2019 (3) TMI 581 - HC - Income Tax

Settlement Commission Order - invalidation of application for settlement u/s 245D(2C) with retrospective effect - period of limitation - HELD THAT - Under Section 245D(2C) thus the Settlement Commission could declare an application for settlement invalid but such order has to be passed within prescribed time. In the present case the Settlement Commission to overcome such time limit passed an order giving it retrospective effect. If we recognize the powers of the Settlement Commission to pass such retrospective orders the time limits envisaged by the legislature at various stages of settlement proceedings would be destroyed. In the present case the order passed by the Settlement Commission left six days to the Assessing Office to complete the assessments. We wonder what would be the situation if the Settlement Commission had passed such an order six days later than it has done. Be that as it may we are clearly of the opinion that the Settlement Commission while giving retrospective effect to its order of invalidation it acted wholly without jurisdiction. Mr. Mistri may be justified in wondering if the Settlement Commission while passing order under Section 245D(4) of the Act in the same order could have given the declaration of invalidity of the application. Two things are however clear. One the Settlement Commission has done it and we cannot undo it; uncalled for. Second though it is a combined order of Settlement Commission in relation to the concerned assessment year the Settlement Commission has clearly exercised powers under Section 245D(2C) of the Act. Portion of the order of Settlement Commission giving retrospective effect to the declaration of invalidity of the settlement application is clearly severable from the main order of invalidity. While therefore striking down this illegal severable portion of the order we need not disturb the principle declaration made by the Settlement Commission.

Issues Involved:
1. Validity of the Settlement Commission's order under Section 245D(2C) of the Income Tax Act, 1961.
2. Retrospective effect of the Settlement Commission's order.
3. Limitation period for the Assessing Officer to complete the assessment.
4. Jurisdiction and authority of the Settlement Commission in passing retrospective orders.
5. Procedural compliance and opportunity for the applicant to be heard.

Detailed Analysis:

1. Validity of the Settlement Commission's Order Under Section 245D(2C):
The Income Tax Department challenged the Settlement Commission's order dated 31.5.2016, which declared the application for settlement by the respondent assessee as invalid for certain assessment years under Section 245D(2C) of the Income Tax Act, 1961. The Settlement Commission initially allowed the application to proceed further under Section 245D(2C) by an order dated 29.1.2015, stating that the Department had not raised any technical objections and the applicants had made a true and full disclosure.

2. Retrospective Effect of the Settlement Commission's Order:
The Settlement Commission later passed an order on 31.5.2016, excluding certain assessment years from the settlement due to 'Nil' or 'No disclosure of additional income.' This order was given retrospective effect from 29.1.2015. The High Court held that the Settlement Commission exceeded its jurisdiction by giving retrospective effect to its order. The Settlement Commission could not predate its order to 29.1.2015, as it lacked the authority to do so.

3. Limitation Period for the Assessing Officer to Complete the Assessment:
The retrospective effect of the Settlement Commission's order significantly impacted the limitation period available to the Assessing Officer for completing the assessment. If the effective date was taken as 29.1.2015, the Assessing Officer would have only six days left to complete the assessment, making it impossible to do so within the stipulated time. The High Court ruled that the order passed by the Settlement Commission on 31.5.2016 would take effect from that date, thus providing the Assessing Officer with the benefit of the exclusion from the limitation period.

4. Jurisdiction and Authority of the Settlement Commission in Passing Retrospective Orders:
The High Court emphasized that the Settlement Commission did not have the jurisdiction to give retrospective effect to its orders. The Settlement Commission could either refuse the request of the department or accept it, but it could not pass an order of invalidation with retrospective effect. The Court stated that recognizing the powers of the Settlement Commission to pass retrospective orders would destroy the time limits envisaged by the legislature at various stages of settlement proceedings.

5. Procedural Compliance and Opportunity for the Applicant to be Heard:
The High Court noted that under Section 245D(2C), the Settlement Commission could declare an application for settlement invalid only within the prescribed time and after giving the applicant an opportunity to be heard. The Settlement Commission's order dated 31.5.2016 did not comply with these procedural requirements, as it was passed beyond the prescribed time and without proper jurisdiction.

Conclusion:
The High Court set aside the retrospective effect of the Settlement Commission's order and held that the order passed on 31.5.2016 would take effect from that date. The Court recognized that the assessee might be justified in not challenging the order initially, but allowed the petitioner to raise any such challenge independently in light of the fundamental change brought about by this judgment. All petitions were disposed of accordingly.

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