2015 (7) TMI 921 - HC - Income Tax

Application for settlement of pending proceedings rejected - application for settlement as filed is not valid for failure to pay taxes on the additional declared income as contended by the Commissioner of Income Tax(Central) (Commissioner) resulted in the pending proceeding of the Petitioner for Assessment Years 2007-08 to 20014-15 being restored to the Assessing officer - whether the dismissal of the Petitioner s application for settlement at the stage of Section 245(2D) of the Act merely on the ground of the Commissioner s report dated 5 may 2015 was justified particularly when on the face of it the assertion of the Commissioner required some investigation Held that - Intimation dated 2nd. January 2014 served upon the petitioner on 7th. May 2015 on the face of it appears to be incorrect for the reason that after intimating the Petitioner that it is entitled to refund of ₹ 8.85crores has adjusted the entire refund to satisfy a demand on account of interest of an equivalent amount of ₹ 8.85crores. These facts when brought to notice of the Commission at the hearing should have led the Commission to make some enquiry into it and not accept the Commissioner s report as unimpeachable. This is particularly so as a rejection at a stage when the petitioner has made full and true disclosure in the spirit of settlement, without proper examination does cause prejudice to the petitioner. A rejection of the application on dubious/suspicious ground made out in the report should not be allowed by the Commission without some enquiry to satisfy itself about the stand of the Commissioner. The circumstances surrounding the Commissioner report viz. of equal amount of interest demand to refund granted by the Intimation, not annexing the Intimation to the report and the Intimation itself being served upon the petitioner after over one year of its purported issue and after the Commissioner s report also raise questions about its authenticity. Thus an unjustified rejection without proper enquiry into the stand of the Revenue would cause prejudice to the assessee as all the information made available during the settlement proceedings would be capable of use by the Assessing officer to the prejudice of the applicant in regular assessment proceedings. Therefore non enquiry into issues which were suspicious, by the Commission, before rejecting the application for settlement evidences a flaw in the decision making process. The Petition in substance questions the conduct of the Commissioner in filing a report indicating that the petitioner is not entitled to refund, even though according to Petitioner, it is entitled to the same. It is pertinent to note that the Commissioner has chosen not to file any reply. Non filing of reply, when such serious allegations are made, only lends credence to the stand of the Petitioner. At the very least this would warrant an enquiry by the Commission before deciding the application at the stage of Section 245(2C) of the Act. The Commissioner in its report dated 5th May, 2015 before the Commission, had categorically stated that there is no refund due to the Petitioner for Assessment Year 2012-13. However, the Assessing Officer on receipt of the Petitioner s application for rectification of Intimation, has by a letter dated 22nd June, 2015 informed the Petitioner that charging of interest under Section 234B, prima facie appears to be incorrect and the Petitioner would be entitled to the refund as claimed for the Assessment Year 2012-13. The aforesaid communication sets at naught the report of the Commissioner dated 5th May, 2015 that no refund is due to the Petitioner for the Assessment Year 2012-13.It is in these circumstances that we set aside the impugned order dated 12th May, 2015 and restore the application to the Commission at Section 245D(2) stage for fresh disposal after hearing the parties.

Summary

Issues Involved:
1. Validity of the application for settlement under Section 245C of the Income Tax Act.
2. Adjustment of refunds against additional tax payable.
3. Jurisdiction of the Settlement Commission post-admission of the application under Section 245D(1).
4. Correctness and reliability of the Commissioner's report.
5. Impact of Section 245K on restoring the application.

Issue-wise Detailed Analysis:

1. Validity of the application for settlement under Section 245C of the Income Tax Act:
The petitioner challenged the dismissal of its settlement application for Assessment Years 2007-08 to 2014-15 by the Settlement Commission. The Commission had dismissed the application on the grounds that the petitioner failed to pay taxes on the additional declared income. The petitioner contended that it had paid Rs. 77 lakhs into the treasury and adjusted Rs. 2.37 crores out of the refund due to it, thus fulfilling the tax payment requirement.

2. Adjustment of refunds against additional tax payable:
The Commission initially admitted the application under Section 245D(1), recognizing the petitioner's compliance with the technical requirements, including the payment of additional taxes. However, the Commissioner later objected, stating that no refund was due for the relevant assessment years, thus invalidating the petitioner's claim of tax payment through refund adjustment. The petitioner argued that the Intimation under Section 143(1) for Assessment Year 2012-13, which indicated a refund of Rs. 8.85 crores, was incorrect as it adjusted the refund against an equivalent interest demand under Section 234B.

3. Jurisdiction of the Settlement Commission post-admission of the application under Section 245D(1):
The petitioner asserted that once the application was admitted under Section 245D(1), the Commission could not declare it invalid for non-payment of tax. The court held that the requirement of paying taxes on the additional income is a jurisdictional requirement, and the Commission could notice and act upon its absence at any time.

4. Correctness and reliability of the Commissioner's report:
The court noted that the Commissioner's report, which led to the dismissal of the application, relied on a computer printout instead of the actual Intimation under Section 143(1). The court found this suspicious and emphasized the need for the Commission to conduct an enquiry into the report's assertions. The petitioner received the Intimation only after the Commissioner's report was filed, and the subsequent rectification application indicated a mistake in the Intimation, supporting the petitioner's claim for a refund.

5. Impact of Section 245K on restoring the application:
The Revenue argued that restoring the application would contravene Section 245K, which prohibits a subsequent application if an earlier one was allowed to proceed under Section 245D(1). The court dismissed this argument, clarifying that restoring the application would not constitute a fresh application but a revival of the original one.

Conclusion:
The court set aside the Commission's order dated 12th May 2015 and restored the application to the Commission for fresh disposal at the Section 245D(2) stage after hearing the parties. The court emphasized the need for the Commission to conduct a proper enquiry into the Commissioner's report and decide the issue in accordance with the law, without being influenced by the court's observations. All contentions were left open, and no costs were ordered.