Ruling of I-T Settlement Commission not final — HC

Section 245 (i) of the Income Tax Act says the order passed by the Settlement Commission is final and binding and these orders cannot be reopened. Sources say that taking refuge under this aspect, businessmen and business houses would apply for settlements declaring a sum less than that assessed by the department.

This case — where the order of the Settlement Commission has been set aside by a division bench of Justice S H Kapadia and Justice V C Daga, holding that it was “illegal and void ab initio” — pertains to the assessment year of 1989-90 to 1993-94 of the Ajmera Housing Corporation, an undivided Hindu Family, working as land developers, builders and contractors. While I-T raids on premises of the company in 1989 and 1992 showed up concealed income of around Rs 187 crore for the five assessment years, the company under Section 245 (C) of the I-T Act, approached the Settlement Commission and disclosed concealed income only to the tune of Rs 23.11 crore.

As a result of the order of the Commission, the company obtained immunity from prosecution and had its penalty amount reduced from Rs 562.87 lakh to Rs 50 lakh.

While setting aside the Commission’s order, the bench remanded the matter back to the Commission to hear and decide the application afresh according to the Act. On a plea by Ajmera, though, the order of July 28, 2000 has been stayed for four weeks.

Ajmera had in its application before the Commission pleaded that developers and construction contractors are required to incur substantial expenses in cash for carrying out their business which made it impossible to maintain truthful record of such expenses.

Arguing for the IT department, senior counsel Beni Chatterjee stated the Commission could not have proceeded with the application since Ajmera Housing had not made a true and full disclosure of the income or the manner in which the income had been derived as required under the Act. He pointed out that the company had made disclosures of income in four instalments, which alone showed the company was indulging in a game of hide-and-seek with the department. Also, when disclosures of income were made in phases, the assessment commissioner was not allowed to make his objections and submit reports on the additional disclosures.

In their submissions, Ajmera through senior counsel Rafiq Dada argued that after the final order had been passed by the Commission, it was not open for the department to entertain suspicions of “true and full disclosures” at this stage. He argued the writ court could only examine the legality of the procedure followed and not the validity of the order, it not being a court of appeal.

After considering the contentions, the bench held that in such proceedings, “the court can enquire into the correctness of the decision of the inferior Tribunal as to the collateral fact and may reverse that decision if it appears to be erroneous”. The bench noted that the Commission ought to have noticed that in the application the first disclosure was only for Rs 1.94 crore and the next disclosure was for Rs 11.41 crore. “At this stage itself, it was obligatory on the part of the Settlement Commission to apply his mind to the issue as to whether a full and true disclsoure of the income and the manner in which it was derived, was made,” the order reads.

Holding that the Commission did not afford an opportunity to the assessment commissioner to object to the maintainability of the application, or have an enquiry into the disclosures of the last two instalments, the court remarked that the “order of November 17, 1994 is clearly in breach of principles of natural justice and had been passed contrary to the provisions of the Act”.