Orchid Pharma Limited v. The Income Tax Settlement Commission, Additional Bench, 640, Anna Salai, Chennai – 600 035

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 31.08.2021CORAM THE HONOURABLE MR.JUSTICE S.M.SUBRAMANIAM W.P.No.12109 of 2012 ORCHID PHARMA LIMITED,REPRESENTED BY ITS MANAGING DIRECTORMR. MANISH DHANUKA,“ORCHID TOWERS”,NO.313, VALLUVARKOTTAM HIGH ROAD,NUNGAMBAKKAM, CHENNAI-600 034.(CAUSE TITLE AMENDED VIDE ORDER DT.03.08.2021MADE IN WMP.15925/2021 IN WP.12109/2012 ) ...Petitioner Vs. 1.The Income Tax Settlement Commission, Additional Bench, 640, Anna Salai, Chennai – 600 035. 2.The Commissioner of Income Tax – III, 121, Nungambakkam High Road, Nungambakkam, Chennai – 600034. 3.The Assessing Officer, 121, Nungambakkam High Road Nungambakkam Chennai – 600 034. 4.Transfer Pricing Officer, 121, Nungambakkam High Road, Nungambakkam, Chennai – 600 034 ...Respondents 226 of the PRAYER : Writ Petition filed Under Article226 of theConstitution of India, to issue a writ of CertiorarifiedMandamus, calling for the records of the first respondent inSettlement Application No. TN/CN 3/2010-11/4/IT and quash theorder dated 28.03.2012 in so far as it relates to the issue oftransfer pricing alone on sales to Distribution Partnersadjudicated in para 2.2.1.3 to 2.2.4.1 as illegal and withoutjurisdiction and consequently direct the first respondent herein to treat Petitioner Company as not as “Associate enterprise” ofthe Distribution Partners as per Section 92A of the Act. For Petitioner: Mr.N.V. BalajiFor Respondents : R1 - Settlement CommissionM/s.Hemamurali KrishnanSenior Standing Counsel [For Income Tax][For R2 to R4] The order dated 28.3.2012 passed by the Income TaxSettlement Commission is sought to be quashed in the presentwrit petition. 2. The petitioner is a Public Limited Company listed inNational Stock Exchange and Bombay Stock Exchange. The companyis engaged in the business of manufacture and Trading ofPharmaceutical bulk drugs and formulations. The petitioner isassessed before the third respondent. The petitioner company hadmanufacturing facilities of Bulk drugs at Alathur and Aurangabadand Formulation Units at Alathur and Irrungattukottai. Thepetitioner company states that up to the Assessment Year 2003-2004, all the units of the company enjoyed 100% EOU status andtheir income was exempted from tax. The petitioner companystates that on 17.3.2010, the Income Tax Department conducted asurvey under Section 133 (A) of the Act on the company.Consequently, the petitioner on 31.03.2010, had filed itsrevised return of income for the Assessment Year 2004-05 to2009-10 were valid by virtue of provision under Section 139 (5)of the Act. 3. After filing of the revised return, the petitionercompany moved the Income Tax Settlement Commission, to settlethe disputes. Accordingly, an application under Section 245(C)of the Act was filed before the first Respondent on 16.09.2010for the Assessment Year 2006-07 to 2010-2011 and had offeredincome as detailed in the application. 4. The first Respondent by order dated 20.9.2010 underSection 245D(1), allowed the Settlement application to beproceed with. The application was found to be valid and allowedto be proceeded with by the first respondent under Section 245D(2C) dated 01.11.2010. Under the provisions of the Act, reportswere called for from the competent authority as well as from theTransfer Praising Officer. The petitioner states that in respect https://hcservices.ecourts.gov.in/hcservices/ 4. The first Respondent by order dated 20.9.2010 underSection 245D(1), allowed the Settlement application to beproceed with. The application was found to be valid and allowedto be proceeded with by the first respondent under Section 245D(2C) dated 01.11.2010. Under the provisions of the Act, reportswere called for from the competent authority as well as from theTransfer Praising Officer. The petitioner states that in respect https://hcservices.ecourts.gov.in/hcservices/ of the Transfer Pricing issues, the petitioner company makesubstantial export to various countries across the globe. Theglobal market for Pharmaceuticals can broadly be classified asRegulated and less-regulated markets. The regulated marketscomprises USA, UK, Europe, Japan, while all other countriescould be clubbed together as the less-regulated markets. Thepetitioner company had entered into agreements. In order toverify the Arms Length Price of these transactions with the DPs(Distribution Partners), the first respondent had made referenceto the fourth respondent through the second respondent. Thepetitioner has stated that they have furnished all the detailsfully and truly in the application submitted before theSettlement Commission and the Settlement Commission, in respectof the Transfer Pricing alone, on sales to Distribution Partnersadjudicated in paras 2.2.1.3 to 2.2.4.1 dealt the issuesimproperly and the findings made in the above paragraphs areillegal and without jurisdiction. In fact, the petitionercompany is to be treated as “Associated Enterprises” of theDistribution Partners as per Section 92(A) of the Act. Thus, thepresent writ petition is filed and restricted to the extent ofTransfer Pricing alone on sales to Distribution Partners. 5. The learned counsel for the petitioner contended that thePresent Writ Petition No.12109 of 2012 challenges the order ofthe Income Tax Settlement Commission (hereinafer referred to asthe “ITSC”) dated 28.03.2012 with respect to the TransferPricing issue alone. Subsequently, vide order u/s 245D(3) the 2[nd]Respondent was directed to make further enquiry in respect of 27issues including the transfer pricing issue. Pursuant to suchdirections the 2[nd] Respondent had directed the 4[th] Respondent tosubmit his report with regard to international transactions. The4[th] Respondent after examining the agreements/contracts and thepetitioner's submissions, held as follows: a) That the Petitioner Company and three of its DistributionPartners (“DPs”) namely Apotex Corp, Par Pharmaceuticals,Northstar Healthcare Ltd. are to be treated as “DeemedAssociated Enterprises” ['AE'] falling u/s 92A (2) (i). b) The Profit Split Method (PSM) is Most Appropriate Method(MAM) and the Comparable Uncontrolled Price Method (CUP) adoptedby the petitioner is not is not he MAM. c)The activities of the Company can be divided into 3categories (namely Development, Manufacture and Marketing) andsince the petitioner undertakes both development and manufactureof the products and also shares some of the marketingresponsibilities the profit sharing ratio is fixed at 70:30 (70to the petitioner and 30 to the Dps) following the PSM as against 50:50 agreed between the Petitioner and the DPs. 6. The first Respondent erred in rejecting the preliminaryobjection of the Petitioner that the Fourth Respondent haspassed an order under Section 92CA determining the Arm's LengthPrice ['ALP'] while only the First Respondent is empowered todetermine the income to be settled in respect of the applicationbefore it. Since, the Fourth Respondent passed the order, theFirst Respondent ought to have been rejected it and not to havetreated the order as a report. In the impugned order the FirstRespondent held that: Even if an enterprise is not covered by Section 92A(1) it canstill be deemed to be an associated enterprises if any one ofthe conditions specified in Section 92A(2) is satisfied. against 50:50 agreed between the Petitioner and the DPs. 6. The first Respondent erred in rejecting the preliminaryobjection of the Petitioner that the Fourth Respondent haspassed an order under Section 92CA determining the Arm's LengthPrice ['ALP'] while only the First Respondent is empowered todetermine the income to be settled in respect of the applicationbefore it. Since, the Fourth Respondent passed the order, theFirst Respondent ought to have been rejected it and not to havetreated the order as a report. In the impugned order the FirstRespondent held that: Even if an enterprise is not covered by Section 92A(1) it canstill be deemed to be an associated enterprises if any one ofthe conditions specified in Section 92A(2) is satisfied. 7. The Petitioner made a submission that the aforesaidconclusion is contrary to the provisions of the Act. Evidentlyon plain reading of the Act, for the application of Section 92A(2), it is essential that 92A(1) applies to the Petitioner'scase at first instance, and that sub-section 2 cannot be appliedindependently. The legal fiction falling under various clausesunder sub-Section (2) are only for the purpose of sub-Section(1) and not to replace or operate independent of sub-Section(1). Reliance is placed on the decision of the Hon'ble KarnatakaHigh Court in the case of PCIT Vs. Page Industries Ltd in ITA285 of 2017, which affirmed the order of the Banglore Tribunal,holding that in order to constitute relationship of an AE,parameters laid sown in both sub-Sections 1 and 2 of Section 92Ashould be fulfilled. The petitioner further relies on MotherIndia Refrigeration Industries Pvt. Ltd. 155 ITR 711 (SC),wherein it was held that “legal fictions are created only forsome definite purpose and these must be limited to that purposeand should not be extended beyond the legitimate field”. 8. Even assuming that sub-Sections 1 and 2 of Section 90Aare independent of each other, the First Respondent failed tonote that in view of narrow meaning of “Associated Enterprise”as per the Double Taxation Avoidance Agreement ['DTAA'] betweenIndia and United States of America [which does not containanything similar Section 90A(2)], the petitioner and its DPs arenot AEs warranting determination of ALP. The petitionersubmitted that in view of Section 90(2) of the Act, theprovisions of the Act shall apply to the extent they are morebeneficial to the assesses, in respect of assesses whom DTAAapplies. When the meaning assigned under the Act is broader, thesame cannot be applied on the Petitioner, since the same is notmore beneficial than the meaning given under the DTAA. Thepetitioner further submitted that the First Respondent grosslyerred in law in holding that the Petitioners and its DPs are AEsunder Section 92A (2) (i) for two more reasons. The said clause would apply only in cases where the entire goods manufactured byone enterprise is sold to another enterprise and not where thegood manufactured are sold to different parties. Thissubmissions is made on the proposition that the Article “the” atthe beginning of this clause denotes the same articles producedby the First Enterprise and therefore, the clause contemplated100% of sale of goods manufactured to constitute AE Relationshipbetween two enterprises. Even otherwise, the other condition ofthe price and other conditions relating to supply beinginfluenced by the other enterprise is absent in the Petitioner'scase. Admittedly the prices which the DPs sell in the market arebased on free market forces and consequently it cannot be saidthat the prices in respect of sale by the Petitioner to its DPis influenced by the DPs. The First Respondent without anymaterial arbitrarily concluded that the DPs have influenced overthe price and hence are AEs of the Petitioner as per clause 92A(2) (i). 9. The First Respondent also grossly erred in holding thatDPshaveequalrepresentationonthemanagementcommittee/executive committees and that the DPs influence theprices and other conditions in relation to sale of goods by thePetitioner. The First Respondent misdirected itslef inconcluding the presence of the DPs on the management/executivecommittieesresultsintheparticipationinthemanagement/control of the Petitioner. On the contrary, theirpresence is on account of expertise in local knowledge andtechnical skills to ensure optimized production and decidingproduct mix in respect of products distributed and not result inmanagement/control/capital at the enterprise level of thePetitioner. Under such circumstances, the First Respondent hadonly applied 92A (2) (i) and concluded that the Petitioner andDPs are AEs. 10. The First Respondent had based its decision withoutconsidering the material evidences before it, which wouldclearly suggest that the DPs are not in a position to influencethat the DPs being in free market, the prices are dependent onend customers. Further, the price charged is determined takinginto consideration the cost of manufacture incurred by thePetitioner and cost of selling incurred by the DPs. The FirstRespondent failed to note the evidences like the price isdetermined in agreement with DP-implying that both parties areinvolved in determination of price, the CFO's sworn statementthat selling price is determined by the DP based on marketcondition. The First Respondent also did not take intoconsideration the statement of the CFO that the DP provides fora floor and cap of the market price. Considering the petitionerand DPs as AEs without considering the material evidences before it shows that the order of the First Respondent is arbitrary andpreserved. 11. The petitioner has rightly chosen CUP as MAM. Intransfer pricing it is well settled proposition that pricingmethods are more appropriate than profit methods in determiningthe Arm's length price. When identical product is sold by thePetitioner to persons other than DPs, the ALP is rightlyjustified by the Petitioner based on such independent thirdparty transactions. Rule 10B provides for determination based onCUP and also adjustment for differences if any betweeninternational transactions and CUP or between enterprisesentering into such transactions which could materially affectprices in the open market. In the Petitioner's case, thedifference is arising out of geographical difference and at bestmay warrant a adjustment and not rejection of CUP as MAM.Similarly, under the same rule PSM should be applied mainly tothe international transactions involving transfer of uniqueintangible or multiple international transactions which are sointerrelated that they cannot be evaluated separately. In thePetitioner's case it is only a transaction of sale of its goodsto DPs and therefore, PSM would have no application. In absolutedisregard of Rule 10B, the First Respondent concluded PSM as MAMand accordingly to that extent the order is arbitrary andpreserve. 12. The First Respondent determined the profit sharing ratiobetween at fixed at 70:30 (70 to the petitioner and 30 to theDps), considering that the Petitioner undertook development andmanufacturing and that the marketing responsibilities wereundertaken by the DPs. In effect, the First Respondentapparently gave equal weightage to the purported three functionscarried out by the parties. It is well settled and requiredunder the law that the transfer pricing is to be determinedconsidering the functions assets and risks ['FAR']. ThePetitioner's transfer pricing study considering all these wererejected and arbitrary equal weightage was considered only inrespect of functions. Further, the First Respondent also did nottake into account that the First stage invoice raised by thePetitioner includes manufacturing cost and agreed profit inrespect of Indian functions, namely R&D and Manufacturing istaken into consideration duly in the First stage of pricing. Thepetitioner has rightly proposed that the Second stage invoicewhereby the profit margin after deducting the first stageinvoice price and marketing cost incurred by the DP is to beshared equally between the Petitioner and DPs and accordinglyeven assuming purported PSM has to be applied, only 50% of theprofits is attributable to the Petitioner. The First Respondentin absolute disregard of the material in the form of Transfer pricing study and the law regarding the profit-sharing ratio at70:30 between Petitioner and DPs. 13(a). In support of the above contentions, the learnedcounsel relied upon the judgment in the case of N.Krishnan Vs.Settlement Commission, reported in (1989) 180 ITR 585(Karnataka), wherein the following observations are made: “14. Even so, as regards the first question isconcerned, it should be remembered that the power ofjudicial review of administrative action includingthose of Courts and Tribunals conferred on the HighCourts under Articles 226 and 227, constitutes one ofthe basic structures of the Constitution. Therefore,irrespective of the nature of an administrativeTribunal or the width of its power or a provision inthe relevant provision of law that its decision isfinal and conclusive, the High Court's power ofjudicial review remains unaffected, though the scopeof judicial review might vary. That power can becurtailed or varied only by a constitutionalprovision. (See: H.V. Kamath v. Ahmed Ishaque) [AIR1955 SC 233.] Moreover with reference to theSettlement Commission itself the question as towhether its decisions are appealable to the SupremeCourt under Article 136 has been the subject matterof consideration by the Supreme Court in I.T.Commissioner v. B.N. Bhattacharjee [(1980) 3 SCC 54 :AIR 1979 SC 1724.] on a preliminary objection. TheSupreme Court held thus:“47. The preliminary objection raised byShri A.K. Sen need not detain us because weare satisfied that the amplitude of Article136 is wide enough to bring within itsjurisdiction orders passed by theSettlement Commission. Any Judgment,decree, determination, sentence or order inany case or matter passed or made by anyCourt or Tribunal, comes within thecorrectional cognisance and review power ofArticle 136. The short question, then, iswhether the Settlement Commission cannotcome within the category of “Tribunals”. Toclinch the issue, Section 245L declares allproceedingsbeforetheSettlementCommission to be judicial proceedings. Wehave hardly any doubt that it is aTribunal. Its powers are considerable; itsdetermination affects the rights ofparties; its obligations are quasi- judicial; the orders it makes at everystage have tremendous impact on the rightsand liabilities of parties.xxxxxxxxx judicial; the orders it makes at everystage have tremendous impact on the rightsand liabilities of parties.xxxxxxxxx In short, Settlement Commissions areTribunals. The preliminary point fails.”Thus the Settlement Commission is held to be aTribunal. That being the position, the petitioner isentitled to seek judicial review of the order of theSettlement Commission in a petition under Articles226 and 227 of the Constitution of India. For thesereasons, we answer the first question in theaffirmative." (b) In the case of Swadeshi Industries Vs. Income TaxSettlement Commission, reported in (1993) 199 ITR 293 (Gujarat),the Court held that the writ petition would be entertainable andin the case of Jyotendrasinhji Vs. S.I.Tripathi, reported in(1993) 201 ITR 611 (SC), the Apex Court held that High Courtunder Article 226 or the Hon'ble Supreme Court of India underArticle 32 or 136 can interfere with the order of SettlementCommission, if the order of Settlement Commission is contrary tothe provisions of the Act and such contravention has prejudicedthe assessee. Therefore, as per the above judgment, the writpetition is maintainable. (c) In the case of Commissioner of Income Tax Vs. AnjumM.H.Ghaswala, reported in (2001) 252 ITR 1 (SC), theConstitution Bench of the Hon'ble Supreme Court of India held asfollows: “30. It is no doubt true that the terminology“settlement” has a very wide dictionary meaning and inthe absence of a statutory definition generally theword “settlement” in sub-section (4) of Section 245-Dwould give the Commission sufficient power to arriveat a settlement which it deems fit, but when thestatute qualifies such expression like “settlement”with mandatory words like “in accordance with theprovisions of this Act” the width of the term“settlement” becomes subject to the mandate found inthat section, which would mean that while a Commissionhas sufficient elbow room in assessing the income ofthe applicant under Section 245-D(4) it cannot makeany order with a term of the settlement which would bein conflict with the mandatory provisions of thesection, like in the quantum and payment of tax and/orinterest. In this view of the matter, we are of theopinion that assuming that there is any room forinterpretation of the provisions of Part F of Chapter XVII and Chapter XIX-A, we would hold that it wouldnot in any manner empower the Commission to eitherwaive or reduce interest which is statutorily payableunder the provisions of Part F of Chapter XVII." (d) In the case of Union of India Vs. Ind-Swift LaboratoriesLimited, reported in (2010) 20 STR 479 (SC), the Apex Court heldas follows: “22. An order passed by the SettlementCommission could be interfered with only if the saidorder is found to be contrary to any provisions ofthe Act. So far as the findings of fact recorded bythe Commission or question of facts are concerned,the same is not open for examination either by theHigh Court or by the Supreme Court. In the presentcase the order of the Settlement Commission clearlyindicates that the said order, particularly, withregard to the imposition of simple interest @ 10% perannum was passed in accordance with the provisions ofRule 14 but the High Court wrongly interpreted thesaid Rule and thereby arrived at an erroneousfinding." (d) In the case of Union of India Vs. Ind-Swift LaboratoriesLimited, reported in (2010) 20 STR 479 (SC), the Apex Court heldas follows: “22. An order passed by the SettlementCommission could be interfered with only if the saidorder is found to be contrary to any provisions ofthe Act. So far as the findings of fact recorded bythe Commission or question of facts are concerned,the same is not open for examination either by theHigh Court or by the Supreme Court. In the presentcase the order of the Settlement Commission clearlyindicates that the said order, particularly, withregard to the imposition of simple interest @ 10% perannum was passed in accordance with the provisions ofRule 14 but the High Court wrongly interpreted thesaid Rule and thereby arrived at an erroneousfinding." (e) In the case of Agarshans Vs. Income-tax SettlementCommission, reported in (2012) 18 taxmann.com 19 (Madras), theHon'ble High Court of Madras made the following observations:“9. Secondly, on the self-same issue, thepetitioner had already moved the Settlement Commissionfor rectification, which was rejected under orderdated 12.4.2002 which was not in any mannerchallenged. Thus I do not find any legaljustification in accepting the case of the assessee,which is more in the nature of rectification of anorder dated 12.4.2002 dismissing the rectificationpetition filed on 27.2.1998. Thus with the catena ofdecisions are to the effect that the jurisdiction ofthis Court under Article 226 of the Constitution ofIndia as against the order of the SettlementCommission is not that of an appellate forum, thisCourt does not sit as an appeal to get into theprocess to take an ultimate decision. Unless thereasoning is abusive or contrary to the provisions oflaw, which is prejudicial to the interest of theassessee, this Court does not assume any jurisdictionto interfere with the order of the SettlementCommission. Admittedly, the petitioner had had nogrievance as against the order originally passed bythe Settlement Commission and there was no WritPetition filed thereon. Subsequent thereto, there wasa Miscellaneous Petition, which was dismissed by the Settlement Commission. Even as against that, therewas no Writ Petition or any proceedings taken, tochallenge that order. Only when the second petitionwas taken up and an order had been passed, the presentWrit Petition has been filed. Learned senior counselappearing for the petitioner could not specificallypoint out to the provision under which such a petitionis maintainable in law. In the absence of anyspecific provision even to maintain the firstMiscellaneous Application, I do not find any ground togrant the relief sought for by the petitioner. In thecircumstances, the Writ Petition stands dismissed. Nocosts.” 14. Relying on the above judgments, the learned counsel forthe petitioner reiterated that the writ petition isentertainable and in respect of the Transfer Pricing, theCommission has committed an error as detailed in the affidavitand therefore, the writ petition is to be considered. 15. The learned Senior Standing counsel appearing on behalfof the respondents disputed the contentions raised on behalf ofthe petitioner by stating that the writ petition itself is notmaintainable. 14. Relying on the above judgments, the learned counsel forthe petitioner reiterated that the writ petition isentertainable and in respect of the Transfer Pricing, theCommission has committed an error as detailed in the affidavitand therefore, the writ petition is to be considered. 15. The learned Senior Standing counsel appearing on behalfof the respondents disputed the contentions raised on behalf ofthe petitioner by stating that the writ petition itself is notmaintainable. 16. The Settlement Commission is a forum for self surrenderand seeking relief and not a forum for challenging the legalityof assessment order or orders passed in any other proceedings.In the case of N.Krishnan Vs. Settlement Commission (Citedsupra), it is held that having regard to the objectiveunderlying the constitution of the Settlement Commission and thenature of functions entrusted to it and the powers of theCommission, the conclusions, both on questions of fact and law,reached by the Commission cannot be nullified except under verylimited circumstances. The judicial review power of the HighCourt cannot be equated to the judicial review of administrativeaction or the findings of a quasi-judicial Tribunal. It is muchmore limited and an interference can only be made if there is afault in the decision making process and not in the decisionitself. 17. The learned Senior Standing counsel made a submissionthat the writ petition is filed, challenging the part of theorder of the Income Tax Settlement Commission. The order ofSettlement Commission is deemed to be conclusive in respect ofthe assessment years for which it is passed as per Section 245-Iof the Act. The decision of a Settlement Commission could beinterfered with only: (i) if grave procedural defect such as violation of themandatory procedural requirements of the provisions in Chapter XIX-A and/or violation of rules of natural justice is made out.(ii) if it is found that there is no nexus between thereasons given and the decision taken by the SettlementCommission; (iii) High Court cannot interfere either with an error offact or error of law, alleged to have been committed by theSettlement Commission. 18. The Settlement Commission has passed a detailed order on27 issues. The petitioner herein is challenging the order of theSettlement Commission in respect of one issue only, which meansthat the petitioner is dissecting the order of the SettlementCommission. The petitioner cannot selectively accept the portionof the order passed by the Settlement Commission and disputecorrections of the other portions of the order, which in theopinion of the petitioner is not favourable. The petitionercannot be permitted to dissect the Settlement Commission's orderwith a view to accept what is favourable to them and reject whatis not. Therefore, the writ petition is to be rejected as notmaintainable. 19(a). In support of the said contentions, the learnedSenior Standing counsel relied on the judgment in the case ofN.Krishnan Vs. Settlement Commission, reported in (1989) 180 ITR585 (Karnataka), wherein the Hon'ble Division Bench held asfollows: 19(a). In support of the said contentions, the learnedSenior Standing counsel relied on the judgment in the case ofN.Krishnan Vs. Settlement Commission, reported in (1989) 180 ITR585 (Karnataka), wherein the Hon'ble Division Bench held asfollows: “15. With reference to the second questionarising for our consideration, as we have pointed outearlier, the provision for constitution of theSettlement Commission was not in existence earlier.This legislative step was taken on the recommendationof the Wanchoo Committee. As observed by us earlier,the Settlement Commission was to be constituted forsettling the complicated claims of chronic taxevaders as an extraordinary measure, for giving anopportunity to such persons to make true confessionand to have the matters settled once for all, andearn peace of mind. It is a Forum for self surrenderand seeking relief and not a Forum for challengingthe legality of assessment order or orders passed inany other proceedings. This is not only evident fromthe provision of the Act which prevents theapplication made, from being withdrawn as also theprovision which makes the decision of the SettlementCommission final and conclusive both on question oflaw and fact. The power conferred on the SettlementCommission is so wide that it can take any view onany questions of law, which it considers appropriate,having regard to the facts and circumstances of acase, which would be applicable only to that case and it has also the power to give immunity againstprosecution or imposition of penalty. It is in thisbackground we should find out the answer to thesecond question, namely, the scope for interferenceagainst a decision of Settlement Commission in apetition under Article 226 of the Constitution ofIndia. The provision for settlement would show thatit is in the nature or statutory arbitration, towhich a person may submit himself voluntarily.Therefore, it appears to us that the scope is muchmore restricted than the power of the Court tointerfere with an arbitration award. Regarding thejurisdiction of the Civil Court to deal with anarbitration award, the Supreme Court in the caseof Coimbatore District Podu Thozillar Samgam v. BalaSubramania Foundry [(1987) 3 SCC 723 : AIR 1987 SC2045.] has stated thus: “The Court was also entrusted with the power tomodify or correct the award on the ground ofimperfect form or clerical errors, or decision onquestions not referred, which were severable fromthose referred. The Court had also power to remit,the award when it had left some matters referredundetermined or when the award was indefinite, wherethe objection to the legality of the award wasapparent on the face of the award. The Court mightalso set aside the award on the ground of corruptionor misconduct of the arbitrator, or that a party hadbeen guilty of fradulent concealment or wilfuldeception. But the Court could not interfere with theaward if otherwise proper on the ground that thedecision appeared to it to be erroneous. The award ofthe arbitrator was ordinarily final and conclusive,unless a contrary intention was disclosed by theagreement. The award was the decision of a domesticTribunal chosen by the parties, and the Civil Courtswhich were entrusted with the power to facilitatearbitration and to effectuate the awards, could notexercise appellate powers over the decision. Wrong orright the decision was binding, if it be reachedfairly after giving adequate opportunity to theparties to place their grievances in the mannerprovided by the arbitration agreement. This Courtreiterated in the said decision that it was nowfirmly established that an award was bad on theground of error of law on the face of it, when in theaward itself or in a document actually incorporatedin it, there was found some legal proposition whichwas the basis of the award and which was erroneous.” In our opinion, many of the grounds on whicharbitration award could be set aside, would not beavailable in view of the nature and jurisdiction ofthe Settlement Commission. We are of the view that adecision of Settlement Commission could be interferedwith only. (i) if grave procedural defect such as violation ofthe mandatory procedural requirements of theprovisions in the Chapter XIX-A and/or violation ofRules of natural justice is made out; (ii) if it is found that there is no nexus betweenthe reasons given and the decision taken by theSettlement Commission. (iii) this Court cannot interfere either with anerror of fact or error of law, alleged to have beencommitted by the Settlement Commission.We answer the second question accordingly." (b) In the case of Patel Desai & Co., Vs. AssistantCommissioner of Income Tax, reported in [2000] 110 TAXMAN 531(AP), the Andra Pradesh High Court held as follows: “3. The Learned standing counsel for the Income-tax Department has contended that the view taken bythe Commission in regard to the admissibility ofdevelopment expenditure cannot be the subject-matterof challenge under article 226 of the Constitution andis not amenable to judicial review under article 226.4. In our view, the said contention is wellfounded and ought to be accepted. It is not open tous, in exercise of the jurisdiction under article 226,to decide whether the conclusion recorded by theCommission on a question of fact and even on aquestion of law, is correct or not. Having regard tothe objective underlying the constitution of theSettlement Commission and the nature of functionsentrusted to it and the powers of the Commission, weare of the considered view that the conclusions, bothon questions of fact and law, reached by theCommission cannot be nullified except under verylimited circumstances. The judicial review power ofthe High Court cannot be equated to the judicialreview of administrative action or the findings of aquasi-judicial Tribunal. It is much more limited, asindicated hereinafter. All legal errors do not comeunder the pale of scrutiny by the High Court inexercise of jurisdiction under article 226 or 227. Incoming to this conclusion, we are not withoutprecedential support." (c) In the case of Supreme Agro Foods (P) Limited Vs.Income-tax Settlement Commission, reported in [2013] 35taxmann.com 588 (Punjab & Haryana), the High Court held asfollows:“Since, the material was available before theCommission and such material has been taken intoconsideration for returning a finding which isrelevant for determining undisclosed income of thepetitioner. We do not find such order warrantsinterference in exercise of the writ jurisdiction ofthis Court as a part of the process of judicialreview." (d) The Hon'ble High Court of Madras in the case ofM/s.Fitness One Group India Limited, Vs. Customs, Central Exciseand Service Tax Settlement Commission, reported in 2016 SCCOnLine Mad 9950, held as follows:“6. First and foremost what is to be borne inmine is that the petitioner cannot selectively acceptthe portion of the order passed by the SettlementCommission and dispute correctness of the otherportions of the order which in the opinion of thepetitioner is not fully favourable." 20. In view of the legal precedents by various High Courts,the writ petition is to be rejected. 21. Considering the arguments as advanced by the respectivelearned counsels appeared for the parties to the lis on hand,this Court has to consider the spirit of the Settlement betweenthe assessee and Income Tax Department under the provisions ofthe Income Tax Act. 20. In view of the legal precedents by various High Courts,the writ petition is to be rejected. 21. Considering the arguments as advanced by the respectivelearned counsels appeared for the parties to the lis on hand,this Court has to consider the spirit of the Settlement betweenthe assessee and Income Tax Department under the provisions ofthe Income Tax Act. 22. Admittedly, the Settlement order impugned is challengedpartly with reference to the limited issue. Question arises,whether such course can be adopted when the SettlementCommission adjudicated the issues and granted relief on severalother issues except one issue, which is under challenge by theway of writ petition. 23. The learned counsel appearing for the second respondentmade a submission that the Settlement Commission is empowered toadjudicate the complete facts and circumstances with referenceto the various provisions of the Income Tax Act and even,empowered to make an assessment under the provisions of theIncome Tax Act. The contention as a whole need not be taken intoconsideration in view of the fact that the Settlement Commissionhas got powers to deal with facts and circumstances withreference to the provisions of the Income Tax Act. However, theSettlement Commission cannot make an independent assessment, which is the power of the Assessing Officer under the Act. TheSettlement Commission cannot usurp the powers of the AssessingOfficer. If such a power is allowed to be exercised, then thevery settlement provisions under Section 245C would be defeatedand the purpose and object also would be defeated. Thus, thescope of Section 245C and the procedures contemplated underSection 245D are to be scrupulously followed by the SettlementCommission, while dealing with an application filed underSection 245C. The interpretation of these provisions cannot beexpanded so as to confer any additional power to the SettlementCommission, which is otherwise to be exercised by the otherCompetent Authorities of the Income Tax Department. In otherwords, what is not contemplated under Section 245C and 245Dcannot be conferred on the Settlement Commission by the Courtsnor the Settlement Commission is competent to usurp the powers.Undoubtedly, the Settlement Commission has to consider the mixedquestion of law and facts. But, while considering the same, theCommission is not competent to exercise the powers and theprocedures contemplated beyond the scope of the provisions ofthe Act. Thus, the powers of the Settlement Commission to dealwith facts, circumstances in consonance with the provisions ofthe Act are permitted. However, the Settlement Commission cannotmake an assessment or exercise the powers conferred on the otherAuthorities under the provisions of the Act. 24. As far as the original power of the Assessing Officerunder Section 153(A) of the Act is concerned, the Division Benchof this Court in the case of CANARA JEWELLERS vs. SETTLEMENTCOMMISSION reported in [2009] 184 Taxman 491 (Madras) held that"the Settlement Commission is empowered to have all the powers,which are vested in an income-tax Authority under the Act, inaddition to the power conferred under Chapter XIX-A, but suchpower can be exercised for the purpose of procedure ofsettlement of application under Section 245C and not forreasssessment of tax of a particular year which is vested withthe Assessing Authority". 25. The very concept of settlement is depending on themutual consensus and in the absence of element of mutualconsensus between the parties, the settlement by the SettlementCommission cannot be unilateral and in such an event, SettlementCommission is usurping the powers of the Assessing Officer underother provisions of the Act. In other words, every authorityunder the Income Tax Act, 1961 is expected to exercise thepowers as contemplated. 25. The very concept of settlement is depending on themutual consensus and in the absence of element of mutualconsensus between the parties, the settlement by the SettlementCommission cannot be unilateral and in such an event, SettlementCommission is usurping the powers of the Assessing Officer underother provisions of the Act. In other words, every authorityunder the Income Tax Act, 1961 is expected to exercise thepowers as contemplated. 26. In the present case, the application submitted by thepetitioner has been took up for adjudication and the issues wereadjudicated. Undoubtedly, the parties to the Settlement were co-operated and the Settlement Commission arrived a conclusion. Under the provisions of the Act, once the Settlement Commissionpassed an order, the same became final. As rightly pointed out,a decision of Settlement Commission could be interfered only oncertain circumstances, if grave procedural defect such asviolation of the mandatory procedural requirements are notfollowed and if there is no nexus or reasons given at thedecision taken by the Settlement Commission. 27. In the present case, the Settlement Commission haspassed a detailed order on 27 issues and the petitioner hereinis challenging the order of the Settlement Commission in respectof one issue only. Thus, the petitioner has dissected the orderand in respect of 27 issues, accepted the findings and regardingone issue, it filed the writ petition. Therefore, this Court ofthe considered opinion that the petitioner cannot selectivelyaccept the majority portion of the order passed by theSettlement Commission and dissect one issue, which was notconsidered to the expectation of the petitioner. Under thesecircumstances, the petitioner cannot adjudicate in respect ofthe said issue and the issue was left open for furtheradjudication by the competent authority. If the entire orderpassed by the Settlement Commission is under challenge, then itis different. However, in the present case, the petitioner haschallenged one issue, which was not decided in favour of thepetitioner. This being the factum, this Court cannot considerthe said issue on merits in the present writ petition. TheSettlement Commission in entirety adjudicated all the 28 issuesand 27 issues are decided to the satisfaction of the petitionerand regarding one issue, this Court cannot modify the SettlementCommission's order or quash the said issue alone. It is to beconstrued for all purposes that the said issue has not beensettled by the Settlement Commission and the competent authorityof the Income Tax Department is bound to proceed further inrespect of the issue, which was not settled before theSettlement Commission. 28. This being the factum established, the petitioner hasnot established any acceptable ground for the purpose ofconsidering the relief as such sought for the in the presentwrit petition. Thus, the writ petition stands dismissed. Nocosts. Sd/- Deputy Registrar(CS) //True Copy// Nst/Kak Sub Assistant Registrar To1.The Income Tax Settlement Commission, Additional Bench, 640, Anna Salai, Chennai – 600 035.2.The Commissioner of Income Tax – III, 121, Nungambakkam High Road, Nungambakkam, Chennai – 600 034.3.The Assessing Officer, 121, Nungambakkam High Road, Nungambakkam, Chennai – 600 034.4.Transfer Pricing Officer, 121, Nungambakkam High Road, Nungambakkam, Chennai – 600 034. +1cc to M/s.Hema Muralikrishnan, Advocate Sr No.43746 W.P.No.12109 of 2012 JP (CO)PR (13/09/2021)