2024 (12) TMI 825 - HC - Income Tax

Procedure for settlement of cases - jurisdiction to be exercised by this Court while dealing with challenges to orders passed by the Income Tax Settlement Commission - HELD THAT - This Court, in exercise of its jurisdiction under Article 226 of the Constitution of India, does not assume the role of an appellate authority to conduct a merit review of orders passed by the Settlement Commission. Its role is confined to one of judicial review, of the orders of the Settlement Commission, by applying the well-settled principles that inform the exercise of such a jurisdiction. Accordingly, this court would be concerned with the decision making process, adopted by the Commission, and not the decision itself. The scope of enquiry of this Court, in matters involving a challenge to orders passed by the Settlement Commission, is only to see whether the order of the Commission complies with the statutory provisions of Chapter XIX-A of the I.T. Act. Power of judicial review is not to be exercised to decide the issue on facts or on an interpretation of the documents available before the Court. In the instant case, therefore, the enquiry by this Court can only be with regard to whether or not the Settlement Commission exercised a jurisdiction that it did not have or, alternatively, if it did have the jurisdiction, whether it erred in the exercise of that jurisdiction. A defect that vitiates a settlement must be one that vitiates the whole and not merely any part of the settlement. In the spirit of settlement, and more so when the assessee does not choose to contest the rest of the terms of the settlement, the assessee cannot be permitted to contend so. A settlement partakes the nature of a negotiated contract, and there is always a certain give and take in every settlement. The test is to see whether on an overall assessment the parties to the settlement are satisfied. The settlement, must fail or succeed as a whole. A partial acceptance of a settlement is not envisaged under the I.T. Act, and the courts must defer to that scheme of statutory finality envisaged for settlement under the I.T. Act while exercising the jurisdiction of judicial review under Article 226 of the Constitution. We, therefore, see no reason to interfere with the impugned judgment of the learned Single Judge, and for the reasons stated in the said judgment as supplemented by the reasons in this judgment, the Writ Appeal fails, and is accordingly dismissed.

Issues Involved:

1. Legality of the Income Tax Settlement Commission's order regarding deemed dividend as undisclosed income.
2. Jurisdiction and scope of judicial review by the High Court over the Settlement Commission's orders.
3. Applicability of incriminating material requirement for additions in completed assessments.
4. Nature and scope of settlement proceedings under Chapter XIXA of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Legality of the Income Tax Settlement Commission's Order Regarding Deemed Dividend:

The appellant challenged the Settlement Commission's finding that certain loans availed by him were deemed dividends and should be treated as undisclosed income. The appellant, a majority shareholder in the companies, had availed loans during the relevant financial years. The Principal Commissioner recommended that these borrowings be considered as deemed dividends under Section 2(22)(e) of the Income Tax Act. The Settlement Commission confirmed the addition of these amounts as undisclosed income. The appellant argued that these loans were for business purposes and should not be treated as income. However, the court noted that the Settlement Commission's role is to settle disputes and not to adjudicate on the correctness of legal contentions typically raised in regular assessment proceedings.

2. Jurisdiction and Scope of Judicial Review by the High Court:

The court emphasized that its role under Article 226 of the Constitution is not to act as an appellate authority over the Settlement Commission's orders. The judicial review is limited to examining whether the Settlement Commission's order is contrary to the provisions of the Income Tax Act. The court referred to precedents establishing that the High Court should not interfere with the Commission's findings of fact or legal interpretations unless there is a grave error of law or a flagrant disregard for the Act's provisions. The court concluded that the Settlement Commission's order was not contrary to the Act, and thus, there was no ground for interference.

3. Applicability of Incriminating Material Requirement:

The appellant contended that no addition could be made in the absence of incriminating material in relation to completed assessments, citing a Supreme Court judgment. However, the court differentiated between regular assessment proceedings and settlement proceedings. It noted that the Settlement Commission's focus is on the disclosure of undisclosed income for settlement purposes, and not on the presence of incriminating material. The court found that the appellant's argument did not hold in the context of settlement proceedings, where the objective is to resolve disputes and not to conduct a detailed adjudication.

4. Nature and Scope of Settlement Proceedings:

The court discussed the scheme of Chapter XIXA of the Income Tax Act, which governs settlement proceedings. It highlighted that the Settlement Commission is not a regular tribunal and its function is to facilitate settlements, which are akin to statutory arbitration. The Commission's orders are final and conclusive, and the scope of judicial review is limited to ensuring compliance with statutory provisions. The court noted that the settlement process involves a "give and take" and must be accepted or rejected as a whole. The appellant's attempt to contest only part of the settlement was not permissible under the Act.

In conclusion, the court upheld the Settlement Commission's order and dismissed the writ appeal, finding no reason to interfere with the judgment of the learned Single Judge. The court reiterated that the settlement process is designed to bring finality to disputes and should not be dissected into parts for judicial review.

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