2022 (7) TMI 558 - HC - Income Tax

Application for Income tax settlement rejected u/s 245D - submission of the learned senior counsel that as stipulated under sub-section (4) of Section 245D of the Act, sufficient opportunity was not afforded to the appellant and therefore, he prayed for remanding the matter back to the first respondent for fresh consideration - HELD THAT - The power of the High Court to interfere with the orders of the Settlement Commission is available when the commission has violated the procedures as prescribed under the Act which includes the grant of opportunity and the obligation to consider the materials before the Commission. Similarly, when there are no nexus between the findings and the decision by the Tribunal, the order can be interfered. These grounds are in addition to the grounds of violation of the principles of natural justice, jurisdictional errors, against the provision, bias, fraud and malice. It is also settled law that a writ of certiorari can be issued by the High Court under Article 226 of the Constitution of India, when an administrative or a quasi-judicial authority, in the decision making process considers irrelevant materials by ignoring the relevant materials to draw its conclusion, the order can be interfered with. In the case before us, the applications have been rejected by an order under 245D(4) for the reasons that the appellants have failed to truly and fully disclose the particulars and that they have not co-operated with the commission. There is no quarrel about the preposition that the failure to truly and fully disclose the particulars and the manner of derivation of the additional income is the primordial requisite for an application to be entertained. In the present case, the Learned Senior Counsel for the appellants has, referring to the applications, annexures and other particulars filed before the commission, contended that the appellants have truly and fully disclosed all the particulars within their knowledge and also the manner in which the additional income has been derived and that satisfies the requirements under Sections 245C and 245D of the Act. What constitutes true and full disclosure in the context of Chapter XIX-A is to be explored before we proceed further. An assessee is entitled to approach the settlement Commission only when there is an undisclosed income that escaped assessment or that has not been disclosed in the returns. The very purpose and the circumstances under which the provisions were introduced has been traced in paragraph 11. The commissioner also for the purpose of furnishing his report, cannot deviate from the scheme of Chapter XIX-A and do an assessment. Therefore, it is completely unnecessary and beyond the scope of the commission to find fault with the assessee for not disclosing the transaction earlier in the returns, while deciding an application under Section 245D. As the assessee is bound to disclose all the primary facts within his knowledge and produce the documents in support of the same. Chapter XIX-A contemplates an order by settlement unlike chapter XIV which contemplates regular assessment proceedings. The scope of enquiry under Chapter XIX-A is restricted to true and full disclosure, co-operation with the commission and the disclosure of the mode of income. The disclosure as contemplated under scheme is true and full when that is not tainted with fraud or misrepresentation. What is to be seen is whether the materials produced are enough to subjectively satisfy oneself to the limited scope of enquiry for settlement. It is sufficient that the assessee discloses all the primary facts. once, the primary facts relating to undisclosed income now disclosed before the commission, additional income and the manner in which the additional are derived disclosed with materials, it satisfies the requirement of full and true disclosure. The applicant cannot be burdened with the responsibility to satisfy all the inferences that are drawn by the commissioner or the commission. Considering the nature of the scheme, that also is not the intention of the legislature. In the present case, even if we go by the date on which the earlier order was set aside by this Court remanding back the application to be decided afresh, the time to pass orders would expire on 31.12.2017. The commission had sufficient time to grant a reasonable opportunity after the report was served on 23.11.2017. There are no provision in the rules by which any time is fixed for the assessee to submit his objections to the report under section 245D(3). When no time is prescribed a reasonable time must be granted to the assessee. To a report under Rule 9, the assessee is granted 15 days time under Rule 9A to submit his objections, which in the opinion of this court is a reasonable period. The period of 3 days granted by the commission is not a reasonable period, more particularly when the commissioner has been allowed to file a report after the statutory period - as per Section 245D (4), it is mandatory grant a personal hearing after receipt of the report under sub-section 3, which in the present case was not granted. Hence, the procedure contemplated under the Act is violated. The judgment relied upon by the Learned Senior Counsel for the appellants in Automotive tyre manufacturers Association v. Designated Authority and others, 2011 (1) TMI 7 - SUPREME COURT is squarely applicable. When the provisions lay down that a particular procedure is to be followed, there cannot be any deviation from the same. It is needless to state that the date for personal hearing is to be fixed after the objections are filed by the assessee. We have no hesitation to hold that the order has been passed in violation of the principles of natural justice and against the procedures as prescribed under the Income Tax Act and hence, the order is liable to be set aside and the matter is remanded back for fresh consideration after giving opportunity to both the parties. Whether the Interim Board can now decide the matter? - In the case before us, the order of the Settlement Commission rejecting the applications has been passed on 06.12.2017, the challenge to the same was accepted by this Court. The writ petitions were pending, when the Settlement Commission was abolished and Interim Board was brought into operation This court is of the view that the restrictive circumstances under which an Interim Board can entertain an application is applicable, only when an application is filed afresh or pending and not applicable to cases, where the High Court in exercise of its powers under Article 226 of the Constitution of India, set asides an earlier order and remands back the matter for fresh consideration. The powers of the High Court which emanate from the Constitution, cannot be curtailed by a law made by the legislature, such law being subordinate to the Constitution. It is not out of place to mention here that it is evident from the press release which was followed by the order dated 28.09.2021, various High Courts had earlier issued directions to entertain the applications for settlement and such applications were also entertained. While so, the contention of the counsel for the department that the interim board cannot entertain the old application, cannot be accepted. Upon the matter being remanded, the applications filed by the Appellants would have to be treated as pending applications and appropriate orders are to be passed after giving the appellants sufficient opportunity and by considering all the materials placed by them. The Interim Board shall dispose of the applications within a period of six weeks from the date of receipt of the order, on merits and in accordance with law, after giving sufficient opportunity to the appellants and the respondents. In view of the above, the orders impugned in the writ petitions as well as in the present writ appeals, are set aside

Summary

Issues Involved:
1. Jurisdiction and Maintainability of Settlement Applications
2. Compliance with Principles of Natural Justice
3. Full and True Disclosure Requirement
4. Powers and Functions of the Settlement Commission
5. Scope of Judicial Review by High Court
6. Impact of Abolishment of Settlement Commission and Formation of Interim Board

Issue-Wise Detailed Analysis:

1. Jurisdiction and Maintainability of Settlement Applications:
The appellants filed writ petitions seeking a Writ of Certiorarified Mandamus to quash the orders rejecting their applications under Section 245C of the Income Tax Act, 1961, on the grounds that the Settlement Commission lacked jurisdiction due to the Black Money Act, 2015. The court noted that the applications were initially rejected because the Settlement Commission believed it lacked jurisdiction under the Black Money Act. However, this court had previously set aside the rejection and directed the applications to be reconsidered. The Settlement Commission later rejected the applications again under Section 245D(4), which led to the current appeals.

2. Compliance with Principles of Natural Justice:
The appellants argued that the Settlement Commission's rejection of their applications violated the principles of natural justice. They contended that they were not given sufficient time to respond to the Principal Commissioner of Income Tax's report, which was served on them on 23.11.2017 with a deadline to respond by 27.11.2017. The court emphasized that the Settlement Commission must grant a reasonable period for the appellants to respond and that the appellants were not afforded a personal hearing as required under Section 245D(4). The court found that the Settlement Commission's procedure violated the principles of natural justice and the statutory requirements under the Income Tax Act.

3. Full and True Disclosure Requirement:
The court examined whether the appellants made a "full and true disclosure" of their income as required under Section 245C. The appellants contended that they disclosed all primary facts and provided documentary evidence. The court referred to precedents stating that full and true disclosure involves disclosing all primary facts necessary for assessment, but does not extend to inferences or legal conclusions. The court found that the appellants had disclosed all primary facts and that any additional information provided during the proceedings did not constitute new disclosures but were clarifications or supplementary details.

4. Powers and Functions of the Settlement Commission:
The court discussed the powers and functions of the Settlement Commission under Chapter XIX-A of the Income Tax Act, emphasizing that the Commission's role is to facilitate the settlement of tax disputes by ensuring full and true disclosure of income by the assessee. The court noted that the Settlement Commission's powers include examining the records, calling for reports, and conducting further inquiries if necessary. However, the Commission must adhere to the principles of natural justice and provide sufficient opportunities for the assessee to respond to any reports or findings.

5. Scope of Judicial Review by High Court:
The court outlined the scope of judicial review under Article 226 of the Constitution, stating that it can intervene if there is a jurisdictional error, violation of principles of natural justice, or if the decision is based on no evidence or irrelevant considerations. The court emphasized that it does not act as an appellate authority but can quash decisions that are procedurally flawed or violate statutory provisions. The court found that the Settlement Commission's decision in this case was procedurally flawed and violated the principles of natural justice.

6. Impact of Abolishment of Settlement Commission and Formation of Interim Board:
The court addressed the impact of the Finance Act, 2021, which abolished the Settlement Commission and established an Interim Board for Settlement. The court noted that the Interim Board has the authority to consider pending applications and that the appellants' applications should be treated as pending due to the procedural violations in the Settlement Commission's decision. The court directed the Interim Board to reconsider the applications on merits, following the principles of natural justice and statutory requirements.

Conclusion:
The court set aside the orders of the Settlement Commission and the learned Judge, remanding the matter back to the Interim Board for fresh consideration. The Interim Board was directed to dispose of the applications within six weeks, ensuring compliance with the principles of natural justice and statutory provisions. The court emphasized that the appellants must be given sufficient opportunity to present their case and respond to any reports or findings.