2017 (1) TMI 321 - HC - Income Tax

Validity of reopening of assessment - whether Mere mentioning of certain facts by the Settlement Commission will not make the Show Cause Notice invalid? - Held that - As under the provisions of the Income Tax Act, 1961 if certain facts have been brought to the notice of the Assessing Officer relating to escapement of income chargeable to tax, he is bound to reassess the income of the assessee of the relevant years. The assessee does have a remedy to file objection and related documents which may be provided by the Assessing Officer. Not only this, the Settlement Commission while deciding case of respondent No.5 has not given any finding in respect of taxability or otherwise or unaccounted receipts / income in respect of the petitioner and has held that the Department shall be free to complete the proceedings initiated u/S. 148 on the basis of information / evidence available and after following the provisions of law. Resultantly, this Court is of the considered opinion that the order passed by the Settlement Commission dt. 18/5/2016 does not warrant interference at the behest of the petitioner. The Settlement Commission, based upon the documents submitted by the respondent No.5 has passed a final order. So far as notices which have been issued u/S. 148 for the assessment year 2010-2011 and 2011-2012 is concerned, the proper course of action for the petitioner is to file return and if he so desires, to seek reasons / documents for issuing such notices and in case any application is preferred for demand of material on the basis of which assessment has been done, the material shall be given to the petitioner enabling him to defend his case. The assessing Officer, after granting opportunity of hearing to the petitioner and after taking into account the objections and the material, shall pass a speaking order in accordance with law. This Court does not find any reason to interfere with the order passed by the Settlement Commission at the behest of the petitioner which has been passed in respect of respondent No.5 nor does find any reason to interfere with the notices u/S. 148 of the Income Tax Act, 1961.

Issues Involved:
1. Validity of the notices issued under Sections 147 and 148 of the Income Tax Act, 1961.
2. Alleged violation of principles of natural justice by the Settlement Commission.
3. Legality of the order passed by the Settlement Commission under Section 245D(4) of the Income Tax Act, 1961.
4. The petitioner's right to be heard and intervene in the proceedings before the Settlement Commission.

Detailed Analysis:

1. Validity of the Notices Issued Under Sections 147 and 148 of the Income Tax Act, 1961:
The petitioner challenged the notices issued under Sections 147 and 148, arguing that they were based on the Settlement Commission's order, which did not involve the petitioner. The court examined the statutory requirements under Sections 147 and 148, emphasizing that the Assessing Officer must have "reason to believe" that income chargeable to tax has escaped assessment. The court found that the Show Cause Notices were issued based on incriminating documents found during a search and seizure operation, which justified the Assessing Officer's belief that income had escaped assessment. The court held that the notices fulfilled the statutory requirements and were valid.

2. Alleged Violation of Principles of Natural Justice by the Settlement Commission:
The petitioner claimed that the Settlement Commission's order was invalid as it was passed without hearing the petitioner. The court noted that the Settlement Commission had dismissed the petitioner's intervention application, stating that the proceedings before the Commission are not open to third parties. The court observed that the Settlement Commission's jurisdiction is confined to matters covered by a settlement application made by an applicant and does not extend to allowing interventions by other taxpayers. The court held that the Settlement Commission acted within its jurisdiction and did not violate principles of natural justice.

3. Legality of the Order Passed by the Settlement Commission Under Section 245D(4) of the Income Tax Act, 1961:
The petitioner argued that the Settlement Commission's order was bad in law as it excluded certain income of respondent No.5, attributing it to the petitioner without hearing him. The court reviewed the provisions of Section 245D(4) and noted that the Settlement Commission has the authority to pass orders deemed fit in accordance with the Act. The court found that the Settlement Commission had refrained from making any findings about the taxability of the unaccounted receipts in the hands of the petitioner and had left it to the Department to complete proceedings under Section 148. The court held that the Settlement Commission's order was legal and did not warrant interference.

4. The Petitioner's Right to be Heard and Intervene in the Proceedings Before the Settlement Commission:
The petitioner contended that he was not given an opportunity to be heard by the Settlement Commission, which led to the issuance of notices under Section 148. The court emphasized that the Settlement Commission's proceedings are not in the nature of appeals and do not permit interventions by other taxpayers. The court referred to the Settlement Commission's observation that the Department is free to initiate proceedings under Section 148 based on available information, following due legal provisions. The court concluded that the petitioner should file a return and seek reasons/documents for the notices, and the Assessing Officer should pass a speaking order after considering the petitioner's objections.

Conclusion:
The court dismissed the petition, holding that the Settlement Commission's order and the notices issued under Section 148 were valid. The petitioner was advised to file a return and seek reasons for the notices, with the Assessing Officer required to pass a speaking order after considering the petitioner's objections. The court found no violation of natural justice or legal provisions in the actions of the Settlement Commission and the Assessing Officer.

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