2022 (8) TMI 385 - HC - Income Tax

Application before the settlement commission - Power of Settlement Commission to reopen completed proceedings - settlement application filed by the appellant was rejected by the second respondent commission by order u/s 245D(4) on the ground that the appellant has not disclosed the full and true income in its application and hence, the same is not maintainable - HELD THAT - Admittedly, one can approach the settlement Commission only when there is an undisclosed income that escaped assessment. Therefore, it is completely unnecessary and beyond the scope of the commission to find fault or with the modus operandi of the assessee in arranging their tax liability, while deciding an application under Section 245D. In the present case, we are satisfied that the assessee has fully disclosed all the primary facts and produced the documents in support of the same. At the cost of repetition, all the materials placed before the Commission are to be considered as per Section 245D (5). Therefore, we do not agree with the finding of the settlement commission that there is no full and true discloure of the income by the appellant and hence, the application is not maintainable. It is relevant to point out that no new materials were produced by the department to enable the settlement commission to take a different view that there was no true and full disclosure. Rather, the department and the settlement commission have embarked upon to alter their earlier view or inference, which cannot be a reason to thwart the application as not maintainable. The paradox in the functioning of settlement commission, comprising of senior members from the department, deviating from the neutrality of a quasi-judicial authority, would have invited our much attention if it had not been abolished and replaced with interim board. We have no hesitation to hold that the order of the settlement commission has been passed in violation of the principles of natural justice and against the procedures prescribed under the Income Tax Act and hence, the same 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? - It is necessary to briefly take note of the relevant dates. The application before the settlement commission was filed on 02.03.2015. The order under section 245D(1) was passed by the settlement commission on 03.03.2015. After taking note of the reports filed by the department, the settlement commission rejected the application as not maintainable on 30.09.2016. The writ petition was filed before this Court in October 2016 and the same was dismissed on 03.09.2021. In the meantime, by Finance Act 2021, Sections 245A and 245B were amended by which the Settlement Commission ceased to exist, and interim Board was substituted. The Amendment Act came into force on 01/04/2021. By the amended provisions, initially, the Interim Board was entitled to entertain only applications which were pending. By the amendment, it was made clear that no application will be entertained after 01.02.2021. Thereafter, the Central Government has constituted Interim Board for Settlement vide Notification no. 91 of 2021 dated 10.08.2021. The said press release was issued after several High Courts issued directions to entertain the applications for settlement. It was further stated that the assessees, who were eligible to file an application as on 31.01.2021 and where assessments are pending, would be eligible to file their application till 30th September 2021. It was also made clear that the applications filed by the assessees based on the directions of the High Courts would be entertained. Following the press release, an order under Section 119 (2) (b) of the Act came to be passed. The above order has been issued by exercising the powers under Section 119 in line with the press release dated 07.09.2021. In the present case, pending the assessment proceedings relating to the assessment years from 2007-08 to 2014-15, the appellant filed the settlement application, which was rejected by the Settlement Commission on 30.09.2016, the challenge to the same was accepted by this Court. The writ petition was 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. Upon the matter being remanded, the application filed by the Appellant would have to be treated as a pending application and appropriate orders are to be passed after giving the appellant sufficient opportunity and by considering all the materials placed by them. Therefore, this court has no hesitation in remanding back the matter to the Interim Board, which shall dispose of the application within a period of six weeks from the date of receipt of this order on merits and in accordance with law, after giving sufficient opportunity to the appellant and the respondents and also by considering all the documents placed. This appeal stands allowed by setting aside the order impugned in the writ petition as well as in this appeal.

Summary

Issues Involved:
1. Validity of the Settlement Commission's order rejecting the appellant's application.
2. Alleged bias of the Vice Chairman of the Settlement Commission.
3. Procedural violations and principles of natural justice.
4. Claim under Section 80IB of the Income Tax Act.
5. Jurisdiction of the Interim Board to entertain the application post-abolition of the Settlement Commission.

Detailed Analysis:

1. Validity of the Settlement Commission's Order:
The appellant challenged the order dated 30.09.2016 by the Settlement Commission, which rejected their application on the grounds of non-disclosure of full and true income. The court observed that the Settlement Commission had relied on a detailed report filed by the assessing officer on 29.09.2016 without providing the appellant an opportunity to respond. This was viewed as a violation of natural justice. Additionally, the court noted procedural irregularities in the conduct of the proceedings by the Settlement Commission.

2. Alleged Bias of the Vice Chairman:
The appellant contended that the Vice Chairman of the Settlement Commission, who was previously the Director General of Income Tax (Investigation) during the investigation against the appellant, should have recused himself to avoid conflict of interest. The court referred to the legal maxim "nemo judex in sua causa debet esse" (no one should be a judge in his own cause) and cited relevant case laws to highlight the necessity of impartiality. The court found that the Vice Chairman's involvement raised a reasonable likelihood of bias, thus vitiating the proceedings.

3. Procedural Violations and Principles of Natural Justice:
The court emphasized the importance of adhering to the principles of natural justice, including providing adequate opportunity to the appellant to respond to reports and findings. The Settlement Commission's failure to provide such an opportunity and the procedural deviations were deemed to have violated the appellant's right to a fair hearing. The court underscored that the Settlement Commission must consider all materials and provide a fair opportunity for rebuttal before making a decision.

4. Claim under Section 80IB of the Income Tax Act:
The appellant's claim under Section 80IB was a significant point of contention. The court noted contradictions in the Settlement Commission's findings regarding the new unit and the claim under Section 80IB. The appellant had provided evidence supporting their claim, but the Settlement Commission dismissed it without proper consideration. The court found this approach to be unfair and unsupported by the evidence presented.

5. Jurisdiction of the Interim Board:
With the abolition of the Settlement Commission and the establishment of the Interim Board, the court examined whether the Interim Board could entertain the appellant's application. The court referred to the press release and subsequent order under Section 119 (2) (b) of the Act, which allowed applications to be filed until 30.09.2021. The court concluded that the Interim Board has the jurisdiction to entertain the application upon remand, treating it as a pending application.

Conclusion:
The court allowed the appeal, setting aside the impugned order of the Settlement Commission and the learned Judge. The matter was remanded to the Interim Board for fresh consideration, directing it to dispose of the application within six weeks, ensuring adherence to the principles of natural justice and proper consideration of all materials.