2011 (5) TMI 116 - HC - Income Tax

Refund - Settlement Commission - functus officio - It is not disputed at bar that even if the applications were not decided on 31-3-2008, there was no abatement as the view taken by various High Courts which has been affirmed by the High Court in various matters - It is settled proposition of law that unless the relevant statute or rules permit such review, it cannot be made - It was also submitted by the counsel appearing on behalf of assessees that the writ applications were filed by the revenue as an afterthought and once the tax was demanded as determined by the Settlement Commission, it was not open to the revenue to prefer the writ applications - no estoppel was created against the revenue to assail the validity of the order, in case, tax has been deposited so determined/demanded under the illegal orders - It was incumbent upon the Settlement Commission to act in accordance with the provisions under section 245D(4) of the Act - Even as per the findings which are recorded in the form of confession, violation of the provision has been made as it was mandatory to comply with the order of the High Court - Appeal is dismissed

Summary

Issues Involved:

1. Whether the Settlement Commission became functus officio.
2. Whether the procedure under section 245D(4) of the Income-tax Act, 1961 was followed.
3. Legality of the orders passed by the Settlement Commission.
4. Whether the Single Bench's direction on interest rate for refunds was appropriate.
5. Validity of the intra-court appeals by the assessees.

Issue-wise Detailed Analysis:

1. Whether the Settlement Commission became functus officio:

The primary issue was whether the Settlement Commission had become functus officio after 31-3-2008, meaning it had lost its authority to decide the cases. The court held that the Settlement Commission did not become functus officio. The applications were decided on or before 31-3-2008, so there was no question of abatement. The court cited the decision in Guduthur Bros. v. ITO and other cases to support this view, emphasizing that the Settlement Commission retains jurisdiction to deal with matters afresh if remitted by the court.

2. Whether the procedure under section 245D(4) of the Income-tax Act, 1961 was followed:

The court examined whether the Settlement Commission followed the mandatory procedure under section 245D(4) of the Act, which requires giving an opportunity of hearing to the parties, examining the records, and investigating the case. It was undisputed that the procedure was not followed, as the Settlement Commission did not afford an opportunity of hearing to the parties. The court stated, "It was incumbent upon the Settlement Commission to examine the record, investigate the case and record the evidence, as may be adduced, for proper settlement and thereafter, pass appropriate order in accordance with the provisions of the Act, after giving opportunity of hearing to the assessee as well as revenue which has not been done."

3. Legality of the orders passed by the Settlement Commission:

The court found that the orders passed by the Settlement Commission were in flagrant violation of the provisions of section 245D(4) and thus were liable to be quashed. The orders were passed without proper examination of records or giving an opportunity of hearing to the parties, rendering them null and void. The court emphasized that the Settlement Commission's orders were "in flagrant violation of the principle of audi alteram partem and due opportunity envisaged under section 245D(4) of the Act."

4. Whether the Single Bench's direction on interest rate for refunds was appropriate:

The Single Bench had directed that in case of a refund, interest would be payable at the rate of 15% per annum. The court found this direction inappropriate at this stage, as the liability was yet to be determined. The court set aside this part of the order, stating, "At this stage, it was not appropriate for the Single Bench to quantify the rate of interest a refund has to carry, in case so ordered in future." The court left the question open to be decided by the Settlement Commission after hearing the parties.

5. Validity of the intra-court appeals by the assessees:

The court addressed the intra-court appeals filed by the assessees, who argued that the Settlement Commission did not need to pass reasoned orders and that the orders were valid despite being passed on cyclostyle sheets. The court rejected these arguments, stating that the Settlement Commission must comply with the mandatory provisions of section 245D(4). The court emphasized that "the procedural safeguards have not been observed as such findings recorded in Para 6 of the orders of these 25 cases also cannot be permitted to survive."

Conclusion:

The court dismissed the intra-court appeals, cross objections, and stay applications, directing the Settlement Commission to decide the cases afresh in accordance with law within six months from the date of appearance of the parties. The court reiterated the necessity for the Settlement Commission to follow the mandatory provisions of section 245D(4) and other relevant sections of the Income-tax Act, 1961.