Pr. Commissioner Of Income Tax (Central), Pune v. Income Tax Settlement Commission, Addl. Bench - I,Mumbai & Anr

R.M. AMBERKAR (Private Secretary) IN THE HIGH COURT OF JUDICATURE AT BOMBAYCIVIL APPELLATE JURISDICTION WRIT PETITION NO. 5997 OF 2017 WITHWRIT PETITION NO. 2321 OF 2017WRIT PETITION NO. 3351 OF 2017WRIT PETITION NO. 3509 OF 2017WRIT PETITION NO. 5752 OF 2017 Pr. Commissioner of Income Tax (Central), Pune..Petitioner Versus Income Tax Settlement Commission, Addl. Bench - I,Mumbai & Anr...Respondents ................... Mr. Charanjeet Chanderpal a/w Ms. Pragya Chandra for thePetitioner Mr. Charanjeet Chanderpal a/w Ms. Pragya Chandra for thePetitioner Mr. Jehangir Mistri, Sr. Counsel a/w Mr. Madhur Agrawal i/by AtulJasani for the RespondentsMr. Jehangir Mistri, Sr. Counsel a/w Mr. Madhur Agrawal i/by AtulJasani for the Respondents ................... CORAM : AKIL KURESHI & M.S. SANKLECHA, JJ. DATE : FEBRUARY 28, 2019. ORAL JUDGMENT(Per Akil Kureshi, J.) 1.Heard learned counsel for the parties for final disposalof these petitions 2.These petitions have been filed by the Income Tax Department to challenge an order dated 31.5.2016 passedby the Income Tax Settlement Commission ('Settlement Commission' for short) in so far as it relates to certaindirections for declaring the application for settlement of therespondent assessee as invalid in terms of Section 245D(2C)of the Income Tax Act, 1961 ("the Act" for short). Thislitigation has longish history. We would record the relevantfacts as briefly as possible. For convenience, such facts maybe taken from Writ Petition No. 5997 of 2017. 3.Respondent No. 2 - assessee had applied for settlementof its cases under Section 245C of the Act. for assessmentyears 2008-09 to 2013-14. In such application forsettlement, the assessee had not disclosed any additionalincome before the Settlement Commission in some of the assessment years. This settlement application passedthrough various stages envisaged under Section 245D of theAct, including to allow to proceed further under Section245D(2C). The Settlement Commission had passed an orderon 29.1.2015 under Section 245D(2C) of the Act in which itwas held and observed as under:- 7. After perusal of the above 5 cases, we finally hold that the objection raisedby the department was only on applicant's failure to disclose true and full income. Insupport of this contention, the department had not adduced any evidences orjustification. The reply / rejoinder submitted by the applicant in response to rule 6 reports have adequately dealt with the issues raised by the department in therespective cases. As of now, we find that there is no information available with thedepartment or with us to take an adverse view in respect of these five applicants notmaking true and full disclosure. Hence, we hold that the applicants have made atrue and full disclosure. There was no objections from the department on technicalissues. Therefore, we hold that all these five applicants have complied with thebasic requirement as contained under Section 245C(1). We hold all these 5applications to be not invalid and allow them to proceed further." 3.1We may note that at that stage, the SettlementCommission records that the Department had not raised anytechnical objection. 3.2It appears that despite such order of the SettlementCommission, the department had raised oral contentionsurging the Settlement Commission to hold that thesettlement application in which in relation to thoseassessment years, where no additional income was disclosedby the assessee, be treated to be invalid under Section245D(2C) of the Act. The Settlement Commission thereuponpassed the impugned order on 31.5.2016 titled as "An orderunder Section 245D(4) of the Act". In such order, theSettlement Commission held that the Commission wouldexclude from the purview of the settlement thoseassessment years where 'Nil' or 'No disclosure of additional 3.2It appears that despite such order of the SettlementCommission, the department had raised oral contentionsurging the Settlement Commission to hold that thesettlement application in which in relation to thoseassessment years, where no additional income was disclosedby the assessee, be treated to be invalid under Section245D(2C) of the Act. The Settlement Commission thereuponpassed the impugned order on 31.5.2016 titled as "An orderunder Section 245D(4) of the Act". In such order, theSettlement Commission held that the Commission wouldexclude from the purview of the settlement thoseassessment years where 'Nil' or 'No disclosure of additional income' was made within the meaning of Section 245C(1) ofthe Act or where the disclosure happens to be a loss figure.While doing so, the Settlement Commission also recordedthe apprehension of the counsel for the assessee that insuch a view of the matter, the declaration of invalidation ofthe settlement application would take effect from the date oforder under Section 245D(2C) and held that such position iscorrect. In essence, therefore, the Settlement Commissiondeclared that in relation to the concerned assessment years,the settlement application should not be allowed to proceedfurther from the stage of 245D(2C) and that such declarationwould take effect from 29.1.2015. We may reproduce therelevant portion of the order of Settlement Commission "5.8Under the Income-tax Act, the words "income" and 'tax' haveno meaning nor validity if these are divorced from the fundamentalconcept i.e. the assessment year. Whenever we speak of incomedisclosed in a settlement application it would certainly mean incomein respect of an assessment year or assessment years as included inthe settlement application. Divorced from the fundamental concept ofthe assessment year, the words "income" and "tax" can have nomeaning. When the Act says income not disclosed before theauthorities, its meaning would be income in respect of anassessment year not any other meaning. Hence, when an applicationincludes assessment year with nil or no disclosure of income, suchassessment year fails the fundamental test / condition laid down inthe provision of 245C(1). In that eventuality the Commission certainly cannot assume jurisdiction in respect of that assessmentyear with nil or no disclosure of additional income within the meaningof section 245C(1) This basic intent is very clear from the amendedform 34B which requires disclosure of additional income, tax payable,interest payable, manner of deriving additional income to be statedassessment year-wise. This amended form was on the statute bookw.e.f 2007. In this way the entire settlement scheme makeharmonious sense. It is the statutory requirement that there shouldbe disclosure of some undisclosed income for each assessment yearincluded in the settlement application. To reiterate, in the absence ofsuch disclosure in the assessment year, the ITSC cannot assumejurisdiction in respect of that assessment year. In view of thisposition, we decide to exclude from the purview of settlement the 23assessment years vide para No 5 above included in the fiveapplications where there is nil or no disclosure within the meaning ofsection 245C(1) or the disclosure happens to be a loss figure. Inarriving at this decision, we draw inspiration and support from thewords of the Hon'ble Supreme Court i.e. while over turning their owndecision in the case of Cloth Traders P. Ltd. (111 ITR 243) in asubsequent decision in the case of Distributors Baroda (P) Ltd. (155ITR 120). These words are: "To perpetuate an error is no heroism.To rectify it is the compulsion of the judicial conscience". In view ofthe above extract, the citation of instances from the recent past ofsettlement of cases with facts similar to the applicants' does not at allassist the claim or contention of the applicants. As regards theapplicants written request to the Chairman, ITSC i.e. the applicants'letter dated 16.05.2016 we would like to record the observation herethat the said letter contained significant serious omissions anddistortions. Under para No.2 of their letter, while extracting para 3.3from the order u/s 245D(2C) dated 29.01.2015 the following crucialbut inconvenient fact recorded by the Bench was omitted :- "As already observed in the order u/s. 245D(1), we feel that--the claim of additional income for A.Y. 200809 to 201314 on account of alleged defective return cannot be treated as additionalincome for the purpose of section 245C(1)"Under para no 4 oftheir letter they made further misrepresentation and distortion of thefact relating to the order u/s.245D(3) in saying that: the AO has"commented points for all assessment years from A.Y. 2008-09 to2014-15. All these proves that the Department is also of theunderstanding of the fact that the applications of the applicants areadmitted and held to be "not valid for all assessment years of theapplications." It is in place to refer to the extract from para No. 6 ofthe order u/s. 245D(3) above i.e. under para No. 4 in view of suchomission and distortion on the part of the applicants a 14 page letterwith Annexure was addressed by the VC of the Additional Bench -I tothe present Chairman of the ITSC who was a signatory to the orderu/S. 245D(2C) dated 29.1.2015 i.e in his erstwhile capacity as aMember of the Additional Bench -I, Mumbai. The other contentionsadvanced by the Ld. AR have no relevance in the light of theforegoing discussion. The apprehension expressed by the Ld. ARregrading the invalidation of the assessment years with nil or nodisclosure of additional income w.e.f date of order u/S. 245D(2C)is correct in as much as the invalidation had occurred underSection 245D(2C) dated 29.1.2015." 3.3 In relation to those assessment years where theSettlement Commission held that the application forsettlement was invalid, the Assessing OfÏcer passedseparate orders of assessment in second and third week ofJuly, 2017. We are informed that in some cases, theAssessing OfÏcer himself has not made any additions. In assessments where the Assessing OfÏcer has madeadditions, the assesssee has filed appeals. 3.3 In relation to those assessment years where theSettlement Commission held that the application forsettlement was invalid, the Assessing OfÏcer passedseparate orders of assessment in second and third week ofJuly, 2017. We are informed that in some cases, theAssessing OfÏcer himself has not made any additions. In assessments where the Assessing OfÏcer has madeadditions, the assesssee has filed appeals. 4.In such background, the issue arises before us inrelation to the order of the Settlement Commission,invalidating the settlement application by passing the orderdated 31.5.2016 but relating it back to the original order ofSection 245D(2C) dated 29.1.2015. In plain terms, thisdispute has direct relation to the period of limitationavailable with the Assessing OfÏcer for completing theassessment in such cases. It would appear that if theeffective date of such order is taken as 29.1.2015, theAssessing OfÏcer would have left 6 days to complete theassessment after the Settlement Commission passed theimpugned order. In the present case, since he has passedthe orders of assessment on 14.7.2016, his action would beplainly barred by limitation. If, on the other hand, the effectof Settlement Commission's said order invalidating thesettlement application of the assessee, is taken as 31.5.2016i.e the actual date of passing the order, the Assessing OfÏcerwould have the benefit of exclusion from limitation period from the date of filing the application till passing of theimpugned order by the Settlement Commission. 5.At the outset, we would like to refer to two things.Firstly, learned counsel for the assessees pointed out that inWrit Petition Nos. 2321 of 2017 and 3351 of 2017, the casesinvolved are such where even in the orders of assessmentpassed by the Assessing OfÏcer on in July, 2016, no additionshave been made and such assessments are not taken inrevision by the Commissioner. Going by such statement, itwould immediately appear that the entire issue has becomeacademic in relation to these petitions. These petitions,therefore, stand disposed of without any furtherorders or directions. The second aspect which emerges isthat drafting of the petition by the department was; to put itmildly completely jumbled up. 6.However, we have with the assistance of the learnedcounsel for the parties gathered necessary facts and thegrievance of the department in relation to the said orderpassed by the Settlement Commission. A short question, therefore, to be decided in this petition is, was theSettlement Commission justified in giving retrospective effectto the order invalidating the settlement application of theassessees in relation to certain assessment years. 7.In this context, learned counsel for the departmentsubmitted that the order passed by the State Commissionleft in all six days for the Assessing OfÏcer to complete theassessment which was humanly impossible. This Court,therefore, should appropriately mould the relief and pass anorder which will protect the interest of the Revenue. 8.On the other hand, Mr. Mistri, learned senior counsel forthe assessees strongly opposed this petition and contendedas follows:- (i) The order under Section 245D(2C) invalidating theapplication can be passed at that stage and notthereafter. In the present case, the SettlementCommission had passed the order on 29.1.2015 allowingthe settlement application to proceed further. Oncehaving done that, the Settlement Commission could nothave passed the fresh order that too at the stage ofSection 245D(4); 8.On the other hand, Mr. Mistri, learned senior counsel forthe assessees strongly opposed this petition and contendedas follows:- (i) The order under Section 245D(2C) invalidating theapplication can be passed at that stage and notthereafter. In the present case, the SettlementCommission had passed the order on 29.1.2015 allowingthe settlement application to proceed further. Oncehaving done that, the Settlement Commission could nothave passed the fresh order that too at the stage ofSection 245D(4); (ii) The prayer of the department is wholly untenable.The statute envisages important stages of settlementproceedings and also makes specific provisions forrecommencement of the assessment if application forsettlement is declared either invalid or having abated.Matching provisions for limitation have been made whichsimply cannot be extended. (iii) In any other view would amount to (a) recognizingtwo separate orders of Settlement Commission underSection 245D(2C) and (b) the impugned order would beone passed under Section 245D(2C) as well as underSection 245D(4) which the legislature simply does notenvisage. (iv) Our attention was drawn to the provisions contained inSection 245D with particular focuss on sub-section (1), sub-section (2B), sub-section (2C), sub-section (2D), sub-section(4) thereof and Section 245HA and Section 153 with specialreference to clause (vii) of explanation 1 to the said Section. 9.As is well known, Section 245D of the Act makes detail provisions in respect of procedure on receipt of anapplication under Section 245C. As per sub-section (1) ofSection 245D, on receipt of an application under Section245C, the Settlement Commission shall, within seven daysfrom the date of the receipt of the application, issue a noticeto the applicant requiring him to explain as to why the application made by him be allowed to be proceeded with,and upon hearing the applicant, the Settlement Commissionwould pass order within fourteen days. Under sub-section(2) of Section 245D in respect of an application which isallowed to be proceeded with under sub-section (1), theSettlement Commission would call for a report from theRevenue Authorities within the specified time. Sub-section(2C) of Section 245D provides that where a report of theRevenue Authority has been furnished within the prescribedtime, the Settlement Commission may, on the basis of thereport, within 15 days of the receipt thereof, by an order inwriting declare the application in question as invalid andshall send the copy of such order to the applicant and to theRevenue Authority. If the Settlement Commission does notmake such a declaration of invalidity of the application, theprocedure envisaged under sub-section (3) would be followedafter which the Settlement Commission would pass order onsuch settlement application as envisaged under sub-section(4) of Section 245D. 10. Section 245HA(1) inter alia provides that where anapplication made under Section 245C has been declared asinvalid under sub-section (2C) of Section 245D, theproceedings before the Settlement Commission shall abateon such date. Sub-section (4) of Section 245HA provides thatfor the purpose of time limit, under besides other provisions,Section 153, the period commencing on and from the date ofthe application to the Settlement Commission under Section245C and ending with specified date referred to in sub-section (1) shall be excluded. We may also notice thatclause (vii) of Explanation 1 to Section 153 of the Actcontains explanation, for the purpose of computing period oflimitation under the said provision. Clause (vii) reads asunder:- 10. Section 245HA(1) inter alia provides that where anapplication made under Section 245C has been declared asinvalid under sub-section (2C) of Section 245D, theproceedings before the Settlement Commission shall abateon such date. Sub-section (4) of Section 245HA provides thatfor the purpose of time limit, under besides other provisions,Section 153, the period commencing on and from the date ofthe application to the Settlement Commission under Section245C and ending with specified date referred to in sub-section (1) shall be excluded. We may also notice thatclause (vii) of Explanation 1 to Section 153 of the Actcontains explanation, for the purpose of computing period oflimitation under the said provision. Clause (vii) reads asunder:- (vii) the period commencing from the date on which an applicationis made before the Authority for Advance Rulings under sub-section (1) of Section 245Q and ending with the date on whichthe advance ruling pronounced by it is received by the PrincipalCommissioner or Commissioner under sub-section (7) ofSection 245R,or"is made before the Authority for Advance Rulings under sub-section (1) of Section 245Q and ending with the date on whichthe advance ruling pronounced by it is received by the PrincipalCommissioner or Commissioner under sub-section (7) ofSection 245R,or" 11. In view of above statutory provisions, it was perhaps open for the assessee to argue before the SettlementCommission that previously an order, that too a reasoned order having already been passed by the SettlementCommission on 29.1.2015 allowing the application to crossthe stage of Section 245D(2C), it was thereafter not open forthe Settlement Commission to entertain any request of thedepartment and to pass a fresh order declaring that inrespect of certain assessment years, the settlementapplication was invalid. It was also perhaps open for theassessee to argue that in any case, the above combinedorder, one purported to be under Section 245D(2C) andanother under Section 245D(4) could not have been passed. 12. In the present petition, we are not concerned with suchcontentions. The assessee has not challenged this order ofthe Settlement Commission. We are, therefore, not calledupon to judge the correctness of this part of the order of theSettlement Commission. What is however, clear is, once theSettlement Commission did pass an order, whether legallypermissible to do so or not, the Settlement Commissionsimply did not have the authority or jurisdiction to predatesuch order. The Settlement Commission could have rejectedthe request of the Revenue to go back to the stage of passing the order under Section 245D(2C) and proceedfurther to pass final order of settlement under Section245D(4), but under no circumstances, the SettlementCommission could have made a declaration of invalidity on31.5.2016 giving it a retrospective effect of 29.1.2015. TheSettlement Commission exceeded its jurisdiction in doing so.When the Settlement Commission had no jurisdiction to giveretrospective effect to its order, whether the Revenuerequested for the same or the assessee, would be whollyinconsequential. In essence, the Settlement Commissioncould either have refused the request of the department oraccepted it but under no circumstances could it have passedthe order of invalidation with retrospective effect. For betterunderstanding on this aspect, we reproduce Section 245D(2)as under: "(2C) Where a report of the [Principal Commissioner or]Commissioner called for under sub-section (2B) has been furnishedwithin the period specified therein, the Settlement Commission may,on the basis of the report and within a period of fifteen days of thereceipt of the report, by an order in writing, declare the application inquestion as invalid, and shall send the copy of such order to theapplicant and the [Principal Commissioner or] Commissioner: "(2C) Where a report of the [Principal Commissioner or]Commissioner called for under sub-section (2B) has been furnishedwithin the period specified therein, the Settlement Commission may,on the basis of the report and within a period of fifteen days of thereceipt of the report, by an order in writing, declare the application inquestion as invalid, and shall send the copy of such order to theapplicant and the [Principal Commissioner or] Commissioner: Provided that an application shall not be declared invalid unless anopportunity has been given to the applicant of being heard: Provided further that where the [Principal Commissioner or]Commissioner has not furnished the report within the aforesaidperiod, the Settlement Commission shall proceed further in thematter without the report of the [Principal Commissioner or]Commissioner." This provision can be analyzed as under:- (i) Where a report called under sub-section (2B) is furnishedwithin time specified therein, the Settlement Commission onthe basis of such report pass an order in writing declaringapplication for settlement as invalid;within time specified therein, the Settlement Commission onthe basis of such report pass an order in writing declaringapplication for settlement as invalid; (ii) such order shall be passed within 15 days of receipt of thereport;report; (iii) application shall not be declared invalid unless opportunity isgiven to the applicant of being heard;given to the applicant of being heard; (iv) If report has not been furnished within the prescribed time, theSettlement Commission would proceed further without thereport.Settlement Commission would proceed further without thereport. Under Section 245D(2C), thus the SettlementCommission could declare an application for settlementinvalid, but such order has to be passed within prescribedtime. In the present case, the Settlement Commission toovercome such time limit, passed an order giving itretrospective effect. If we recognize the powers of theSettlement Commission to pass such retrospective orders,the time limits envisaged by the legislature at various stagesof settlement proceedings would be destroyed. 13. In the present case, the order passed by the SettlementCommission left six days to the Assessing OfÏce to completethe assessments. We wonder what would be the situation ifthe Settlement Commission had passed such an order sixdays later than it has done. Be that as it may, we are clearlyof the opinion that the Settlement Commission, while givingretrospective effect to its order of invalidation, it acted whollywithout jurisdiction. 14. Mr. Mistri, may be justified in wondering if theSettlement Commission while passing order under Section245D(4) of the Act, in the same order could have given thedeclaration of invalidity of the application. Two things arehowever, clear. One, the Settlement Commission has done itand we cannot undo it; uncalled for. Second, though it is acombined order of Settlement Commission, in relation to theconcerned assessment year, the Settlement Commission hasclearly exercised powers under Section 245D(2C) of the Act. 15. Another important aspect of the matter is, that theportion of the order of Settlement Commission giving retrospective effect to the declaration of invalidity of thesettlement application is clearly severable from the mainorder of invalidity. While therefore, striking down this illegal,severable portion of the order, we need not disturb theprinciple declaration made by the Settlement Commission. 15. Another important aspect of the matter is, that theportion of the order of Settlement Commission giving retrospective effect to the declaration of invalidity of thesettlement application is clearly severable from the mainorder of invalidity. While therefore, striking down this illegal,severable portion of the order, we need not disturb theprinciple declaration made by the Settlement Commission. 16. Under the circumstances,weholdthattheobservation / direction of retrospective effect of the order isset aside and the order passed by the SettlementCommission on 31.5.2016 would take effect from such date.Before closing, we recognize that previously though the orderinvalidating the settlement application was adverse to theassessee, the assessee may be justified in not challenging it.However, when by this judgment, the entire basis hasundergone a fundamental change, we would not precludethe petitioner from raising any such challenge independently.With these observations, all the petitions are disposed of. [ M.S. SANKLECHA, J. ] [ AKIL KURESHI, J ]