There must be Validity of application filed before Settlement Commission

Brief about the Case

The matter involves three assessment years, namely,2010-11,2011-12and 2012-13.The Assessee firm was engaged in the business of trading in ferrous and nonferrous metals. During a scrutiny assessment related to A.Y. 2010-11 it was noticed that the second Respondent-Assessee had purchased materials/goods from various parties. In order to verify the genuineness of purchase transactions from one such party, namely, M/s. Nutan Metals, information under section133(6) of the IT Act were called for but the said notice was returned back. However, on 12^thFebruary 2013, Shri Panchanmal Bokadia Proprietor of M/s. Nutan Metals made a statement before the A.O. confirming that the said M/s. Nutan Metals issues bills for earning commission without giving delivery of goods. Accordingly, the A.O determined the highest credit balance as appearing in the ledger account of M/s. Nutan Metals as the peak credit and the same was treated as unexplained expenditure under section 69C of the IT Act and was deemed to be income of the Assessee for the relevant A.Y. 2010-11.Further, it was also found based on information received from the Director of IncomeTax (Intelligence and Criminal Investigation) dated 8^thMarch, 2013,one Shri. Mahendra S. Vora has made huge cash deposits during financial year 2009-10.In a statement before the Income Tax Officer (Intelligence and Criminal Investigation) II, Mumbai,Shri.Mahendra S. Vora admitted that the deposits in the bank account did not pertain to him but to the Assessee firm. Further, statement of Shri Rasiklal M. Morakhia, partner in the Assessee firm was also recorded on the same day who admitted that these deposits pertained to the Assessee firm and did not pertain to Shri. Mahendra S. Vora. The A.O. therefore, held that the cash deposits and other deposit as agreed totaling Rs.1,86,48,101/-belonged to the Assessee firm andt he same was added as income in the hands of the Assessee firm. The Assessment order dated 18^thMarch, 2013 for A.Y. 2010-11was not only passed but also sent to the Assessee firm through Registered Speed Post on 18^thMarch, 2013 itself and the necessary entry on the computerized system of the Department(AST) was also made on 18^thMarch, 2013 itself .For A.Y. 2011-12,a notice u/s 148was issued on 15^thMarch, 2013 and it was served on the Assessee firm on 18^thMarch, 2013. The Assessee firm, knowing fully well that the bogus purchases shown by the Assessee had been detected and also that concealed income in the form of cash deposits had been detected by the Department, filed a settlement application for A.Y. 2010-11to 2012-13on 18^thMarch, 2013 u/s 245C of the IT Act. Before the date of hearing u/s 245D(1) of the IT Act on 22^nd March, 2013, all the relevant facts were before the Settlement Commission. A copy of the order dated 26^th March, 2013 passed by the settlement commission was forwarded to the Petitioner asking for a report under section 245D(2B) of the IT Act. In response, it was brought to the notice of the Settlement Commission that there was no pending assessment for A.Y.2010-11,as the assessment order was already issued before the filing of the settlement application under section 245C of the IT Act. Further, notice under section 148 for A.Y. 2011-12was also served on the Assessee firm before the Assessee filed the application u/s245C of the IT Act. Hence, for both these assessment years, the settlement application filed was invalid. It was also pointed out to the Settlement Commission that even the copies of the detected bank accounts were not submitted by the applicant in the application fo rsettlement and thus, the application did not disclose relevant crucial material facts, hence as per settled law, application is liable to be thrown out by the Settlement Commission. The Settlement Commission however did not consider the arguments of the Petitioner and has brushed aside the case of the Petitioner. The Settlement Commission, in its order passed under section 245D(2C), in its majority view, merely agreed with the Assessee firm by holding that the matter had not reached finality as yet and as such it was debatable whether the issues and the observation made by the Petitioner would apply in the facts and circumstances of the case of the Assessee firm. It is in the above facts and circumstances that the Petitioner impugns the orders passed by the Settlement Commission. By this Writ Petition under Article 226 of the Constitution of India, the Petitioner has prayed for issuance of a writ of certiorari or writ in the nature of certiorari or any other appropriate writ, direction or order to quash and set aside orders passed on 26^thMarch, 2013 and10^thMay, 2013.

Submission of Petitioner

The application for settlement made to the Commission in terms of section 245C of the IT Act was not maintainable. There was no pending assessment for A.Y.2010-11,as the assessment order was already issued before the filing of the settlement application. Further, notice u/s 148 of the IT Act for A.Y. 2011-12 was also served on the Assessee firm before the Assessee filed the application. The pendency of proceedings under the IT Act is a sine quanon for the admission of the application before the Commission. Thus,w hen a notice had been served and assessment order has been passed for two assessment years referred above, the Settlement Commission had no jurisdiction to accept the application. Section 245C of the IT Act mandates a full and true disclosure. The Respondent No. 2 has admitted and owned up the two undisclosed bank accounts. However, copies of the accounts did not form part of the settlement application. Further the disclosure of undisclosed income was much less than what has already been detected by the department as bogus purchases and concealed income by way of cash deposit. If the application was not truthful and complete, then, the Commission was not obliged to entertain it. The assessee had knowledge that the Department was aware of its bogus purchases when it made the settlement application. Yet, it did not make a disclosure of these transactions in the settlement application. The Settlement Commission also was aware through the two captioned reports of the Commissioner and at the hearing about these bogus purchases before it considered the applications for passing the orders under sections 245D(1) and 245D(2C). Still it held by a majority view that full and true disclosure has been made .As rightly held by the third dissenting Member, the Assessee had not made a full and true disclosure of income and the manner of earning the income.

Submission by Respondent-Assessee

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