2017 (5) TMI 988 - HC - Income Tax

Abatement of proceeding before Settlement Commission - recovery of demand - Held that - Section 245 HA (2) makes no distinction between instances where an order has already been passed by the authority before whom the proceedings were pending on the date of the making of the application before the ITSC and a situation where no such order has been passed. It does not state, that the revival of the proceedings by assuming that no application had been filed under Section 245C of the Act as a result of the abatement of such application, would take place only where no order had already been passed by the income tax authorities before whom such proceedings were pending. The expression shall be disposed of in Section 245 HA (2), when viewed in the context of the entire provision together with Section 245 HA (3), cannot but be interpreted to mean a futuristic action. The option available to the AO or other authority to look into materials, by reviving the proceedings that were pending, that were not earlier available but emerged during the proceedings before the ITSC cannot be foreclosed. The net result is that notwithstanding that the AO in the present case may have passed assessment orders on 28th March 1995, in relation to the aforementioned AYs in respect of which a demand notice has been served on the Petitioner, the proceedings before the AO should be held to have revived on the date of the abatement of the Petitioner s application before the ITSC, i.e., 31st March, 2008. As rightly pointed out by the Petitioner the AO is bound thereafter to pass fresh orders disposing of the assessment proceedings in accordance with the law. For the reasons best known to the AO, such order was passed only in respect of one AY, i.e. 1993-94 and for the other AYs a demand notice was served by treating the assessment orders dated 28th March, 1995 as still being valid. That was plainly a mistake and was impermissible in terms of Section 245 HA (2) of the Act. Thus the Court has no hesitation in setting aside the assessment orders dated 28th March 1995 passed in respect of the AYs 1986-87; 1989-90 & 1992-93 and the proceedings for recovery of demand raised on the basis of such assessment orders.

Summary

Issues Involved:
1. Validity of the assessment orders dated 28th March 1995.
2. Effect of abatement of proceedings before the Income Tax Settlement Commission (ITSC) under Section 245 HA of the Income Tax Act, 1961.
3. Requirement for the Assessing Officer (AO) to pass fresh assessment orders post-abatement.
4. Legality of the recovery of demand based on the assessment orders dated 28th March 1995.

Detailed Analysis:

1. Validity of the assessment orders dated 28th March 1995:
The core issue was whether the assessment orders passed by the AO on 28th March 1995, during the pendency of the Petitioner’s application before the ITSC, were valid. The AO acknowledged the pendency of the application but proceeded with the assessments ex parte due to the case being "barred by limitation." The Court found that these assessment orders were not valid after the abatement of the ITSC proceedings.

2. Effect of abatement of proceedings before the ITSC under Section 245 HA:
The proceedings before the ITSC abated on 31st March 2008, as no final order was passed by the ITSC by that date. Section 245 HA (2) mandates that the AO must dispose of the case as if no application under Section 245C had been made. This implies that the AO should treat the proceedings as pending and proceed afresh, using any material from the ITSC proceedings as per Section 245 HA (3).

3. Requirement for the AO to pass fresh assessment orders post-abatement:
After the abatement, the AO was required to pass fresh assessment orders for the relevant assessment years (AYs) as if the application before the ITSC had never been filed. The Court emphasized that the AO’s failure to pass fresh orders for AYs 1986-87 to 1992-93, except for AY 1993-94, was a mistake and impermissible under Section 245 HA (2).

4. Legality of the recovery of demand based on the assessment orders dated 28th March 1995:
The Court held that the recovery of demand based on the assessment orders dated 28th March 1995 was not permissible. The AO should have passed fresh assessment orders post-abatement, and the reliance on the 1995 orders for recovery was incorrect. The Court set aside the assessment orders dated 28th March 1995 and the consequential recovery proceedings.

Conclusion:
The Court allowed the writ petition, setting aside the assessment orders dated 28th March 1995 for AYs 1986-87, 1989-90, and 1992-93, and the recovery of demand based on these orders. The AO was required to pass fresh assessment orders post-abatement, and the reliance on the old orders was deemed impermissible. The writ petition was allowed without any order as to costs.