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2016 (1) TMI 1526 - HC - Income TaxOrder passed u/s 245D(4) settling the Petitioner s application for settlement - proceedings for rectification of the order - petitioner s request for installment payments requested which leads to filing of a rectification application - scope of personal hearing - HELD THAT - We are unable to understand how an application for rectification of orders passed by the Settlement Commission can be disposed of by the Secretary of the Commission who would have no role to play in passing of the orders which was sought to be rectified. It is for the Commission to consider the applications which are filed before it seeking the modification or rectification of the orders passed by it and same cannot be outsourced by the Commission to its Secretary. The Commission is composed of persons who are not only of highest integrity but also of outstanding ability having special knowledge with regard to the issues relating to direct taxes and business accounts (see Section 245B(3) of the Act). It is the aforesaid abilities of the members of the Commission which has to be brought into play while disposing of the applications for Settlement made to the Commission as also applications of rectification / modification of its orders. This has admittedly been not done in this case as the Petitioner s application for rectification has been disposed of by the Secretary of the Commission. We set aside the orders being the order passed on Petitioner s rectification application u/s 245(D)(6B) of the Act as it is an order passed not only without hearing the Petitioner but also without recording any reasons why the rectification application made by the Petitioner is not being allowed in its entirety. Similarly we also set aside the Communication addressed by the Secretary of the Commission informing the Petitioner that the rectification application is dismissed as there is no mistake apparent from the record in the order dated 20th October 2015. This Communication dated 28th December 2015 of the Commission is completely without jurisdiction and thus void. Therefore set aside.
1. ISSUES PRESENTED and CONSIDERED
(a) Whether the Income Tax Settlement Commission's order dated 27th August, 2015 under Section 245D(4) of the Income Tax Act, 1961 (the Act) settling the petitioner's application was valid and properly passed. (b) Whether the rectification order dated 20th October, 2015 under Section 245D(6B) of the Act, which purported to rectify the order dated 27th August, 2015, was valid, especially in light of the petitioner's request for payment of tax dues in four quarterly installments. (c) Whether the subsequent rectification application dated 23rd October, 2015 filed by the petitioner was properly considered and disposed of by the Secretary of the Commission by communication dated 28th December, 2015, and whether such disposal was within jurisdiction. (d) Whether the Revenue's counsel's statement on 17th December, 2015 that the rectification application dated 23rd October, 2015 had already been disposed of was correct, and if not, what consequences arise from the incorrect statement. (e) Whether the Deputy Commissioner of Income Tax's notice dated 8th January, 2016 seeking recovery of amounts under the order dated 27th August, 2015 as modified was valid and enforceable pending disposal of rectification applications. (f) Whether a personal hearing is mandatory before passing an order on a rectification application under Section 245D(6B) of the Act, particularly where the rectification order modifies the liability or payment terms. (g) Whether the petitioner's challenge to the original settlement order dated 27th August, 2015 can be considered at the current stage or should await disposal of rectification applications. 2. ISSUE-WISE DETAILED ANALYSIS (a) Validity of the Settlement Commission's Order dated 27th August, 2015 under Section 245D(4) The petitioner's original settlement application was disposed of by the Commission on 27th August, 2015 under Section 245D(4) of the Act. The petitioner contended that during the hearing, it had requested payment of any additional tax liability in four quarterly installments, but this submission was omitted from consideration in the order. This omission led to the filing of a rectification application dated 25th September, 2015. The Court noted that the order dated 27th August, 2015 did not address the petitioner's request for installment payments, which was a material aspect of the petitioner's application. The omission was thus a "mistake apparent from record" as contemplated under Section 245D(6B) of the Act. The petitioner's challenge to the substantive correctness of the order dated 27th August, 2015 was not decided at this stage and was left open for consideration after disposal of rectification applications. (b) Validity and Scope of the Rectification Order dated 20th October, 2015 under Section 245D(6B) The Commission passed an order on 20th October, 2015 purportedly rectifying the order dated 27th August, 2015. The order acknowledged the petitioner's request for installment payments but granted four monthly installments instead of the quarterly installments sought. Importantly, this order was passed without hearing the petitioner and without considering the reasons for the requested quarterly installments. The Court emphasized that Section 245D(6B) allows rectification of "mistakes apparent from record," but the rectification must be done with due process, including hearing the petitioner, particularly where the rectification affects payment terms or liability. The Revenue argued that under the second proviso to Section 245D(6B), personal hearing is required only if the rectification order modifies liability. The Court observed that this proviso was introduced as a cautionary measure to prevent suo-moto corrections affecting liability without hearing. However, the Court held that where facts indicate potential injustice, a personal hearing is necessary even if liability is not modified. The Revenue's contention that extension of payment time does not amount to modification of liability was not pressed in this case. Consequently, the Court set aside the order dated 20th October, 2015 for being passed without hearing and without reasons recorded for rejecting the petitioner's request for quarterly installments. (c) Jurisdiction and Validity of the Communication dated 28th December, 2015 by the Secretary of the Commission The petitioner's further rectification application dated 23rd October, 2015 was disposed of by a communication dated 28th December, 2015 issued by the Secretary of the Commission, rejecting the application on the ground that there was no mistake apparent from record in the order dated 20th October, 2015. The Court found this to be a grave procedural irregularity. The Secretary of the Commission has no jurisdiction to dispose of rectification applications which are to be decided by the Commission itself, composed of persons with special knowledge and integrity under Section 245B(3) of the Act. The disposal of the rectification application by the Secretary was held to be ultra vires and void. The Court accordingly set aside the communication dated 28th December, 2015 and directed that the Commission itself must hear and decide the rectification application. (d) Incorrect Statement by Revenue's Counsel on 17th December, 2015 At the hearing of Writ Petition No.11613 of 2015, the Revenue's counsel stated that the rectification application dated 23rd October, 2015 had already been disposed of by the Commission. The Court found this to be factually incorrect as the rectification application was only disposed of on 28th December, 2015 by the Secretary, not by the Commission, and after the date of the statement. The Court directed the Vice Chairman of the Commission to conduct an enquiry to fix responsibility for the incorrect instructions given to the Revenue's counsel and to investigate whether there was any basis for the incorrect statement. The enquiry report was to be filed by 25th February, 2016. The Revenue's counsel was directed to cooperate with the enquiry. (e) Validity of the Deputy Commissioner's Recovery Notice dated 8th January, 2016 The Deputy Commissioner of Income Tax issued a notice on 8th January, 2016 seeking recovery of amounts due under the order dated 27th August, 2015 as modified by the rectification order dated 3rd October, 2015. The Court quashed and set aside this recovery notice, holding that coercive recovery proceedings could not be initiated pending disposal of the rectification applications. The Court further restrained the Revenue from adopting coercive proceedings for two weeks from the date of communication of the Commission's order on the rectification application. (f) Requirement of Personal Hearing Before Passing Rectification Orders under Section 245D(6B) The Court examined the second proviso to Section 245D(6B), which mandates personal hearing only if the rectification order modifies liability. The Court interpreted this proviso as a measure of ex abundanti cautela, designed to prevent suo-moto corrections affecting liability without hearing. However, the Court held that where facts indicate a likelihood of injustice, a personal hearing is necessary even if the rectification does not modify liability per se. The petitioner's request for quarterly installments and the circumstances such as attachment of properties justified a personal hearing. The Court directed the Commission to grant personal hearing to the petitioner before passing a fresh order on the rectification application dated 25th September, 2015. (g) Consideration of Challenge to the Original Settlement Order The petitioner's substantive challenge to the original settlement order dated 27th August, 2015 was not adjudicated at this stage. The Court left the issue open for consideration after disposal of the rectification applications. 3. SIGNIFICANT HOLDINGS "It is for the Commission to consider the applications which are filed before it seeking the modification or rectification of the orders passed by it and same cannot be outsourced by the Commission to its Secretary." "The Commission is composed of persons who are not only of highest integrity but also of outstanding ability having special knowledge with regard to the issues relating to direct taxes and business accounts (see Section 245B(3) of the Act). It is the aforesaid abilities of the members of the Commission which has to be brought into play while disposing of the applications for Settlement made to the Commission as also applications of rectification / modification of its orders." "The order dated 20th October, 2015 has been passed without hearing the Petitioner and even does not consider the reasons for which the Petitioner sought payment of its dues by the quarterly installment made during the course of hearing under Section 245D(4) of the Act." "Prima facie, it appears that the second proviso has been incorporated only as a measure of ex abundanti cautela i.e. even mere corrections of arithmetical errors on the face of it should not be done by the Commission suo-moto, if it has the effect of modifying the liability. It does not prima facie do away with the hearing of a rectification application particularly where facts show that there is a likelihood of injustice in the absence of a hearing." "The Communication dated 28th December, 2015 of the Commission is completely without jurisdiction and thus void." "The Deputy Commissioner of Income Tax's notice dated 8th January, 2016 seeking to recover the amounts recoverable consequent to the orders dated 27th August, 2015 passed under Section 245D(4) of the Act as modified is also quashed and set aside." Final determinations:
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