2018 (7) TMI 225 - HC - Income Tax

Rejection of an application for settlement of case - short fall in payment of tax and interest - request for adjustment with refund amount was not considered - Held that - The application before the Settlement Commission contained all details and thus the Department which has to peruse the same and file a report as required under section 245D(2C) of the Act. The explanation offered by the Revenue stating that the petitioner has not specifically claimed the refund of ₹ 98,18,350/- is not acceptable, since the application has to be scrutinised as a whole and all details have to be verified for its correctness, more particularly, the details in Enclosure B of the application. Thus, I find that the application ought not to have been rejected on such technical ground, bearing in mind the object and purpose for which Chaper IIXA was inserted in the Income Tax Act. In the case on hand, a Supplementary Report was filed by the PCIT on 13.02.2018, to which the petitioner submitted his response pleading inadvertence and that he was under the bona fide belief that the refund claimed is yet to be processed given the short span of time after filing of his return of income. Settlement Commission is a forum before which the assessee surrenders himself and it is not a forum for challenging the legality of assessment order or other orders passed in any proceedings under the Act. The Scheme of the Act clearly shows that the power conferred on the Settlement Commission is wide, as it has the power to give immunity against prosecution or imposition of penalty. This court is of the view that the petitioner should be permitted to proceed further and for which purpose the petitioner should be given an opportunity to pay the tax. Writ petition is allowed, the impugned order is set side and the matter is remanded to the 1st respondent- Income Tax Settlement Commission, Additional Bench,Chennai for fresh consideration.

Summary

Issues Involved:
1. Validity of the rejection of the application by the Settlement Commission under Section 245D(2C) of the Income Tax Act, 1961.
2. Alleged failure to make full and true disclosure by the petitioner.
3. Consideration of inadvertent mistakes and bona fide belief in the settlement process.
4. The procedural fairness and decision-making process of the Settlement Commission.

Issue-wise Detailed Analysis:

1. Validity of the rejection of the application by the Settlement Commission under Section 245D(2C) of the Income Tax Act, 1961:
The petitioner challenged the order dated 16.02.2018 of the Settlement Commission, which treated the application as invalid due to a shortfall in tax and interest payment for the assessment years 2015-16 and 2016-17. The petitioner argued that the Settlement Commission had initially found the application fit to proceed under Section 245D(1) and that the rejection based on the supplementary report was unjust.

2. Alleged failure to make full and true disclosure by the petitioner:
The Settlement Commission's rejection was based on the supplementary report by the PCIT, which highlighted that a refund of ?98,18,350/- had already been issued to the petitioner for the assessment year 2016-17, and thus, the petitioner had not paid the full tax on the additional income. The petitioner contended that this was an inadvertent mistake and not a deliberate attempt to misrepresent facts.

3. Consideration of inadvertent mistakes and bona fide belief in the settlement process:
The petitioner argued that the mistake regarding the refund claim was unintentional and due to the previous Chartered Accountants' failure to inform him. The petitioner pleaded ignorance and sought pardon, emphasizing that the error should not be grounds for rejecting the application. The court noted that the Settlement Commission should consider such inadvertent mistakes, especially when the petitioner had enclosed all relevant details in the application.

4. The procedural fairness and decision-making process of the Settlement Commission:
The court observed that the Settlement Commission did not conduct an adequate enquiry into the supplementary report's claims. The PCIT's initial report did not mention the refund, and it was only brought to light later. The court referred to the case of M/s. Hatsun Agro Products Limited, where the Settlement Commission allowed the assessee to pay the sum despite a similar issue. The court emphasized the purpose of Chapter XIX A of the Act, which aims for expeditious settlement and avoiding prolonged litigation. The court found a flaw in the decision-making process of the Settlement Commission, as it did not investigate the petitioner's claim of inadvertent error adequately.

Conclusion:
The court held that the Settlement Commission's rejection of the application based on a technical ground was unjustified. The petitioner should be given an opportunity to pay the shortfall in tax and interest. The writ petition was allowed, the impugned order was set aside, and the matter was remanded to the Settlement Commission for fresh consideration. The Settlement Commission was directed to allow the petitioner to make good the shortfall within two weeks and proceed with the application on merits.