Wp/25229/2000 Of The Commissioner Of Income Tax v. The Settlement Commissioner (It And Wt)

* HON’BLE SRI JUSTICE G. CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM +WRIT PETITION No.25229 OF 2000 %10.04.2014 The Commissioner of Income Tax, Vijayawada and another And .....Petitioners The Settlement Commissioner (IT & WT), Additional Bench, Anna Salai,Chennai and another. .....Respondents ! Counsel for the Petitioners: Sri J.V.Prasad ^ Counsel for respondent No.1: Smt Kiranmayai. ^ Counsel for the respondent No.2 Sri A.V.Krishna Kaundinya < Gist: Head Note: ? Cases referred: [1] (2000) 243 ITR 0689 2. ITR 1994 (206) 443 ITR 1994 (206) 443 HON’BLE SRI JUSTICE G. CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION No.25229 OF 2000 ORDER:- (per Hon’ble Sri Justice Challa Kodanda Ram) Writ Petition is filed by the petitioners questioning the order dated 25.02.2000 passed by the Settlement Commission (IT & WT), AdditionalBench, Chennai/1[st] respondent in S.A.No.520/VIJ/40/99/IT, whereby the 1[st]respondent admitted the application filed by the 2[nd] respondent for thepurpose of considering the same under the Chapter XIX-A of the IncomeTax Act (for short, “the Act”). 2. The affidavit sworn by Suprakash Lahiri, S/o. S.S.Lahiri,Commissioner of Income Tax, Vijayawada, filed into the Court on18.12.2000 and the same came to be admitted on 19.12.2000. Whileadmitting the writ petition, this Court granted interim suspension as prayedfor in W.P.M.P.No.32185 of 2000 on the same day. The order impugnedwas challenged on the following grounds: a) The report of the 1[st] petitioner and the writtensubmissions filed on behalf of the Revenue werenot adverted to.submissions filed on behalf of the Revenue werenot adverted to. b) The statements given by the assessee/2[nd]respondent during the search was voluntary.respondent during the search was voluntary. c) The concealment has already been detected bythe Department and to determine the undisclosedincome, no complex investigation is required.the Department and to determine the undisclosedincome, no complex investigation is required. d) The assessee/2[nd] respondent can raise all hisobjections at the time of assessments before theAssessing Officer, when a notice under Section143(2) of the Act is issued.objections at the time of assessments before theAssessing Officer, when a notice under Section143(2) of the Act is issued. e) The assessee/2[nd] respondent did not dischargethe statutory liability of disclosing the income fullyand truly. The entertainment of application wouldjeopardise the interest of the revenue as there isa possibility of the assessment yielding hugeundisclosed income.the statutory liability of disclosing the income fullyand truly. The entertainment of application wouldjeopardise the interest of the revenue as there isa possibility of the assessment yielding hugeundisclosed income. 3. A counter-affidavit has been filed by the 2[nd] respondent denying theallegations made in the affidavit filed in support of writ petition and statedthat on 19.12.2000 by the time, the writ petition came to be admitted andinterim order came to be passed, final orders were passed by the SettlementCommission on 20.11.2000 under Section 245D(4) of the Act and in thatview of the matter, the very writ petition itself had become infructuous. It 3. A counter-affidavit has been filed by the 2[nd] respondent denying theallegations made in the affidavit filed in support of writ petition and statedthat on 19.12.2000 by the time, the writ petition came to be admitted andinterim order came to be passed, final orders were passed by the SettlementCommission on 20.11.2000 under Section 245D(4) of the Act and in thatview of the matter, the very writ petition itself had become infructuous. It was further averred that after considering the report filed by the 1[st] petitionerand considering the prima facie case of the 2[nd] respondent, the 1[st]respondent admitted the case for consideration and issued notice. Thereafter, the first petitioner filed a detailed report raising variousobjections opposing the 2[nd] respondent’s application under Section 245C(1) of the Act and the 2[nd] petitioner had appeared before the SettlementCommission all through and was aware of passing of the final orders. Inasmuch as the 2[nd] respondent never chose to question the final orderspassed by the Settlement Commission/1[st] respondent, the 2[nd] respondentprayed for dismissal of the writ petition. This counter-affidavit was filed bythe 2[nd] respondent on 17.08.2001. Thereafter, W.P.M.P.No.28188 of 2002came to be filed before this Court on 01.11.2002 praying the court to amend the prayer in the main writ petition by inserting after the words“violative of the principles of natural justice and to set-aside the same” addbefore the words “and to pass such order or orders” the following words“and consequently set aside the order dated 20.11.2000 passed U/s.245(D)(4) of the Income Tax Act.” 4. In the affidavit sworn by one A.R.Reddy, S/o. A.Venkata Rami Reddy,Commissioner of Income Tax, Guntur, it is stated that “we understand thatthe 1[st] respondent passed final orders U/s.245D (4) of the Act on the 2[nd]respondent’s application on 20.11.2000 even before filing of the WritPetition on 18.12.2000. It is further stated that the copy of the said orderwas received in the office on 21.12.2000 i.e., after filing of the writ petitionand passing of the interim orders in W.P.M.P.No.32185 of 2000. Therefore,we did not have an occasion to challenge the order passed by the firstrespondent under Section 245D(4) of the Act.” 5. Another counter-affidavit was filed by the 2[nd] respondent opposing theprayer of amendment in the main writ petition and the W.P.M.P.No.28188 of2002 was not ordered by the Court. However, the Court ordered to post theconnected W.P.M.Ps along with the writ petition. In the additional counter- affidavit filed by the 2[nd] respondent, it has been stated that after receipt ofthe orders of the Settlement Commission, 2[nd] petitioner passed theconsequential orders on 29.12.2000 giving effect to the final orders of the1[st] respondent dated 20.12.2000 and infact a demand for additional tax wasraised and the same has been paid. In that view of the matter, the challengeto the order of the Settlement Commission is unmeaning. The delay inseeking amendment of the prayer in the writ petition to include thequestioning of final orders of the Settlement Commission, at this point oftime, should not be allowed as the same would be putting the clock backand would cause great prejudice to the 2[nd] respondent. affidavit filed by the 2[nd] respondent, it has been stated that after receipt ofthe orders of the Settlement Commission, 2[nd] petitioner passed theconsequential orders on 29.12.2000 giving effect to the final orders of the1[st] respondent dated 20.12.2000 and infact a demand for additional tax wasraised and the same has been paid. In that view of the matter, the challengeto the order of the Settlement Commission is unmeaning. The delay inseeking amendment of the prayer in the writ petition to include thequestioning of final orders of the Settlement Commission, at this point oftime, should not be allowed as the same would be putting the clock backand would cause great prejudice to the 2[nd] respondent. 6. The learned counsel for the Revenue would submit that the order of theSettlement Commission passed under Section 245D(1) of the Act suffersfrom grave irregularities of not adverting to the objections raised by theCommissioner of Income Tax vide his report dated 16.12.1999 and also innot considering the written submissions of the Revenue filed through theDepartmental Representative (DR) at the time of raising preliminaryobjections at the stage of Section 245D(1) of the Act for consideration. Thelearned counsel for the Revenue would draw the attention of the Court to theapplication of 2[nd] respondent and would submit that there was no full andtrue disclosure of income which has not been disclosed before theAssessing Officer; that the Settlement Commission ignoring the facts that avoluntary statement was given by the 2[nd] respondent before the AssessingOfficer admitting an undisclosed income of Rs.1.2 crores for the blockperiod; the Settlement Commission erred in placing undue reliance on the2[nd] respondent attracting the statement given under Section 132 of the Actand failed to appreciate the said attraction was a belated attraction after 11months and as such the same ought to have been ignored by the SettlementCommission; the contention of the 2[nd] respondent that the writ petition hasbecome infructuous is liable to be rejected as the challenge in the writpetition is to the case being admitted for consideration under Section245D(1) of the Act which itself is irregular ignoring the specific objectionsraised by the Department, the mere passing of the final order under Section 245D(4) of the Act is of no consequence; and as a matter of fact, anamendment petition vide W.P.M.P.No.28188 of 2002 challenging the finalorder dated 25.02.2000 and the same is listed along with the main writpetition and the learned counsel for the Revenue would finally pray for theCourt to allow both the W.P.M.P.No.28188 of 2002 as well as the main writpetition. 7. The learned counsel appearing for the 2[nd] respondent opposed forordering of the W.P.M.P.No.28188 of 2002 and would submit that one of theground on which the amendment has been sought is violation of principlesof natural justice. 245D(4) of the Act is of no consequence; and as a matter of fact, anamendment petition vide W.P.M.P.No.28188 of 2002 challenging the finalorder dated 25.02.2000 and the same is listed along with the main writpetition and the learned counsel for the Revenue would finally pray for theCourt to allow both the W.P.M.P.No.28188 of 2002 as well as the main writpetition. 7. The learned counsel appearing for the 2[nd] respondent opposed forordering of the W.P.M.P.No.28188 of 2002 and would submit that one of theground on which the amendment has been sought is violation of principlesof natural justice. 8. He would point out the orders passed by the Settlement Commissionboth at the stage of Section 245D(1) and Section 245D(4) of the Act andwould point out that at every stage, the petitioners had participated in theproceedings and ample opportunity was given and it is not their case in themain writ petition or in the supplementary application that they did not haveadequate opportunity to present their case before the SettlementCommission. It is only in the prayer portion they had brought the aspect ofviolation of principles of natural justice without there being any factualfoundation in the main affidavit. In that view of the matter, the learnedcounsel would oppose ordering of the amendment prayer and would submitthat the petitioners were not diligent in prosecuting the case and they werereally not aggrieved and no prejudice whatsoever is caused to thedepartment. He would further point out that the 2[nd] petitioner all throughwas in fact participated in the proceedings before the 1[st] respondent and infact he was the officer who passed the consequential order dated29.12.2000 after the receipt of the final orders passed by the 1[st]respondent/Settlement Commission. He would further contend that theaverments made in the counter affidavit were not denied by the petitionersby filing reply. In that view of the matter, he prays for dismissal of the writpetition. 9. We have considered the rival submissions at length. While we appreciate the strenuous efforts made by the learned counsel for thepetitioners for taking us through both the preliminary and final reports of theCommissioner of Income Tax filed before the Settlement Commission, weare unable to comment anything on the same as the same would beencroaching into the issue which has been settled by the 1[st] respondent inits final orders. It is well settled by the catena of judgments of various HighCourts that the scope of interference of this Court with the orders of theSettlement Commission are highly restricted and limited. A reference maybe made to the judgments of this Court reported in Patel Desai and Co. v.Assistant Commissioner of Income-tax and Meera Industries v. Assistant Commissioner of Income-tax[[1]].Reliance placed by thelearned counsel for the Revenue on a judgment of the Supreme Courtreported in Commissioner of Income-Tax v. Express NewspapersLtd.,[[2]].We are afraid, would not advance their case in any manner. On aclose scrutiny of the said judgment, the same would reveal that in thepeculiar facts of that case while analysing the provisions of Sections 245Cand 245D of the Act as then existing the Court came to interfere with theorders of the Settlement Commission. Further, one noticeable thing whichrequires specific mention is about omission of Sub Section 1A in Section245D of the Act with effect from 27.09.1991. The Sub Section 1A of Section245D of the Act which has been omitted may be noticed as under:- Assistant Commissioner of Income-tax[[1]].Reliance placed by thelearned counsel for the Revenue on a judgment of the Supreme Courtreported in Commissioner of Income-Tax v. Express NewspapersLtd.,[[2]].We are afraid, would not advance their case in any manner. On aclose scrutiny of the said judgment, the same would reveal that in thepeculiar facts of that case while analysing the provisions of Sections 245Cand 245D of the Act as then existing the Court came to interfere with theorders of the Settlement Commission. Further, one noticeable thing whichrequires specific mention is about omission of Sub Section 1A in Section245D of the Act with effect from 27.09.1991. The Sub Section 1A of Section245D of the Act which has been omitted may be noticed as under:- “(1A) Notwithstanding anything contained in sub-section (10,an application shall not be proceeded with under that sub-section, if the Commissioner objects to the application beingproceeded with on the ground that concealment of particularsof income on the part of the applicant or perpetration of fraudby him for evading any tax or other sum chargeable orimposable under the Indian Income Tax Act, 1922 (11 of 1922),or under this Act, has been established or is likely to beestablished by any income-tax authority, in relation to the case: Provided that where the Settlement Commission is notsatisfied with the correctness of the objection raised by theCommissioner, the Settlement Commission may, after givingthe Commissioner an opportunity of being heard, by order,allow the application to be proceeded with under sub-section(1) and send a copy of its order to the Commissioner.” 10. The significance of omission is to the effect that prior to its omission, itwas obligatory on the part of the Settlement Commission to keep its handsoff the case when an objection is raised by the Commissioner forconsideration of case under Section 245C(1) of the Act. Whereas now it iswithin the discretion of the Settlement Commission to admit a case forconsideration or not. This aspect of the matter which is noticed by theSupreme Court at page 453 of the very same judgment reported inCommissioner of Income-Tax (2 supra) referred to by the learned counselfor the Revenue. A reference may be made to “As originally enacted themain limb of sub-section (1) provided that on receipt of an application undersection 245C, the Commission shall call for a report from the Commissionerwith respect to the application. The decision whether to “allow theapplication to be proceeded with or reject the application” had to be taken(a) on the basis of the material contained in the Commissioner’s report, and(b) having regard to the nature and circumstances of the case or thecomplexity of the investigation involved therein. The first proviso said thatno such application shall be rejected unless an opportunity of hearing isafforded to the applicant. The second proviso to sub-section (1), however,provided that the Commission shall not proceed with the application filedunder section 245C, if the Commissioner objected to the application beingproceeded with on the ground that “concealment of particulars of income onthe part of the applicant or perpetration of fraud by him for evading any tax orother sum chargeable or imposable under the Indian Income-tax Act, 1922(11 of 1922), or under this Act, has been established or is likely to beestablished by any income-tax authority, in relation to the case”. If theCommissioner objected on the ground aforesaid, the Commission could notproceed with the application under Section 245C. (It is not necessary todecide, for the purpose of this case, whether the mere objection of theCommissioner sufficed and whether the Commission had no power toexamine the correctness of the said objection). By the Finance Act, 1979,the second proviso was deleted. The main limb of sub-section 91) and thefirst proviso, however, remained untouched. In place of the second proviso, sub-section (1A) was introduced. The effect of this amendment was that thecommissioner’s objection ceased to be final and conclusive. The proviso tosub-section (1A) empowered the Commission to examine whether theobjection of the Commissioner was correct or not. After hearing theCommissioner, if the Commission was satisfied that the objection of theCommissioner was not correct, it could proceed with the application.” 11. As a matter of fact, what all is required by the Settlement Commissionat the stage of entertaining the application is whether a prima facie case ismade out or not and in that context only subsequent amendments whichhave been brought in Sections 245C and 245D of the Act had dispensedwith even issuing a preliminary notice to the Commissioner of Income Taxleaving it to the absolute discretion of the Settlement Commission toentertain a case or not for its consideration. The reasons for giving suchdiscretion to the Commission cannot be lost sight particularly keeping inview of the objects of establishment of Settlement Commission and to settlethe disputes between the taxpayer and the department in an amicablemanner. As a matter of fact, the recent legislative efforts in bringing Section268A of the Act and in issuing various circulars whereby restraining thedepartment officials to file appeals and further appeals in all and sundrycases recognising futility of such exercise may be noticed. A close perusalof the order passed by the Settlement Commission, both at the stage ofadmission and also at the stage of passing of the final order, we find, as amatter of fact, ample opportunity was given to the Department to file theirobjections and also the representatives of the department were heardbefore passing the orders and in that view of the matter, we are unable toconcur with the contention of the learned counsel for the petitioner that theorder is vitiated on account of violation of principles of natural justice. Inasmuch as we are satisfied that it was within the discretion of theSettlement Commission at the stage of Section 245D(1) of the Act to admit acase for consideration based on the prima facie view, the aspect ofadmission of a case by the Settlement Commission except in exceptionalcircumstances cannot be the subject matter of a judicial review. Thisbecomes clear from the law laid down in catena of judgments with reference to the restricted scope of interference by the Courts even with the finalorders of the Settlement Commission. In that view of the matter, we do notsee any reasons to order the amendment petition. Accordingly, theW.P.M.P.No.28188 of 2002 is dismissed. 12. Further, for the reasons stated above, we also do not find anyreasons to interfere with the discretionary orders passed by the 1[st]respondent/Settlement Commission under Section 245D(1) of the Actadmitting the case which in fact fructified into a final order, given effect toand implemented as long as on 29.12.2000. 13. Accordingly, the writ petition is dismissed. No order as to costs. Miscellaneous Petitions, if any, pending in this Writ petition, shall standclosed. _____________________ G. CHANDRAIAH,J Date:10.04.2014. -Note: L.R copy to be marked. B/o. Gk. _____________________________ CHALLA KODANDA RAM, J HON’BLE SRI JUSTICE G. CHANDRAIAH AND HON’BLE SRI JUSTICE CHALLA KODANDA RAM WRIT PETITION No.25229 OF 2000 Date:10.04.2014. Gk. [1](2000) 243 ITR 0689[2]ITR 1994 (206) 443