Commissioner of Income Tax vs Income Tax Settlement Commission

M.S. Sanklecha, J.—Leave to amend. Rule, returnable forthwith. At the instance of counsel for the parties, the petition is heard for final disposal.

By this petition under article 226 of the Constitution of India, the petitioner assails the order dated April 8, 2013, passed by the income tax Settlement Commission ("the Commission") in exercise of its power u/s 245D(2C) of the income tax Act, 1961 ("the Act"). The petitioner seeks the following reliefs:

(a) to quash and set aside the impugned order passed u/s 254D(2C) dated April 8, 2013, of the Commission; and either

(bi) declare the applications for settlement dated January 31, 2013, filed by respondents Nos. 2 to 43 (applicants) as invalid; or

(bii) direct the Commission to decide the validity of applications for settlement dated January 31, 2013, filed by the applicants after taking into consideration the report filed by the Commissioner u/s 245D(2B) of the Act.

Briefly, the facts leading to the present petition are as under:

(b) On January 31, 2013, the applicants filed applications for settlement before the Commission under Chapter XIX-A of the Act relating to the assessment years 2005-06 to 2012-13. In all, 42 applications for settlement were filed before the Commission by individual companies belonging to the same group. All these 42 applications were dealt with together by the applicants, the petitioner and the Commission. Even before us the submissions were made on both sides not on individual applications but as a group and thus the same is being considered by us also together as a group.

(d) On February 12, 2013, the Commission, after hearing the applicants, passed an order u/s 245D(1) of the Act. In the said order, the Commission recorded its prima facie opinion that full and true disclosure of its income has been made by the applicants and that there is no material on record to reject the applications. Therefore, the Commission allowed the settlement applications to be proceeded with further.

(e) On February 12, 2013, itself, a copy of the order passed u/s 245D(1) of the Act along with a copy of the applications for settlement without the annexure thereto were forwarded to the petitioner. Further, the petitioner was directed to submit her report u/s 245D(2B) of the Act to the Commission on the applications for settlement filed by the applicants.

(f) On March 25, 2013 (dated March 22, 2013), April 3, 2013, and April 4, 2013, the petitioner submitted her report u/s 245D(2B) of the Act read with rule 6 of the Settlement Commission Procedure Rules, 1997 ("the Settlement Commission Procedure Rules") objecting to the applications for settlement being entertained and praying that the applications for settlement be declared invalid u/s 245D(2C) of the Act. This was on account of the petitioner''s contention that there was a failure on the part of the applicants to make a full and true disclosure of its income and the manner in which such income has been derived in its applications for settlement to the Commission. In support of the above stand the petitioner had placed reliance upon the disclosure made during the search and seizure operation in January, 2011, for the period 2005-06 to 2011-12 to that declared in the applications for settlement.

(g) On April 5, 2013, the applicants filed their reply to the petitioner''s report made u/s 245D(2B) of the Act. In particular, it was submitted that they had taken into account the income offered during search and seizure operation while disclosing their income in their applications to the Commission. The applicants submitted that the issue of quantum of income after allowing of expenditure is subject to examination u/s 245D(4) of the Act and is not to be determined at the stage of section 245D(2C) of the Act. This is because, according to the applicants, at the stage of section 245D(4) of the Act, i.e., at the final hearing the annexures filed along with the applications for settlement would be commented upon by the petitioner and considered by the Commission. Thus, the objection of the petitioner, according to the applicants, was premature and the applications for settlement be allowed to be proceeded with.

(h) Thereafter, on April 8, 2013, the Commission, after hearing the applicants and the petitioner, passed the impugned order. By the impugned order the submission of the petitioner that the applicants had not made a true and full disclosure of its income nor the manner in which the income was earned, was dealt with by the Commission by holding that in the absence of the petitioner having access to the confidential folders, i.e., annexures to the petitioner''s applications for settlement it would not be possible to hold at this stage that there was a failure to make true and full disclosure. Accordingly, the Commission held that the applications at this stage were not invalid and could be proceeded with. It was held that the objection raised by the petitioner would be considered at a subsequent stage, i.e., at the time of final hearing u/s 245D(4) of the Act.

(i) Thereafter, on April 17, 2013, the petitioner (the Commissioner) received the impugned order as well as the communication both dated April 8, 2013, from the Commission along with the confidential folder, i.e., annexures to the applications filed by the applicants with the Commission. The Commission required the petitioner to furnish her record and file her report on the matters covered by the settlement applications in terms of rule 9 of the Settlement Commission Procedure Rules. It was further provided that in case detailed investigations are necessary, according to the Commissioner, the same may be reported for an appropriate order u/s 245D(3) of the Act.

(j) The petitioner on August 8, 2013, filed an application with the Commission seeking a direction that an order be passed u/s 245D(3) of the Act directing investigation or alternatively verification on the issues raised in the applications for settlement. This was sought in view of the facts that in their confidential folder/annexures to the applications, no work-sheets have been given showing the manner in which the income was derived/computed. Thus, the petitioner pointed out investigation/verification, is necessary to enable it to offer comments in her report under rule 9 of the Settlement Commission Procedure Rules.

(k) On August 12, 2013, the present petition was filed, challenging the impugned order dated April 8, 2013, passed u/s 245D(2C) of the Act.

(l) On August 14, 2013, the petitioner filed her report under rule 9 of the Settlement Commission Procedure Rules with the Commission.

(m) On September 13, 2013, the petitioner sought an adjournment of the hearing u/s 245D(4) of the Act by 45 days as she had filed this writ petition against the impugned order dated April 8, 2013, passed u/s 245D(2C) of the Act. However, the Commission only adjourned the matter by eight days and on September 26, 2013, disposed of the petitioner''s application dated August 8, 2013, and directed the Director of income tax (Investigation) of the Commission to carry out enquiry/verification. On October 26, 2013, this court directed the Commission not to proceed with the case before it pending the hearing of the present petition by this court.

Before adverting to the submissions of the counsel it may be convenient to briefly consider the raison d''etre for Chapter XIX-A of the Act. The Settlement Commission had its genesis in the recommendation of the Wanchoo Committee headed by Justice K.N. Wanchoo, former Chief Justice of Supreme Court of India. In Commissioner of Income Tax (Central) Vs. B.N. Bhattacharjee and Another, the apex court while dealing with the origin of the Commission observed as under (page 470):

The incarnation of Chapter XIX-A was in the wake of the Wanchoo Committee Report. The vampirish vices of black money and colossal tax evasion, both together using money power to prevent action against whitecollar offender, had been a terrible menace to the health and wealth of the nation. In particular, black money, whose constant companion was tax evasion, posed a challenge to the country''s economy and the Wanchoo Committee was appointed to make recommendations with a view to arrest this evil. That Committee made a wealth of recommendations, but we are concerned only with Chapter 2 of the report which, under the title Black Money and Tax Evasion, proposed a compromise measure of a statutory settlement machinery where the big evader could make a disclosure, disgorge what the Commission fixes and thus buy quittance for himself and accelerate recovery of taxes in arrears by the State, although less than what may be fixed after long protracted litigation and recovery proceedings. We are not concerned with the merits of the recommendation except to state that if it works according to plan, it may ''ensure that the settlement is fair, prompt and independent'', given ''a high level machinery for administering the provisions''. The risk of adverse criticism of escape by tax-dodgers was adverted to by the Committee, but was silenced by the counter-argument that if the Commission was composed of officers with integrity, wide knowledge and experience and high status and emoluments, the risk was minimal. A precautionary step against possible misuse by evaders of the settlement machinery was thought of by the Wanchoo Committee which made the circumspect observation:

However, we wish to emphasis that the Tribunal will proceed with the petition filed by a taxpayer only if the Department raised no objection to its being so entertained. We consider that this will be a salutary safeguard, because otherwise the Tribunal might become an escape route for tax evaders who have been caught and who are likely to be heavily penalized or prosecuted.

(''The Tribunal'' in the Wanchoo Committee Report was re-christened ''the Settlement Commission'' in the Act when it was passed by Parliament). The Commission was vested with full powers to investigate cases on its jurisdiction being invoked and to quantify the amount of tax, penalty and interest that it may eventually fix as payable. A strategic provision which held out fascination for the criminal tax evaders was contained in the report. The Wanchoo Committee recommended conferment on the Settlement Commission of a discretion to ''grant immunity from criminal prosecution in suitable cases''. The detailed mechanics of application, investigation, consideration, hearing and disposal are contained in the report and have eventually been translated into statutory provisions in Chapter XIX-A.

Thus, the objective was to reduce conflicts between the Revenue and the taxpayer besides giving an opportunity to dishonest taxpayers to come clean and pay the tax which had been avoided and which would otherwise have been subjected to protracted litigation.

Now, turning our attention to the statutory provisions for settlement as provided under Chapter XIX-A of the Act, it is seen that section 245A(b) and section 245C(1) of the Act make applications for settlement to the Commission subject to the following pre-conditions:

(a) the proceeding for assessment under the Act must be pending for assessment before the Assessing Officer on the date when an application for settlement is made;

(b) the application for settlement must contain 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; and

(c) declaration of the additional income tax payable on such income.

This application for settlement is made in accordance with section 245A(b) and section 245C(1) of the Act and the procedure provided under the Settlement Commission Procedure Rules and the income tax Rules, 1962. The application is to be made in the specified form being Form No. 34B along with annexures thereto containing particulars of the income and the manner in which income sought to be disclosed, has been derived. On an application being filed, the Commission within seven days issues a notice u/s 245D(1) of the Act, calling upon the applicants to show cause as to why the applications should not be allowed to be proceeded with. At this stage, the Commission only hears the applicants and not the Revenue. The Commission is obliged to pass an order either rejecting the application or allowing it to be proceeded further within the period of 14 days from the date of the application. Where the application is allowed by the Commission to be proceeded with u/s 245D(1) of the Act, the Commission shall call for a report from the Commissioner (petitioner) in terms of section 245D(2B) of the Act read with rule 6 of the Settlement Commission Procedure Rules. This report should be furnished within the period of 30 days of it being called by the Commission. Thereafter, u/s 245D(2C) of the Act on the basis of the report of the Commissioner (petitioner) and after hearing the applicants and the Commissioner (petitioner), the Commission within a period of 15 days of the receipt of the report from the Commissioner (petitioner) is required to pass an order in writing declaring the applications for settlement as invalid and send a copy of the order to the applicants and the Commissioner (petitioner). However, when the applications is not declared invalid, then the Settlement Commission would proceed further in the matter in terms of section 245D(3) of the Act and may call for the records from the Commissioner (petitioner) and after the examination of the such records is of the view that further enquiry or investigation is necessary, it would direct the Commissioner (petitioner) to make such further enquiry or investigation and furnish a report on the matters covered by the application and any other matters relating to the case. In case the Commission does not direct any investigation and/or verification, then in that event, the Commissioner (petitioner) would file its report in accordance with section 245D(3) of the Act read with rule 9 of the Settlement Commission Procedure Rules. This report deals with the matters covered by the applications as well as any other matters relating to the assessment being settled. In terms of section 245D(4) of the Act, after examination of records and report of the Commissioner, if any, either under sub-section (2B) or sub-section (3) of section 245D of the Act and hearing the applicants as well as the Commissioner (petitioner) pass an order in accordance with the provisions of the Act. Such order would cover not only the matters referred to in the applications for settlement but also any other matters not referred to in the application but referred to in the report of the Commissioner (petitioner).

In terms of section 245D(4A) of the Act, the Commission is obliged to pass an order on the applications for settlement made by the applicants within 18 months in respect of application for settlement made on or after June 1, 2010. In terms of section 245F of the Act, the Settlement Commission has been conferred with all powers which are vested in the income tax authority under the Act having exclusive jurisdiction to exercise the powers and functions of the income tax authority under the Act. Besides, section 245HA of the Act (introduced in 2007), inter alia, provides that when an application for settlement abates on being rejected either at the stage of section 245D(1) of the Act or at the stage of section 245D(2C) of the Act or at the stage of final hearing u/s 245D(4) of the Act, the application filed by the applicants before the Settlement Commission including all other information, evidence and documents on record before the Commission could be used by the Assessing Officer as if the evidence, documents, information was produced before the Assessing Officer for the purposes of normal assessment, i.e., outside the province of Chapter XIX-A of the Act. Keeping in view the above broad conspectus of the provisions of Chapter XIX-A of the Act, we shall now record and consider the rival submissions.

Mr. Khambata, learned Advocate General appearing for the petitioner-Revenue, in support of the petition, submits as follows:

(a) One of the jurisdictional pre-conditions for the applicants to invoke the settlement procedure, as provided in Chapter XIX-A of the Act, is full and true disclosure of its income and the manner in which the income was derived in its application for settlement. This requirement/obligation of true and full disclosure is one of utmost good faith which begins from the time the application for settlement is made till the termination/culmination of the proceedings before the Commission. In this case, the applicants failed to satisfy the above jurisdictional requirement to make full and true disclosure in its application for settlement. On this ground alone, the Commission ought not to have entertained the application for settlement at the stage of section 245D(1) of the Act proceedings or in any event declared it invalid at the stage of section 245D(2C) of the Act. In view of the above, it is submitted that this court declare the applications for settlement dated January 31, 2013, invalid in terms of section 245D(2C) of the Act.

(b) Attention was drawn to the confidential folders/annexures to the applications for settlement of the applicants which were furnished to the petitioner post the impugned order dated April 8, 2013.

(d) In the alternative, it is submitted that the impugned order dated April 8, 2013, of the Commission completely ignores the fact that the jurisdictional requirement, inter alia, of making full and true disclosure of income by the applicant before the Commission has to be satisfied by the applicant while making the application u/s 245C of the Act. This requirement is tested/examined by the Commission for the first time ex parte while exercising jurisdiction that at the stage of section 245D(1) of the Act and, thereafter, at the stage of section 245D(2C) of the Act with the assistance of the petitioner-Revenue. The Commission in the impugned order ignores the objection of the petitioner-Revenue that there is no full and true disclosure of income as stated in its report dated March 25, 2013 (dated March 22, 2013), April 3, 2013, and April 4, 2013, u/s 245D(2B) of the Act read with rule 6 of the Settlement Commission Procedure Rules as is evident from the income disclosed during the search and seizure proceeding and the amount of income mentioned in the applications for settlement. This objection of the petitioner-Revenue was postponed to the stage of passing of order u/s 245D(4) of the Act. This failure to decide the validity of an application u/s 245D(2C) of the Act is in violation of the statutory provisions which cast a duty upon the Commission to decide the validity at the stage of section 245D(2C) of the Act as held by a Division Bench of this court in the matter of Commissioner of Income Tax (Central) Vs. Income Tax Settlement Commission (ITSC), (hereinafter referred to as the judgment dated June 13, 2013). In view of the above, it is submitted that the impugned order dated April 8, 2013, be set aside and the matter be restored to the Commission for fresh hearing at the stage of section 245D(2C) of the Act.

As against the above, Mr. Janak Dwarkadas and Dr. Milind Sathe, learned senior counsel on behalf of the applicants in support of the impugned order submit as under:

(a) The petition should not be entertained in view of the fact that the petitioner has submitted herself to the jurisdiction of the Settlement Commission post the impugned order dated April 8, 2013. In view of the participation, the petitioner-Revenue have waived its objections to the issue of jurisdiction. In fact, the petitioner have not only received confidential portion of the settlement application but had also filed its report under rule 9 of the Settlement Commission Procedure Rules. The entire application for settlement is now ripe for final hearing before the Commission. Thus, on this short ground alone, the petition be dismissed.

(b) Alternatively, the conduct of the petitioner in these proceedings disentitles it to seek any relief from this court in its extraordinary writ jurisdiction. It is pointed out that consequent to the order dated April 8, 2013, the petitioner had access to the confidential portion/annexure to the settlement applications and also filed its report on the confidential portions u/s 245D(3) of the Act read with rule 9 of the Settlement Commission Procedure Rules. It is submitted that if the reliefs prayed for are granted to the petitioner, information disclosed in the confidential reports would be used in the assessment proceedings before the authorities under the Act. The petitioner would otherwise not have had access to the confidential portion of the applications for settlement of income. The applications were declared to be valid u/s 245D(2C) of the Act by the Commission on April 8, 2013, and the petitioner, thereafter, participated in the proceedings before the Commission so as to have access to confidential information and use the information so obtained in proceedings of adjudication before the Assessing Officer. This does cause grave prejudice to the applicants. However, no prejudice would be caused to the petitioner if this very issue is decided as directed by the Commission in the impugned order dated April 8, 2013, at the stage of section 245D(4) of the Act. In view of the conduct of the petitioner, it was submitted that this petition should not be entertained.

(c) The petitioner can have no grievance with impugned order dated April 8, 2013, postponing the decision with regard to the validity of the application to the stage of section 245D(4) of the Act on the ground that as confidential folders annexed to the applications for settlement as annexures have not yet been given to the petitioner, it would be difficult to take a view at this stage to declare whether full and true disclosure of its income is made by the applicants. The above portion of the impugned order was in terms of the report of the Commissioner dated March 22, 2013 (filed on March 25, 2013) u/s 245D(2B) of the Act read with rule 6 of the Settlement Commission Procedure Rules wherein she has herself stated that in the absence of confidential information the petitioner is unable to comment on the validity of the application. Thus, no fault can be found with the impugned order dated April 8, 2013, which has merely accepted the Commissioner (petitioner''s) submissions. Therefore, there is no justification/warrant to interfere with the impugned order.

(d) The petition has proceeded on a fundamentally erroneous basis that the Commission has failed to carry out the mandate of section 245D(2C) of the Act in determining the validity of the applications for settlement, This, it is submitted is not correct as the impugned order in terms records a finding in paragraph 14 thereof. "In view of the aforesaid we hold a view that applications are not invalid and allow the same to be proceeded further". Thus, there being a finding/declaration in the impugned order dated April 8, 2013, of the application not being invalid. In view of the above, it is submitted that the decision dated June 13, 2013, of the Division Bench of this court in Writ Petition No. 3900 of 2013 (supra) is not applicable to the present facts for the reason that in the above case, the Commission did not record its satisfaction with regard to the validity and/or invalidity of the application u/s 245D(2C) of the Act. While in the present proceeding the Commission in its impugned order dated April 8, 2013, has recorded its satisfaction that the application is not invalid. Thus, the decision of the Division Bench of this court is inapplicable.

(e) It is submitted that on identical facts the Delhi High Court in the matter of Commissioner of Income Tax Vs. Income Tax Settlement Commission and Others, has held that the order u/s 245D(2C) is not a final order and is always subject to order that may be passed at the final hearing u/s 245D(4) of the Act. Consequently; whether or not the applicant has made a full and true disclosure of its income and also manner in which the income has been derived could be considered before the order of settlement is passed u/s 245D(4) of the Act. The Delhi High Court has rendered its decision by following the order of the apex court in the matters of Ajmera Housing Corporation and Another Vs. Commissioner of Income Tax, and Commissioner of Income Tax Vs. K. Jayaprakash Narayanan, Thus, the decision of the Delhi High Court as reported in Commissioner of Income Tax Vs. Income Tax Settlement Commission and Others, would apply to the present facts and the petition be dismissed.

(f) The applicants have explained the expenditure incurred by them so as to offer only 8 per cent of the total cash receipts/generated as its income in its confidential report/annexures to application for Settlement before the Commission. Thus, there is a full and true disclosure of its income by the applicants. In any case even if the income is in cash what can be brought to tax is not the entire receipts but only the income/profit which is in-built in the total receipts. In such a case unaccounted expenses would necessarily have to be deducted on the basis of best judgment assessment on an estimated basis and the balance subjected to tax. According to the applicants, there has been a true and full disclosure in its application for settlement and only the issue of quantification/determination of actual income is postponed to be done at the stage of 245D(4) of the Act. Therefore, no fault can be found with the impugned order.

(g) Reliance by the petitioner upon the statement made by the directors of the applicants during the search and seizure in 2011 is not proper as the same had been retracted. In any event the statements make a reference to the cash receipts and not to the income arising out of the cash receipts. While the applications for settlement before the Commission seeks to disclose the income arrived out of the cash receipts as taxable. Therefore, the impugned order calls for no interference as it has correctly held that whether or not full and true disclosure has been made would be considered at the stage of final hearing u/s 245D(4) of the Act. In the circumstances, it is submitted that the petition be dismissed.

We have considered the rival submissions. The applicants have strongly contended before us that in view of the petitioner-Revenue having participated in the proceedings before the Commission post the impugned order dated April 8, 2013, it amounts to waiver of her rights to the question the jurisdiction of the Commission. We find, in view of section 245C(1) of the Act, the Commission can exercise jurisdiction under Chapter XIX-A of the Act only when there has been a true and full disclosure of income and also the manner in which the income has been derived, by the applicants. This is a condition precedent for the purpose of an applicant invoking the jurisdiction of the Commission and also for the Commission to act further on the application for settlement. It is the case of the petitioner that the aforesaid jurisdictional requirement of true and fair disclosure by the applicants has not been considered in the impugned order dated April 8, 2013, u/s 245D(2C) of the Act but the Commission has merely postponed its decision on the same.

Once it is held that the issue of true and full disclosure in the application for settlement is a jurisdictional issue and in the absence of its satisfaction jurisdiction cannot be exercised by the Commission, it follows that mere participation in the proceeding by the parties cannot by itself bestow the jurisdiction on the Commission. The exercise of jurisdiction by an authority when not so vested in it is open to challenge and participation in the proceeding will not confer any jurisdiction as held by the apex court in Carona Ltd. Vs. Parvathy Swaminathan and Sons, and Kanwar Singh Sainy v. High Court of Delhi [2012] 4 SCC 360.

The next preliminary contention urged on behalf of the applicants is that the conduct of the petitioner in participating in the proceeding before the Commission and the delay of over four months in filing this petition after the passing of the impugned order disentitled the petitioner from being granted any relief. A delay of about four months in filing the petition after the impugned order dated April 8, 2013, is certainly not fatal to entertaining the petition which is based on a jurisdictional challenge. This is particularly so as no rights have been acquired in the meantime by any third party. However, the submission of the applicants is that the delay on the part of the petitioner was not bona fide but only done to obtain the confidential folders/annexures filed along with the application for settlement by leading all to believe that the impugned order is accepted. By delaying the challenge in this court and obtaining information/documentary evidence in the settlement proceedings on the basis that the impugned order is accepted is only with a view to obtain the confidential folders/annexures to the application and use them in assessment proceedings by now challenging the impugned order dated April 8, 2013. This information contained in the confidential folders would never have been made available to the petitioner in case the applicants'' applications for settlement is held invalid u/s 245D(2C) of the Act. Thus, the adjudication proceeding for assessment before the Assessing Officer and authorities under the Act would have been without the evidence contained in the confidential folders of the applicants. The conduct of the petitioner-Revenue is unfair and the delay in filing the petition was only to obtain information which it would not have been entitled to had it not accepted the impugned order.

Since the petitioner got the impugned order u/s 245D(2C) as well as the confidential folders of the applicants on the same day, it cannot be said that the time taken, thereafter, by the petitioner for filing the petition was to obtain any unfair advantage. Besides u/s 245HA of the Act even if an application is rejected u/s 245D(1) or u/s 245D(2C) of the Act as invalid, the proceedings before the Commission would abate. However, notwithstanding such abatement of the proceedings, in terms of section 245HA(3) of the Act all the material, i.e., documents (including confidential folders) and evidence which has been produced and/or recorded by the Commission in the course of proceedings could be used by the Assessing Officer or the income tax authority in the proceedings before it as if the same has been recorded by him in the course of the proceedings before him. Thus, it is not correct to conclude that by participating further in the proceedings before the Commission and due to delay in filing of the petition, the petitioner has obtained any undue benefit which it would not have obtained in the absence of delay in filing the petition. Therefore, we find no substance in the above objection of the applicants.

It was next contended by the applicants that the petitioner can have no grievance with the impugned order dated April 8, 2013, as it has merely postponed the decision on the applications for settlement satisfying the pre condition of true and fair disclosure to the stage of section 245D(4) of the Act, i.e., at the time when the petitioner are in possession of the confidential folders/annexures to the application from the Commission. This, according to the applicants, is in line with the petitioner''s report dated March 22, 2013 (filed on March 25, 2013) u/s 245D(2B) of the Act read with rule 6 of the Settlement Commission Procedure Rules. Our attention is drawn to the petitioner''s report dated March 22, 2013, which read as under:

Validity of the application for the relevant years; The Hon''ble Settlement Commission has allowed the above application to be proceeded with, vide order u/s 245D(1) dated February 12, 2013, on the ground that prima facie the disclosure of income made is full and true and there is no material to reject the same and left the issue open to examination during subsequent proceedings. It is seen that this prima facie full and true disclosure is based on certain confidential annexures to the application which have not been made available to us in the absence of that confidential information it is not possible for the Commissioner to comment on the validity of the application. Without prejudice, I contend that the application deserves to be declared invalid u/s 245D(2C).

(emphasis supplied).

According to us, the above observations have been made in the context of the Commission having allowed the settlement application to be proceeded with u/s 245D(1) of the Act. In any case the petitioner in its report dated March 22, 2013, has categorically stated that the settlement application be declared invalid in terms of section 245D(2C) of the Act. Thus, it is not as though the petitioner sought deferment of the issue of true and full disclosure by the applicants before the Commission while considering the application for settlement u/s 245D(2C) of the Act.

On the merits of the issue, the petitioner submits that the obligation of the Commission to decide on the validity of the application at the stage of section 245D(2C) of the Act is no longer res integra in view of the decision of the Division Bench of this court in CIT v. ITSC (No. 1) Writ Petition No. 3900 of 2013--since reported in Commissioner of Income Tax (Central) Vs. Income Tax Settlement Commission (ITSC), In the above case, the Division Bench of this court has held that the Commission is obliged at the stage of proceeding u/s 245D(2C) of the Act to decide on the validity of the applications for settlement before it. This exercise cannot be deferred to a further stage of section 245D(4) of the Act. The court held that deferring the consideration of issues arising for consideration at the stage of section 245D(2C) of the Act would amount to the Commission abdicating its mandatory obligation under the Act. However, it was clarified by the Division Bench of this court in the above case that the requirement of true and full disclosure is a continuous requirement and order of validity at the stage of section 245D(2C) of the Act would not estop/prevent the Commission at later stage of the proceedings to reject the application on account of failure to make full and true disclosure of the income and the manner in which it is derived to the Commission.

The applicants, on the other hand, contended that the decision rendered by the Division Bench of this court in Commissioner of Income Tax (Central) Vs. Income Tax Settlement Commission (ITSC), is completely distinguishable from the facts of the present case. The distinction that is being raised by the applicants in the present case is that the Commission has declared in the impugned order that the application for settlement filed by the applicants is not invalid while in the Division Bench decision of this court in Commissioner of Income Tax (Central) Vs. Income Tax Settlement Commission (ITSC), no such finding/declaration with regard to the validity of the application for settlement was made in the order passed by the Commission u/s 245D(2C) of the Act which merely left the issue open to be decided at a later stage.

We do not agree with the above distinction for the reason that in paragraph 6 of the order passed by the Division Bench of this court in Commissioner of Income Tax (Central) Vs. Income Tax Settlement Commission (ITSC), this court while recording the facts before it from the order of the Commission challenged before it also records that "The Commission has come to the conclusion that the application is not invalid and has allowed it to proceed further." (emphasis supplied). Therefore, just as, in the present case, in the case before the Division Bench of this court in Commissioner of Income Tax (Central) Vs. Income Tax Settlement Commission (ITSC), also the Commission has rendered a finding/made a declaration that the application for settlement is not invalid u/s 245D(2C) of the Act. We thus accept the petitioner''s submission that the issue is no longer open to debate in view of the decision of the Division Bench of this court in Commissioner of Income Tax (Central) Vs. Income Tax Settlement Commission (ITSC),

Besides we may point out that the impugned order postpones the consideration of the issue of full and true disclosure and yet holds that the application for settlement is not invalid. Thus, the impugned order dated 8 April 2013, also suffers from the vice of being a non-speaking order inasmuch as it does not consider and deal with the objection of the petitioner as contended in its report u/s 245D(2B) of the Act read with rule 6 of the Settlement Commission Procedure Rules. We do appreciate that at this stage no detailed reasoning is required to be given by the Commission while declaring the validity or invalidity of the application yet there must be some modicum of reasons which would suggest due application of mind to the objections, if any, raised by the Commissioner (petitioner) in its report u/s 245(2B) of the Act read with rule 6 of the Settlement Commission Procedure Rules. This alone would ensure that one is not faced with a situation where it is declared that the application is not invalid but reason in support states that the requirement of true and full disclosure of income and the manner in which it is derived which is the basis of the validity of the applications would be considered later.

The applicants have while contending before us that the facts in the present case are distinguishable from the facts before the Division Bench of this court in Commissioner of Income Tax (Central) Vs. Income Tax Settlement Commission (ITSC), and would be appropriately be covered by the decision of the Delhi High Court in the matter of Commissioner of Income Tax Vs. Income Tax Settlement Commission and Others, In view of our finding in paragraphs 14 and 16 above, that the present case stands covered by the order of the Division Bench of this court in Commissioner of Income Tax (Central) Vs. Income Tax Settlement Commission (ITSC), we need not consider the above submissions. However, as the submission were advanced on the above issue at some length, we are dealing with the same.

The Delhi High Court in Commissioner of Income Tax Vs. Income Tax Settlement Commission and Others, has held that the issue of full and true disclosure on the part of the applicants before the Settlement Commission is not finally decided while considering the application for settlement u/s 245D(1) or section 245D(2C) of the Act but are subject to final orders that will be passed u/s 245D(4) of the Act. Therefore, it is submitted that the issue of true and full disclosure on the part of the applicants remains open for examination and consideration at a subsequent stage, i.e., at the stage of final hearing u/s 245D(4) of the Act. The decision of the Delhi High Court in Commissioner of Income Tax Vs. Income Tax Settlement Commission and Others, according to the applicants, has correctly held the Commission has in this case correctly postponed taking a decision on the issue of true and full disclosure to the stage of final hearing u/s 245D(4) of the Act, The above Delhi High Court decision in Commissioner of Income Tax Vs. Income Tax Settlement Commission and Others, was rendered by following the decisions of the apex court in the matters of Ajmera Housing Corporation (supra) and K. Jayaprakash Narayanan (supra).

When it was pointed out that the above decision of the apex court were rendered in the context of the provisions existing prior to 2007, the applicants submitted that there is no difference in the provisions of Chapter XIX-A of the Act as existing prior to and the post-2007 amendment. It was pointed out that earlier, i.e., prior to the 2007 amendment, the proceedings before the Settlement Commission were two-tier proceedings, i.e., acceptance and admission of the application at the stage of section 245D(1) of the Act and the final hearing and disposal at the stage of section 245D(4) of the Act. While the post-2007 amendment the two-tier proceedings have now been converted into three-tier proceedings as under:

(a) providing for acceptance of the application u/s 245D(1) of the Act;

(b) admission of the application u/s 245D(2C) of the Act; and

(c) final hearing of the application u/s 245D(4) of the Act. It is submitted that prior to the amendment in 2007 section 245D(1) and section 245D(2C) of the Act were merged into section 245D(1) of the Act while the post-amendment these are two different and distinct stages.

We notice that u/s 245D(1) of the Act, as existing prior to the 2007 amendment the Commission was required to call for the report from the Commissioner (petitioner) and on the basis of the materials contained in such report, where it is possible by order either reject the application or allow the application to be proceeded with. While the post-2007 amendment at the stage of section 245D(1) of the Act, the Commissioner (petitioner) is not heard by the Commission nor any report received from the Commissioner but an ex parte hearing is granted only to the applicants and it is in the nature of the Commission accepting the settlement application. In the post-2007 amendment regime, in terms of section 245D(2C) of the Act, the Commission is required to consider the report of the Commissioner (petitioner) and it is obligatory upon the Commission to declare in writing the validity of the application for settlement. There is no option the post-2007 amendment to defer the consideration of validity of the application because it is not possible as was the case prior to the 2007 amendment by the specific use of the words if possible therein. Therefore, we find that there is a statutory change consciously made by Parliament in 2007 in Chapter XIX-A of the Act in respect of application for settlement whose validity has to be decided u/s 245D(2C) of the Act and cannot be postponed. Therefore, the reliance upon the apex court decision and Ajmera Housing (supra) and K. Jayaprakash Narayanan (supra) by the Delhi High Court in Commissioner of Income Tax Vs. Income Tax Settlement Commission and Others, is not appropriate as they were considering the pre-2007 amendment regime of Chapter XIX-A of the Act. Besides the decision of the Delhi High Court in the matter of Commissioner of Income Tax Vs. Income Tax Settlement Commission and Others, has ignored the change in law with effect from 2007 in Chapter XIX-A of the Act and particularly the provisions of section 245D(2C) of the Act after the 2007 amendment. In the circumstances, we do not agree with the view taken by the Delhi High Court in Commissioner of Income Tax Vs. Income Tax Settlement Commission and Others, besides holding ourselves bound by the Division Bench decision of this court in Commissioner of Income Tax (Central) Vs. Income Tax Settlement Commission (ITSC),

During the course of the argument both the petitioner as well as the applicants took us through the application for settlement and the reports of the Commissioner (petitioner) under rules 6 and 9 of the Settlement Commission Procedure Rules filed before the Commission. Along with the application for settlement, attention was also drawn to confidential documents/annexures to the application filed by the applicants to contend that there has been true and full disclosure on the part of the applicants and by the petitioner to contend exactly the opposite. We are refraining from answering this particular issue as the settlement application is seized of by the Commission. Moreover, while exercising the powers of judicial review of an order passed by the Commission, we are concerned more with the decision-making process rather than with the merits of the decision of the Commission. We find in this case the Commission has completely over looked the mandate of section 245D(2C) of the Act post-2007 amendment which requires it to consider the validity of the settlement application filed by the applicants and the consideration of it cannot be postponed to a later date.

However, before parting, we wish to reiterate what has been held by the Division Bench of this court in Commissioner of Income Tax (Central) Vs. Income Tax Settlement Commission (ITSC), that even if the application for settlement is declared to be valid in terms of section 245D(2C) of the Act, yet it would not estop/bar the Commission from rejecting the application for settlement at later date for non-disclosure of true and full information of the income or the manner in which income was derived. As the requirement of full and true disclosure of the income and the manner in which the income is derived is a requirement to be satisfied by the applicants at all times before the Commission. However, this by itself would not permit the Commission not to deal with the validity of the application at the stage of section 245D(2C) of the Act. In the present case, the Commission has postponed considering the validity of the applications to the final hearing stage, namely, section 245D(4) of the Act. The Commission being a creature of Chapter XIX-A of the Act is bound by the mandate of section 245D(2C) of the Act and cannot render a statutory provision redundant. In fact, no authority under the Act can ignore the statutory provisions so long as it is found in the statute.

In view of the above, we quash and set aside the impugned order dated April 8, 2013, of the Commission and grant the alternative prayer by restoring the applications for settlement to the Commission to decide the validity of the applications for settlement dated January 31, 2013, filed by the applicants u/s 245D(2C) of the Act. Needless to state the Commission would pass its order u/s 245D(2C) of the Act after taking into consideration the report filed by the Commissioner (petitioner) u/s 245D(2B) of the Act read with rule 6 of the Settlement Commission Procedure Rules. The petition is disposed of in the above terms. Rule is made absolute in terms of prayer clause 3(a) and 3(bii) above, i.e., the impugned order dated April 8, 2013, of the Commission is quashed and set aside and the Commission is directed to decide the validity of the application for settlement dated January 31, 2013, after taking into consideration the report filed by the Commission. No order as to costs.