crores asadditional undisclosed income in therevised annexure, filed on September 19,1994 alone was sufficient to establish thatthe application made by the assessee onSeptember 30, 1993 under section 245C(1) ofthe Act could not be entertained as it did not contain a 'true and full' disclosure oftheir undisclosed income and 'the manner' in which such income had been derived.However, we say nothing more on this aspectof the matter as the Commissioner, forreasons best known to him, has chosen notto challenge this part of the impugnedorder." “We are convinced that, in the instantcase, the disclosure of Rs.11.41 crores asadditional undisclosed income in therevised annexure, filed on September 19,1994 alone was sufficient to establish thatthe application made by the assessee onSeptember 30, 1993 under section 245C(1) ofthe Act could not be entertained as it did not contain a 'true and full' disclosure oftheir undisclosed income and 'the manner' in which such income had been derived.However, we say nothing more on this aspectof the matter as the Commissioner, forreasons best known to him, has chosen notto challenge this part of the impugnedorder." It would, therefore be noted that theaforesaid issue of whether or not by virtue ofdisclosure of additional income, there was afailure to make a true and full disclosure wasnot an issue for consideration before the apexcourt. This is so as it was not a subjectmatter of challenge by the Revenue eitherbefore the High Court or before the SupremeCourt. In view of the above, the aboveobservations of the apex court in AjmeraHousing (supra), cannot be said to be a ratiodecidendi of the decision. It is trite lawthat a decision of a court is not to be read asa statutory provision. The observation of thecourt must be read in the context of the factsbefore the court.” 12. We cannot, with due respect, agree with the finding of the High Court of Bombay that the observations of the Apex Court with respect to the the revision of income in addition to that disclosed in the application under Section 245C would jeopardize theapplication itself, cannot be treated to be the ratiodecidendi of the above decision. 13.The learned Judges of the Apex Court made a declaration insofar as one such disclosure in the application under Section 245C being sufficient to findabsence of true and full disclosure as seen from theunderlined portion in the above extract. Though it wasfound that the Commissioner had not challenged thedirections of the High Court and hence there was noreason to interfere with that part of the impugnedorder; it was not a casual observation. Theobservations made where after due deliberation in the previous paragraph as seen herein below: “39. Before addressing the other issues, atthe outset, we record our disapproval with theview of the High Court that it would not beproper to set aside the proceedings before theSettlement Commission even though it wasconvinced that the assessee had not made fulland true disclosure of their income whilemaking application under Section 245-C of theAct. As stated above, in its earlier orderdated 28-7-2000 while declaring the order dated17-11-1994 as ab initio void and setting asidethe order dated 29-1-1999, the High Court hadremitted the case to the Settlement Commissionto decide the entire matter afresh, includingthe question of maintainability of theapplication under Section 245-C(1) of the Act.The said order of the High Court was put inissue before this Court and was set aside videorder dated 11-7-2006 and the case was remandedback to the High Court for fresh consideration.Nevertheless, all points raised by the parties,including the plea of the Revenue that theapplication filed by the assessee before theSettlement Commission was not maintainable as the assessee had not made a full and truedisclosure of their undisclosed income werekept open. The High Court addressed itself onthe said issue and found that the assessee hadnot made a full and true disclosure of theirincome while making the application underSection 245-C(1) of the Act, yet did not findit proper to set aside the proceedings on thatground. Having recorded the said adversefinding on the very basic requirement of avalid application under Section 245-C(1) of theAct, the High Court’s opinion that it would notbe proper to set aside the proceedings isclearly erroneous. The High Court appears tohave not appreciated the object and scope ofthe scheme of settlement under Chapter XIX-A ofthe Act.” 14. The High Court of Bombay, in Director of Income Tax (International Taxation)noticed two decisions of the same court, in C.I.T. v. Income Tax Settlement Commission, [2014] 365 ITR 68and C.I.T. v. Income Tax Settlement Commission, [2014] 365 ITR 87(Bom),the latter a decision rendered by the very sameDivision Bench on that day itself,wherein a contraryview had been taken. The decisions above referred hadtaken the view that at the stage of admission underSection 245D(2C), the Commission must decide on thevalidity of the application for settlement and theissue cannot be postponed to the stage of final hearingunder Section 245D(4) of the Act, even though the requirement of making a true and full disclosure remains a continuous requirement to be satisfied at alltimes in settlement proceedings. We are in perfect andrespectful agreement with this proposition which wehave already noticed. The Hon'ble Judges whilereiterating that the law set out by the above twodecisions as the correct law, took a different path in Director of Income Tax (International Taxation). This was since there an additional income of Rs.150 croreswas offered at the instance of the Commission with aview to end the litigation at the earliest. Thelearned Judges also noticed many distinguishing aspects from Ajmera Housing Corporation; which we do not findin the case before us. We, in fact are of the opinionthat it is the Bombay High Court decision in Directorof Income Tax (International Taxationthat is distinguishable on facts. 15. As held in the impugned judgment, we agree that the Commission is not divested of power to makeadditions when considering an application under Section245C. It cannot also be that when the Commission so makes additions the Commission would have to necessarily dismiss the application finding no full andtrue disclosure of income in the application filedunder Section 245C. However what distinguishes thepresent case from a mere consent to a suggestion of theCommission, is that dehors any suggestion, the assesseehad offered an additional income in excess of thatdisclosed in the application under Section 245C. 16. The application under Section 245C was filed on14.03.2002. The Commission directed a report to befiled, which the Commissioner (Appeals) under Rule 9,filed on 30.12.2002. The applicant's reply thereto wasfiled on 03.08.2004. There was also a letter filed bythe applicant agreeing to surrender further additionalincome aggregating to Rs.5,81,066/- by a letter dated02.08.2004. This in fact is the distinguishing aspectof the instant case from the Bombay High Courtdecision. Suggestions made by the Commission werelater to this additional disclosure of undisclosedincome made by the assessee, which was not available inthe application filed under Section 245C. We again see 16. The application under Section 245C was filed on14.03.2002. The Commission directed a report to befiled, which the Commissioner (Appeals) under Rule 9,filed on 30.12.2002. The applicant's reply thereto wasfiled on 03.08.2004. There was also a letter filed bythe applicant agreeing to surrender further additionalincome aggregating to Rs.5,81,066/- by a letter dated02.08.2004. This in fact is the distinguishing aspectof the instant case from the Bombay High Courtdecision. Suggestions made by the Commission werelater to this additional disclosure of undisclosedincome made by the assessee, which was not available inthe application filed under Section 245C. We again see from the order of the Settlement Commission that theapplicant's representative, the A.O. and the AdditionalDirector of Income Tax (Investigation), the officer ofthe Settlement Commission, were directed to sittogether to reconcile those irreconcilable issuesduring the course of hearing on 13.03.2008, much afterthe additional disclosure of Rs.5,81,066/-. It waslater to this that under various heads the Commissionsuggested an addition of Rs.11,25,000/-, which wasacceded to by the assessee. Hence, this is not a casein which the assessee had merely accepted the additionssuggested by the Commission, to settle the matter onceand for all times. At the first stage, even before theassessee was directed to sit along with the A.O. andthe officer of the Commission to reconcile thedifferences, which led to the suggestions from the sideof the Commission; a disclosure of further income wasmade, which was not available in the originalapplication made under Section 245C. This leads to adefinite conclusion that there was no full and truedisclosure of the undisclosed income and the source from which it derived in the application filed underSection 245C as held in Ajmera Housing Corporation.We hence set aside the judgment of the learned SingleJudge, as also the order of the Settlement Commissionfor reason of the assessee having not made full andtrue disclosure under Section 245C. The Commissionought not to have proceeded with the application whenthe assessee made a voluntary offer of additionalincome, when the application was pending, in additionto that disclosed in its application under Section245C. 17. The learned Counsel appearing for the assesseewould submit that the application filed under Section245C was made pending assessment proceedings and it waslater that the assessment was made of the undisclosedincome. The Settlement Commission having proceed withthe matter and the matter having been settled as perthe impugned order in the above proceedings, theassessee had not filed an appeal from the assessmentorder. Especially noticing the long pendency of thematter before the Settlement Commission and before this Court, it is only proper that the assessee be permittedto file an appeal from the assessment order. Theassessee shall be permitted to file an appeal withinthirty days from the date of receipt of a copy of thejudgment of this Court in the Writ Appeal and if thesame is so filed, the delay occasioned shall not fetterthe C.I.T. (Appeals) in considering the issue on merits. With the above observations, the Writ Appealis allowed. No order as to costs. Sd/- K.VINOD CHANDRAN JUDGE dkr Sd/- ASHOK MENON JUDGE