2008 (2) TMI 401 - HC - Income Tax

Legislature has contemplated complexity of different nature in Sections 142(2A) and 245D of the Act. The expression used in Section 142(2A) of the Act is complexity of the accounts of the assessee whereas in Section 245D(1) the expression is complexity of the investigation. Though the word complexity is common in both these provisions it does not automatically follow that the respective authorities exercising their powers under these two different provisions have to take into consideration the same materials while taking their decision - The date of the order of rejection of the petitioners application is 31-5-2007. It was despatched to the petitioners under the cover of a letter dated 12th June 2007. The petitioners claim to have received this communication on 14-6-2007 held that the date of order shall remain as 31-5-2007 Deviation from established procedure if not fatal or prejudice to assessee the same can not make the proceedings liable to be dismissed..

Issues Involved:
1. Admissibility of the settlement application under Section 245D(1) of the Income Tax Act.
2. Consideration of the Rule 6 report and the detailed report of the Assessing Officer.
3. Opportunity of hearing to the Income Tax authorities at the admission stage.
4. Complexity of investigation versus complexity of accounts.
5. Impact of delayed communication of the order on the applicability of amended Section 245D(2A).

Detailed Analysis:

1. Admissibility of the settlement application under Section 245D(1) of the Income Tax Act:
The petitioners challenged the rejection of their settlement application for three assessment years (2004-05, 2005-06, and 2006-07) by the Settlement Commission. The Commission rejected the application on the grounds that the disputes were well-identified and did not involve any complexity warranting settlement. The petitioners argued that the Commission should have admitted the application based on the Commissioner's recommendation in the Rule 6 report, which deemed the application suitable for settlement.

2. Consideration of the Rule 6 report and the detailed report of the Assessing Officer:
The petitioners contended that the Settlement Commission should have considered only the Rule 6 report and not the detailed report of the Assessing Officer, which was annexed to the Rule 6 report. The Court, however, held that the Settlement Commission could consider the entire report of the Assessing Officer as it was made part of the Rule 6 report. The Commission is not bound by the Commissioner's recommendation and can independently assess the materials contained in the report.

3. Opportunity of hearing to the Income Tax authorities at the admission stage:
The petitioners argued that the Income Tax authorities should not have been given an opportunity of hearing at the admission stage of the settlement application. The Court noted that Section 245D(1) does not provide for such a hearing, except for the applicant if the application is to be rejected. However, the Court found that the deviation from the prescribed procedure did not cause grave prejudice to the petitioners, as the materials considered by the Settlement Commission were legitimate.

4. Complexity of investigation versus complexity of accounts:
The petitioners argued that the proposal for a special audit under Section 142(2A) indicated complexity of accounts, which should have been considered as complexity of investigation under Section 245D(1). The Court held that the terms "complexity of accounts" and "complexity of investigation" have different implications and are considered for different purposes by the respective authorities. The Settlement Commission is an independent authority and must come to its own findings regarding the complexity of investigation.

5. Impact of delayed communication of the order on the applicability of amended Section 245D(2A):
The petitioners claimed that the date of communication of the order (14th June 2007) should be considered the date of the order, making them eligible for the benefits of the amended Section 245D(2A). The Court rejected this argument, stating that an order comes into existence on the date it is passed (31st May 2007), and delayed communication does not alter the date of the order.

Conclusion:
The Court dismissed the writ petition, holding that the Settlement Commission did not act contrary to the provisions of the statute and no grave prejudice was caused to the petitioners. The deviation in procedure, while giving an opportunity of hearing to the Income Tax authorities, was not deemed fatal to the impugned order. The interim orders were dissolved, and no costs were awarded.

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