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2020 (11) TMI 69 - HC - Income TaxSettlement Application under Section 245C - DGIT jurisdiction to issue the SCN - Withdrawal of the approval under Section 10(23C) (iv) - ITSC rejected the said application under Section 245D(1) of the Act for non-payment of taxes on the additional income disclosed in the Settlement Application and did not allow the same to be proceeded with - jurisdiction of the DGIT to issue show cause notice (SCN), in view of the bar under Section 245F(2) of the Act and the powers of the DGIT to reopen the matters covered under the award of the ITSC - HELD THAT - The Trust had filed an application under Section 245C of the Act on 26.11.2012 and the same was allowed to be proceeded with under Section 245D(1) of the Act through an order dated 10.12.2012. At this stage, the DGIT had issued the SCN on 22.04.2013 proposing for withdrawal of the approval granted under Section 10(23C)(iv) of the Act, for the period AYs 2006-07 to 2011- 12. By virtue of Section 245F(2), the DGIT was not empowered to steps into the shoes of the ITSC and issue the show cause notice. One of the issue which was pending before the ITSC at that point of time against the Trust, was for violation of the conditions of Section 11/Section 10 (23C). While that being so, when the DGIT was clearly without jurisdiction to issue the SCN, there is no justification on his part to proceed further on the SCN and pass the impugned order. When the foundation to the entire proceedings culminating to the impugned order itself is illegal, the impugned order cannot be legally sustained. ITSC had dealt with the issues pertaining to suppression of income and anonymous donations, collection of unaccounted capitation fee, diversion of unaccounted capitation fee to relatives of founder and application of accounted income of trust to benefit the relatives of founder. When such issues have already been dealt and had become conclusive, Section 245I of the Act prohibits the DGIT to reopen the issues in any proceeding under the Act. On this ground also, the impugned order cannot be sustained. When the DGIT is wholly without jurisdiction to initiate proceedings for withdrawal of the approval under Section 10(23C) (iv) of the Act, the entire proceedings, culminating to the impugned order is illegal and therefore deserves to be quashed. Apart from lacking jurisdiction, the DGIT had grossly exceeded his powers while passing the impugned order by overruling the findings of the ITSC and rendering his opinion based on the materials which were available before the ITSC. DGIT had attempted to sit on appeal against the order of ITSC. While the DGIT is deemed to be an 'Income Tax Authority' for the purposes of the Act, by virtue of Section 116, the ITSC is a statutory body created under Section 245B of the Act. It is rather unfortunate that a high ranking official as that of DGIT, was ignorant to understand the basic powers vested on him. On this aspect also, the DGIT had shockingly exceeded its powers and therefore, the impugned order cannot be sustained. - Decided in favour of assessee.
Issues:
1. Jurisdiction of the DGIT to issue show cause notice (SCN) during pendency of application before ITSC. 2. Legality of retrospective withdrawal of approval under Section 10(23C)(iv) of the Income Tax Act. 3. Authority of DGIT to reopen matters covered under ITSC award. 4. Compliance with Section 245F(2) and Section 245-I of the Income Tax Act. Analysis: Issue 1: Jurisdiction of the DGIT The petitioner Trust challenged the show cause notice (SCN) issued by the Director General of Income Tax (DGIT) proposing withdrawal of approval under Section 10(23C)(iv) of the Act. The Trust argued that the DGIT lacked jurisdiction to issue the SCN while the application under Section 245C was pending before the Income Tax Settlement Commission (ITSC). The court held that the DGIT, being an 'Income Tax Authority,' did not have the power to issue the SCN when the ITSC had exclusive jurisdiction over the case as per Section 245F(2) of the Act. The court found the DGIT's actions without jurisdiction, rendering the impugned order illegal. Issue 2: Retrospective Withdrawal of Approval The Trust contended that the retrospective withdrawal of approval under Section 10(23C)(iv) of the Act was impermissible and contrary to law. The court noted that the impugned order was based on findings of the ITSC, which had already been upheld by the court in a previous judgment. The court emphasized that the DGIT exceeded jurisdiction by attempting to overrule the ITSC's findings, leading to the quashing of the impugned order. Issue 3: Reopening Matters Covered by ITSC Award The Trust argued that the matters settled by the ITSC under Section 245D(4) were conclusive and could not be reopened by the DGIT as per Section 245-I of the Act. The court agreed, stating that the ITSC's order was final and precluded the DGIT from reexamining the settled issues. The court found that the DGIT's attempt to revisit the settled matters was unauthorized and unsustainable. Issue 4: Compliance with Section 245F(2) and Section 245-I The court highlighted the provisions of Section 245F(2) and Section 245-I of the Act, emphasizing the exclusive jurisdiction of the ITSC in cases allowed to proceed under Section 245D. The court reiterated that the DGIT's actions were without authority, as the ITSC had already settled the issues conclusively. By disregarding the ITSC's findings, the DGIT had overstepped its powers, leading to the quashing of the impugned order. In conclusion, the court ruled in favor of the Trust, quashing the impugned order and emphasizing the importance of jurisdictional boundaries and adherence to settled matters under the Income Tax Act.
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