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TMI Blog2019 (3) TMI 702X X X X Extracts X X X X X X X X Extracts X X X X ..... bsence of any such opinion having been expressed that there was no full and true disclosure, it was not permissible for the CIT(DR) to make supplementary submissions to contend that there was no full and true disclosure. Since the Principal Commissioner had found that it was not possible at this stage to comment on the adequacy of the additional taxes as well as other facts as recorded hereinabove, it is evident that all these facts could have been brought on record either by way of submission by the CIT(DR) at the stage to section 245D(4) or in the nature of the report as contemplated under sub-section (3) of section 245D of the Act, if so called for by the Settlement Commission. However, on the basis of such comments made by the Principal Commissioner in the report under sub-section (2C) of section 245D of the Act, the revenue could not have been permitted to object against the admission of the application by way of supplementary arguments made by the CIT(DR) with reference to the record as well as other evidence of the case. The Settlement Commission was, therefore, not justified in permitting the Principal Commissioner to supplement the report submitted by the Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.2018 passed by the Income Tax Settlement Commission (hereinafter referred to as the Settlement Commission ) on the respective applications filed by the respective petitioners, and hence, the same were taken up for hearing and are decided by this common judgment. For the sake of convenience, reference is made to the facts as appearing in Special Civil Application No.13572 of 2018 filed by M/s Akshar Developers. 2. The facts stated briefly are that on 22.9.2015, a raid came to be carried out in the case of the petitioner under section 132 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) when some documents came to be seized. The partners were also searched. According to the petitioner, nothing worth the name by way of unaccounted cash, jewellery or investment was found from the above raid from the petitioner or its partners. The petitioner was advised that instead of entering the channel of long drawn litigation starting with the assessment order, it would be wise to approach the Settlement Commission. Therefore, the petitioner preferred application dated 30.11.2017 under section 245(C)(1) of the Act. The form was filled by the petitioner along with which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settlement applications. It was submitted that it is not open for the CIT (DR) to raise objection and that the Commissioner has gone beyond what his superior Principal Commissioner has stated in the report and that if there was any objection, it was for the Principal Commissioner to take such objection in the report. It was submitted that there was grave error on the part of the Settlement Commission permitting the CIT (DR) to raise objections to the admission of the application and more so in permitting him to go beyond the report. 3.2 Referring to the impugned order, it was submitted that several points which were not there in the report have been taken into consideration in the order and, therefore, the petitioner s representative naturally was not ready to reply off hand without instructions from the petitioner or its accountant. It was urged that the impugned order having gone far beyond the report of the Principal Commissioner is therefore, bad in law. 3.3 It was submitted that sub-section (2C) of section 245D of the Act mandates that, the order be passed within fifteen days of the report. It was submitted that if the report said that there was no full and true disclosu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts and evidences so as to come to the conclusion that there was no full and true disclosure. It was submitted that it is trite law that while exercising powers under Article 226 of the Constitution of India, this court would be concerned with the decision making process of the Settlement Commission and not so much with the correctness of the order as it would be in appeal. It was submitted that in the absence of any flaw having been pointed out in the decision making process, the petition deserves to be dismissed on this ground alone. 4.1 It was submitted that the contention that the Settlement Commission could not have gone beyond the report is fallacious and contrary to the scheme of Chapter XlX-A of the Act. It was contended that the Settlement Commission has to examine the full and true nature of the disclosure of income at every stage of the settlement proceedings and if at any stage it is found that such disclosure is not full and true, the Settlement Commission is required to reject the application at that stage and send the case back to the Assessing Officer. 4.2 Next it was submitted that the contention that the Settlement Commission cannot go beyond the report, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt was of the view that nothing is lost by hearing the petitioner whose application for settlement is being rejected and much may be gained by such hearing in properly processing the application in the spirit of Chapter XIX-A. It was submitted that, therefore, the Supreme Court has held that even if the statute is silent, the same does not prohibit affording an opportunity of hearing. 4.5 Reliance was also placed upon the decision of the Calcutta High Court in the case of Peerless General Finance and Investment Co. Ltd. v. Income-tax Settlement Commission , (2009) 313 ITR 206 (Calcutta) , wherein the court held that the provisions of the statute prescribed the stages in which the applicant and the departmental representative are to be heard, and in section 245D(1), there is no provision for affording an opportunity of hearing to the petitioners, which has been specifically provided at a subsequent stage under section 245D(4). Giving opportunity of hearing to the incometax authorities at the time of consideration of the application for settlement, thus, constitutes a deviation from the procedure prescribed in the statute. The court held that mere deviation from a procedure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the case of Manojkumar Babulal Agrawala v. Secretary, (2017) 83 taxmann.com 139 (Gujarat) , to point out that in the facts of the said case also, the Commission had heard the CIT(DR) and the applicant's authorised representative. 4.9 Reliance was also placed upon the decision of the Bombay High Court in the case of Commissioner of Incometax v. Sai Prasad Properties Ltd ., (2015) 60 taxmann.com 167 (Bombay) , wherein the court has observed that the application under section 245D(2C) of the Act has to be disposed of after considering the objections raised by the revenue supported by some modicum of reasons. In the absence of some consideration of the objections, the entire exercise under section 245D(2C) of the Act would render the provisions redundant. 4.10 Reliance was also placed upon the decision of the Delhi High Court in the case of MARC Bathing Luxuries Ltd. v. Income Tax Settlement Commission , (2013) 38 taxmann.com 308 (Delhi) , to point out that in the facts of the said case also, the CIT(DR) was given an opportunity of hearing at the stage of section 245D(1) of the Act. It was submitted that the above decisions have been relied upon to point out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der, reject the application or allow the application to be proceeded with within a period of one year from the end of the month in which such application was made under Section 245-C: Provided that an application shall not be rejected under this sub-section unless an opportunity has been given to the applicant of being heard: Provided further that the Commissioner shall furnish the report within a period of forty-five days of the receipt of communication from the Settlement Commission in case of all applications made under Section 245-C on or after the 1st day of July, 1995 and if the Commissioner fails to furnish the report within the said period, the Settlement Commission may make the order without such report. ( 2) A copy of every order under sub-section (1) shall be sent to the applicant and to the Commissioner. ( 2-A) Subject to the provisions of sub-section (2-B), the assessee shall, within thirty-five days of the receipt of a copy of the order under sub-section (1) allowing the application to be proceeded with, pay the additional amount of income tax payable on the income disclosed in the application and shall furnish proof of such payment t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner under sub-section (1) or sub-section (3). ( 4-A) In every application allowed to be proceeded with under sub-section (1), the Settlement Commission shall, where it is possible, pass an order under subsection (4) within a period of four years from the end of the financial year in which such application was allowed to be proceeded with. ( 5) Subject to the provisions of Section 245-BA, the materials brought on record before the Settlement Commission shall be considered by the Members of the Bench concerned before passing any order under subsection (4) and, in relation to the passing of such order, the provisions of Section 245-BD shall apply. ( 6) Every order passed under sub-section (4) shall provide for the terms o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r reject the application or allow the application to be proceeded with. In case the Settlement Commission was inclined to reject the application, it was required to provide an opportunity of hearing to the applicant. The Commissioner was required to submit the report within forty-five days of receipt of communication from the Settlement Commission. 7.2 In case where an application was allowed to be proceeded with under subsection (1), in the second stage, as provided under sub-section (3) of section 245D, the Settlement Commission could call for the relevant records from the Commissioner and after examination of such records, if the Settlement Commission was of the opinion that any further enquiry or investigation in the matter is necessary, it could direct the Commissioner to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case. Thereafter in view of the provisions of subsection (4), the Settlement Commission, after examination of the records and the report of the Commissioner, received under sub-section (1), and the report, if any, of the Commissioner received und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been allowed to be proceeded with. ( 2) A copy of every order under sub-section (1) shall be sent to the applicant and to the Principal Commissioner or Commissioner. ( 2-A) Where an application was made under Section 245-C before the 1st day of June, 2007, but an order under the provisions of sub-section (1) of this section, as they stood immediately before their amendment by the Finance Act, 2007, has not been made before the 1st day of June, 2007, such application shall be deemed to have been allowed to be proceeded with if the additional tax on the income disclosed in such application and the interest thereon is paid on or before the 31st day of July, 2007. Explanation.-In respect of the application referred to in this sub-section, the 31st day of July, 2007 shall be deemed to be the date of the order of rejection or allowing the application to be proceeded with under sub-section (1). ( 2-B) The Settlement Commission shall,- ( i) in respect of an application which is allowed to be proceeded with under sub-section (1), within thirty days from the date on which the application was made; or ( ii) in respect of an application referred to in subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner or Commissioner and after examination of such records, if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the Principal Commissioner or Commissioner to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case, and the Principal Commissioner or Commissioner shall furnish the report within a period of ninety days of the receipt of communication from the Settlement Commission: Provided that where the Principal Commissioner or Commissioner does not furnish the report within the aforesaid period, the Settlement Commission may proceed to pass an order under sub-section (4) without such report. ( 4) After examination of the records and the report of the Principal Commissioner or Commissioner], if any, received under- ( i) sub-section (2-B) or sub-section (3), or ( ii) the provisions of sub-section (1) as they stood immediately before their amendment by the Finance Act, 2007, and after giving an opportunity to the applicant and to the Principal Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said. ( 6-B) The Settlement Commission may, at any time within a period of six months from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (4); Provided that an amendment which has the effect of modifying the liability of the applicant shall not be made under this sub-section unless the Settlement Commission has given notice to the applicant and the Principal Commissioner or Commissioner of its intention to do so and has allowed the applicant and the Principal Commissioner or Commissioner an opportunity of being heard. ( 7) Where a settlement becomes void as provided under sub-section (6), the proceedings with respect to the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission and the income-tax authority concerned may, notwithstanding anything contained in any other provision of this Act, complete such proceedings at any time before the expiry of two years from the end of the financial year in which the settlement became void. ( 8) For the removal of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een furnished within the specified time, then on the basis of such report, the Settlement Commission, may within fifteen days of receipt thereof, declare the application invalid under section 245D (2C). Opportunity of being heard is required to be given to the applicant if the application is to be declared invalid. In case the Commissioner does not furnish the report within the specified time, the Settlement Commission is required to proceed further in the matter without the report of the Commissioner. 8.3 In case of an application which has not been declared invalid, in the third stage under section 245D(4) of the Act, the Settlement Commission, may call for the records from the Principal Commissioner or Commissioner and after examination of such records, if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the Principal Commissioner or Commissioner to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case, and the Principal Commissioner or Commissioner is required to furnish a report withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ked thoroughly, entry-wise, with regard to unaccounted receipts and payments contained in the seized/impounded material. Moreover, in various assessment years under consideration, while calculating the unaccounted income, the assessee has disclosed N.P. at the rate of 15% of unaccounted receipts from project Akshar Vatika. Also, in addition, N.P. at the rate of 1% of gross receipts as per books of accounts (actual) has been offered before the Settlement Commission, but the basis of these calculations is not clear. In paragraph 2.7 of the report, it has been stated thus: T herefore, at this stage, no further comments can be offered on the adequacy of additional income disclosed. In view of the above, we reserve our right to comment at later stage on the application on the basis of the material seized/impounded/found. 11. Thus, the Principal Commissioner of Income-tax has not stated in the report that there is no full and true disclosure by the assessee, but has raised certain doubts about the adequacy of the disclosure and has reserved the right to comment at a later stage of the application on the basis of the material seized. 12. From the language contained in the rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ires an opportunity of being heard to be given to the applicant only if the application is to be declared invalid, the question of Principal Commissioner or Commissioner raising any objection to the application at this stage, does not arise. 14. A perusal of the impugned order reveals that the Settlement Commission has first heard the objections raised by CIT (DR) to the admission of the applications based on material other than the report, and thereafter has afforded an opportunity of hearing to the applicants to deal with the objections raised by the CIT (DR) and has thereafter proceeded to declare the application invalid based on the material pointed out by the CIT(DR) from the seized material. On a plain reading of sub-section (2C) of section 245D of the Act it is evident that it contemplates passing of order by the Settlement Commission on the basis of the report of the Principal Commissioner or Commissioner. Therefore, the scope of hearing would be limited to the contents of the report. The applicant would therefore, at this stage be prepared to deal with the contents of the report and if any submission is made outside the report, it may not be possible for the applicant t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplicant was not afforded an opportunity of hearing before his application was rejected under section 245D(1) of the Act. On an application for review made by the applicant, the Settlement Commission reversed its earlier order and permitted the application to be proceeded with. The Supreme Court upheld the order by holding that nothing is lost by hearing the petitioner whose application for settlement is being rejected. Thus, since the applicant was being adversely affected by the order rejecting his application under section 245D(1) of the Act that the Supreme Court had held that there was nothing wrong in hearing him. The said decision would have no applicability to the facts of the present case. In the opinion of this court, by permitting an application to be proceeded with under section 245D(2C) of the Act, the revenue is not adversely affected as in the third stage under section 245D(4) of the Act it has ample opportunity to object to the application being allowed. 17. Examining the issue from another angle, reference may be made to sub-section (2-C) and sub-section (4) of section 245D of the Act, which read as under: ( 2-C) Where a report of the Principal Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, it can be safely concluded that the legislature intentionality omitted granting of opportunity of hearing to the Principal Commissioner/Commissioner at the stage of section 245D(2C) of the Act. The contention that section 245D(2C) does not prohibit oral submissions by the CIT(DR) as the statute is silent about not providing opportunity of hearing, therefore, does not merit acceptance. This view is fortified by the view taken by the Supreme Court in Sree Balaji Nagar Residential Assn. v. State of T.N., (2015) 3 SCC 353, wherein it has been held thus: 10. There is no dispute that the writ petitions were filed even before the making of award and interim orders have operated against the State of Tamil Nadu and, therefore, the State was not at fault in not taking physical possession of the lands concerned under acquisition. But the intention of the legislature in enacting Section 24(2) of the 2013 Act will have to be culled out from its wordings and on the basis of other relevant provisions of this Act and the relevant case law for deciding whether the period of stay/injunction is required to be excluded in computing the five years period or not. 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as other facts as recorded hereinabove, it is evident that all these facts could have been brought on record either by way of submission by the CIT(DR) at the stage to section 245D(4) or in the nature of the report as contemplated under sub-section (3) of section 245D of the Act, if so called for by the Settlement Commission. However, on the basis of such comments made by the Principal Commissioner in the report under sub-section (2C) of section 245D of the Act, the revenue could not have been permitted to object against the admission of the application by way of supplementary arguments made by the CIT(DR) with reference to the record as well as other evidence of the case. 20. The Settlement Commission was, therefore, not justified in permitting the Principal Commissioner to supplement the report submitted by the Commissioner by way of oral submissions which were beyond the contents of the report. At best, if the applicant had made submissions in respect of the report, the Commissioner may have been permitted to deal with the same, but under no circumstances could the Commissioner be permitted to raise objection to the admission of the application and be heard before the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as the record of the case and other evidence is concerned, the same is required to be taken into consideration at the stage of section 245D(4) of the Act whereas insofar as the order under section 245D(2C) of the Act is concerned, the same is required to be made on the basis of the report. 24. In the light of the above discussion, the impugned order passed by the Settlement Commission being in breach of the provisions of section 245D(2C) of the Act and also being in breach of the principles of natural justice inasmuch as at the stage of section 245D(2C) of the Act, the Settlement Commission has placed reliance upon material other than the report, cannot be sustained. 25. The petitions, therefore, succeed and are accordingly, allowed. The impugned order dated 6.2.2018 passed by the Settlement Commission (Annexure-F to the SCA No.13598 of 2018) as well as the impugned orders dated 2.2.2018 passed by the Settlement Commission (Annexure-F to the rest of the petitions) are hereby quashed and set aside. The applications are hereby restored before the Settlement Commission at the stage of section 245D(2C) of the Act. The Commission shall proceed further at that stage in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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