2022 (6) TMI 845 - HC - Income Tax

Validity of order of Settlement Commissioner - scope of judicial review under Article 226 against an order made by the Settlement Commissioner under Section 245C - remand for re-verification by the Settlement Commissioner of advances - HELD THAT - In Jyothindra Singhji case 1993 (4) TMI 1 - SUPREME COURT , the Supreme Court has held that the scope of the enquiry whether by the High Court under Article 226 or before the Supreme Court in the appeal under Article 136 remains the same viz. to consider whether the order of the Settlement Commissioner is contrary to the provisions of the Income Tax Act, and if so whether it has prejudiced the petitioner. This is, of course, apart from grounds of lies, fraud and malice which constitute a separate and independent category. A reading of the judgment under appeal discloses that the principle in Jyothindrasinghji is applied by the learned Single Judge in appreciating whether the settlement in Ext.P1 is in accordance with the provisions of the Act or not. Om Prakash Mithal case 2005 (2) TMI 16 - SUPREME COURT lays down the object and procedure followed by the Commission in applications arising under Section 245D The procedure followed by the Settlement Commission in the case on hand in appreciating the advances, CFS etc. definitely desires a sort of consideration in accordance with the provisions of the Act. Ext.P1 tested on the principles enunciated by the Supreme Court in the case of Om Prakash Mithal the deficiency noted by the judgment under appeal is correct. The judgment of the Karnataka High Court in N.Krishnan case 1989 (3) TMI 77 - KARNATAKA HIGH COURT has stated that the scope of the judicial review is available where there is no nexus between the reasons given and the decision taken. In the case on hand, Ext.P1 could be held to be as not assigning reasons or reflecting the mind of the Settlement Commission for accepting the case of the appellants. The remand is justified in the circumstances of the case. We are also of the view that the scope of judicial review is relatable to the issues on hand both in fact and law in matters arising under Secs.245C 245D. It is not safe or suggested to convert the scope of judicial review into an abstract application of mathematical principle on abstract reasons and decide a core issue in the matter. The scope of judicial review is certainly a dynamic jurisdiction dependant on the circumstances of each case. In the case on hand the learned Single Judge has objectively and within the scope of review available under Article 226 against the orders made by the Settlement Commission, rightly interdicted and remitted the matter to the Settlement Commission. In the instant intra court appeal, we see no error of jurisdiction in the judgment under appeal. The appeal fails and dismissed.

Summary

Issues Involved:

1. Legality of the advances taken by the appellants from others as per the provisions of the Income Tax Act.
2. Scope of judicial review under Article 226 against an order made by the Settlement Commissioner under Section 245C of the Income Tax Act.
3. Whether the Settlement Commissioner's order was obtained by fraud or misrepresentation of facts.

Issue-wise Detailed Analysis:

1. Legality of Advances Taken by the Appellants:

The appellants filed an application for settlement under Section 245C of the Income Tax Act for the block period from 1.4.1990 to 25.4.2000. The Settlement Commissioner accepted the application and determined the terms for settlement of tax payable by the assessee. The primary issue contested was the advances taken by the appellants amounting to Rs.3,54,59,150/-, later revised to Rs.4,13,52,150/-. The Commissioner of Income Tax (CIT) in the Rule-9 report stated that the details of the loan creditors were not furnished, making it impossible to verify the creditworthiness of the loans. Despite this, the Settlement Commissioner accepted the appellants' case without adding any amount to their income, stating, "We have considered the submissions and we are of the view that no addition is called for on this account."

2. Scope of Judicial Review under Article 226:

The respondent challenged the Settlement Commissioner's order, and the learned Single Judge set aside the order and remitted the matter for fresh consideration. The Single Judge held that the Settlement Commission had accepted the advances claimed by the appellants without any discussion or reasoning, merely referring to the CIT's report. The judgment referenced the Supreme Court's decision in CIT v Om Prakash Mittal, which emphasized that the Settlement Commission must provide reasons for its conclusions and that an order obtained by misrepresentation of facts could be voided. The Single Judge concluded that the Settlement Commission had not properly considered the issue of the genuineness of the advances and remitted the matter for reconsideration.

3. Whether the Settlement Commissioner's Order Was Obtained by Fraud or Misrepresentation:

The appellants argued that the scope of judicial review under Article 226 is limited and that the Single Judge had overstepped by remitting the matter to the Settlement Commission. They cited several judgments, including Jyotendrasinhji v S.I.Tripathi and others and Commissioner of Income Tax v Om Prakash Mittal, to support their claim that the Settlement Commission's order should not be easily interfered with. However, the respondent contended that the Settlement Commission had failed to verify the creditworthiness of the loans and that the acceptance of the appellants' claims without proper scrutiny was not in accordance with the provisions of the Act. The court noted that the Settlement Commission's power of settlement must be exercised in accordance with the Act and that any order obtained by fraud or misrepresentation of facts could be voided.

Conclusion:

The court upheld the Single Judge's decision to remit the matter to the Settlement Commission, stating that the Settlement Commission had not provided adequate reasons for accepting the appellants' claims and had failed to properly consider the issue of the genuineness of the advances. The court emphasized that the scope of judicial review under Article 226 includes ensuring that the Settlement Commission's orders are in accordance with the provisions of the Income Tax Act and that any order obtained by fraud or misrepresentation of facts can be voided. The appeal was dismissed, and the matter was remitted to the Settlement Commission for fresh consideration.