By TIOL News Service

AHMEDABAD, JULY 27, 2018: THE issue before the Bench is - Whether the expression "full and true disclosure" in Sec 245C mandates not only the disclosure of income but also the manner in which such income is arrived at. And the verdict is YES.

Facts of the case

The assessee, an individual, is a Director of Dharmadev Infrastructure Ltd, which is engaged in the business of the Construction and Land Development. A search was carried out at the residential premises of the assessee as well as premises of the group concerns of "Dharmadev Group". The assessee surrendered about Rs 9,24 Cr. The same was done by the company which surrendered Rs 22.37 Crore. The assessee quickly moved to the Settlement Commission which admitted the application but the assessee preferred to revised the disclosure. However, the CIT objected to it and submitted that there was no explanation regarding seized or impounded papers, source of fund and seized jewellery and also the source of cash deposits in Benami accounts. The Revenue further argued that even the application for AY 2015-16 might not be entertained since no proceedings were pending in both the cases. Accordingly, by the common order the Settlement Commission rejected the application on the ground that there was no true and full disclosure on the part of the assessee.

In writ, the High Court held that,

++ considering the order passed by the Settlement Commission passed under Section 245D(1) allowing the applications to be proceeded with further it can be seen that the Settlement Commission has specifically observed that "as regards the issue of true and full disclosure of income, we are of the opinion that, at present there is no material in our possession which warrants the conclusion that true and full disclosure of income have not been made by the applicants." While considering the application at the stage of 245D(1), Settlement Commission is required to hold a limited inquiry whether applications fulfilled statutory requirement or not and at that stage inquiry would be summary in nature;

++ once the order is passed under Section 245D(1), the stage of Section 245D(2B) calling the report from the Principal Commissioner of Income Tax shall comes and after considering the report and also giving an opportunity to the assessee, it will be open for the Settlement Commission to declare the application invalid. Therefore, if the submission on behalf of the assessee is accepted that once the order is passed under Section 245D(1) of the Act thereafter it will not be open for the Settlement Commission to reject the application or declare the same as invalid, in that case, the provisions of Section 245D(2B) and (2C) would be otiose and become nugatory. Therefore, the order passed under Section 245D(2C) declaring the application as invalid is absolutely in consonance with the scheme and provision of Section 245D of the Act;

++ so far as submission on behalf of the assessee that Settlement Commission could have called for further explanation and could have held the inquiry while exercising the powers under Section 245D(3) is concerned, the same has also no substance. There is no question of further inquiry contemplated. Only in a case where the application is declared invalid under Section 245D(2C) only thereafter further proceedings are required to be taken place and inquiry is required to be conducted as provided under Section 243D(3) and thereafter final order under Section 245D(4) is required to be passed;

++ so far as submission on behalf of the assessee on merit is concerned, at the outset, it is required to be noted that the order is passed by the Settlement Commission after considering the report submitted by the Principal Commissioner of Income Tax and thereafter after giving an opportunity to the assessee. The cogent reasons have been given by the Settlement Commission and considering the material on record, a specific finding is given that there is no true and full disclosure by the assessee. The statutory mandate of Section 245 of the Act is that the application shall "contain a full and true disclosure" of the income which has not been derived. Fundamental requirement of the application under Section 245C is that full and true disclosure of the income has to be made along with manner in which such income is derived;

++ the order passed by the Settlement Commission under Section 245D(2C) declaring the application invalid is not required to be interfered with by this Court in exercise of powers under Article 226 of the Constitution of India. Neither there is any procedural lapse nor any allegation of violation of principles of natural justice. As observed in catena of decisions, against the decision of the Settlement Commission, the High Court will not be sitting as an appellate authority like the assessment order.

(See 2018-TIOL-1467-HC-AHM-IT)