Wp/5333/2018 Of Dr. Prathap Chandra Reddy v. Income Tax Settlement

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 19.06.2018 CORAM THE HON'BLE MR. JUSTICE T.S.SIVAGNANAMW.P.No.5333 of 2018 & W.M.P. Nos.6553 & 6554 of 2018 Dr. Prathap Chandra Reddy ...Petitionerv. 1 Income Tax Settlement Commission Additional Bench, Chennai Ministry of Finance Department of Revenue 640, Anna Salai, Nandanam Chennai- 600 035.2 Assistant Commissioner of Income Tax Central circle 3(1), Chennai New No. 46 Mahatma Gandhi Road Chennai- 600 034. ...Respondents Writ Petition filed under Article 226 of the Constitution ofIndia to issue a Writ of Certiorarified Mandamus, calling forthe records of the 1st respondent contained in the order bearingTN/CN 51/2017-18/37-IT, dated 16.02.2018 and to consequentlyquash the order dated 21.12.2017 as arbitrary unjust andillegal and to consequently direct the 1st respondent to permitthe petitioner to file a fresh application u/s. 245C of theIncome Tax Act 1961. For Petitioner : Mr.P.S.Raman, Senior Counsel Assisted by Mr.R.SivaramanFor Respondent : Mr.A.P.Srinivas Senior Standing Counsel Heard Mr.P.S.Raman, learned Senior Counsel, assisted byMr.R.Sivaraman, learned counsel appearing for the petitioner andMr.A.P.Srinivas, learned Senior Standing Counsel appearing forthe Revenue. 2. The petitioner has filed this writ petition challengingthe order dated 16.02.2018 of the 1st respondent, viz.,Income Tax Settlement Commission, Additional Bench, Chennai(hereinafter referred to as 'Settlement Commission') andconsequently quash the order dated 21.12.2107 as arbitrary,unjust and illegal and direct the Settlement Commission topermit the petitioner to file a fresh application under Section245C of the Income Tax Act 1961 (hereinafter referred to as"the Act"). 3. The issue in the instant case lies in a very narrowcampus. The petitioner filed an application under Section 245Cof the Act before the Settlement Commission on 13.12.2017requesting the Commission to settle the following issues:- 1.1 To decide the undisclosed income of theapplicant for the assessment years 2010-11 to 2016-17resulting from the incriminating materials seized atthe time of the search initiated on 05.01.2016 at thepremises of Apollo Hospitals Enterprises Ltd., whereinthe applicant is holding the office as Chairman and atthe residential premises of the applicant at No.19,Bishop Gardens, Raja Annamalaipuram, Chennai - 600 028. 1.2 To decide the waiver of various penaltiesleviable under the Income Tax Act, 1961. 1.3 To decide the grant of immunity from penaltyand prosecution under the Income Tax Act, 1961. 4. The petitioner in the said application has stated thenature and circumstances of the case and enclosed the requisitedetails including the details of additional tax liability onadditional income. 5.1 It may not be necessary for this court to go into themathematical details as set out in the application forsettlement. What is called upon to be decided by this court iswhether the settlement commission could have rejected theapplication filed by the petitioner and not allowing it to beproceeded treating it as invalid under section 245(D) 2(C) ofthe Act. On the application being entertained, the SettlementCommission passed an order dated 21.12.2017 under section 245D (1) of the Act after taking note of the details furnished inthe application for settlement as well as the paper book filedalong with it, found that all the requirements laid down undersection 245(C) (1) have been fulfilled by the petitioner. 5.1 It may not be necessary for this court to go into themathematical details as set out in the application forsettlement. What is called upon to be decided by this court iswhether the settlement commission could have rejected theapplication filed by the petitioner and not allowing it to beproceeded treating it as invalid under section 245(D) 2(C) ofthe Act. On the application being entertained, the SettlementCommission passed an order dated 21.12.2017 under section 245D (1) of the Act after taking note of the details furnished inthe application for settlement as well as the paper book filedalong with it, found that all the requirements laid down undersection 245(C) (1) have been fulfilled by the petitioner. 5.2 It was further pointed out that on the basis of thematerials placed before the Settlement Commission, they were ofthe view that prima facie there is no material in thepossession of the Settlement Commission, which warrants theconclusion that true and full disclosure has not been made bythe petitioner or he has not disclosed the manner of earningsuch income. Accordingly, the Settlement Commission held thatthe application is fit to be allowed to be proceeded withfurther. An order to the said effect was passed withoutprejudice to the finding that may be given at a later stage ofthe proceedings. Pursuant to the said order, the PrincipalCommissioner of Income Tax, Central -1 (i/c), Chennai, submitteda report under section 245D(2B) of the Act. The petitioner wasgiven an opportunity to offer his comments on the reportdated 05.02.2018, which the petitioner had filed on12.02.2018. 5.3 The case was listed for hearing before the Commissionon 16.02.2018 three days before the hearing on 13.02.2018, thePrincipal Commissioner of Income Tax, Central -1 (i/c), Chennai(hereinafter referred to as 'PCIT'), submitted a supplementaryreport under section 245D(1). In the said report, the PCIT hadstated that a refund of Rs.98,18,350/-, vide cheque dated25.10.2016, has already been issued to the petitioner for theassessment year 2016-17 by the CPC, Bengaluru after processingthe original return filed by the petitioner and thus, thereexists no refund due for the assessment year 2016-17, which canbe adjusted against the additional tax liability. The reportstates that the petitioner has offered additional income ofRs.1,83,68,000/- before the Settlement Commission for theassessment year 2016-17, which resulted in additional taxliability of Rs.63,56,798/-, however, the petitioner has notpaid any tax on the additional income offered for theassessment year 2016-17. Hence, it was reported that thepetitioner has not paid the tax in full for the additionalincome offered before the Settlement Commission, therefore,cannot be said to have fulfilled the condition and requestedthe Commission to declare the application as invalid. 5.4 On receipt of the supplementary report dated13.12.2017, the petitioner submitted a representation beforethe Settlement Commission stating that PCIT has reported thatthe petitioner has received refund for the assessment year2016-17, vide cheque dated 25.10.2016 for a sum ofRs.98,18,350/- and the petitioner has verified the form 26AS 5.4 On receipt of the supplementary report dated13.12.2017, the petitioner submitted a representation beforethe Settlement Commission stating that PCIT has reported thatthe petitioner has received refund for the assessment year2016-17, vide cheque dated 25.10.2016 for a sum ofRs.98,18,350/- and the petitioner has verified the form 26AS along with Bank Account and accepts the receipt of the saidrefund. It was further submitted that the petitioner hadclaimed the above refund for adjustment in respect of theadditional tax liability arising in the application filedbefore the Commission and the said sum was claimedinadvertently and stated that it is an unintentional one and hemay kindly be pardoned. The Settlement Commission, aftertaking into consideration the supplementary report filed bythe PCIT, passed the impugned order dated 16.02.2018 treatingthe application as invalid under section 245D(2C) of the Act.The reason being that there is short fall in payment of taxand interest for the assessment years 2015-16 and 2016-17, dueto issue of refund prior to the date of making application,which was not considered in the settlement application and thatthe petitioner has made a false claim on refund and hence, theapplication is not maintainable and liable for rejection. 6. What is important to note is that when the petitionerhad filed the application for settlement, there were enclosuresalong with the application. One such enclosure being EnclosureB : Part C: Col: 4:5:6:7 to Form 34B. So far as the balancetax payable for the assessment year 2015-16 is concerned, itis set out in column No.9 of the Enclosure B an amount ofRs.1,17,07,922/- has been shown. According to the petitioner,while computing this amount, the petitioner took note of therefund claim of Rs.98,18,350/- and reflected the balance amountand this is according to the petitioner is a genuine mistakeas the Form 26AS for the financial year 2015-16 correspondingto the assessment year 2016-17 in Part D which deals withdetails of paid refund states "No transaction present". Thus,the plea of the petitioner that it is an unintentional,inadvertent mistake and that being technical, should not havebeen taken as a ground to reject the application as invalid.The petitioner stated that his erstwhile Charted Accountantsfailed to inform the petitioner with regard to the depositingof the amount in one of their Bank Accounts towards refund oftax for the assessment year 2016-17 and keeping in mind thecircumstances of the proceedings, the petitioner was under thebona fide belief that the refund due to them would not beprocessed in such an expeditious manner, i.e., within a span oftwo months from the date of filing of returns for the assessmentyear 2016-17 on 05.08.2016 and that too, in a case where searchaction was taken under section 132 of the Act. 7. What is interesting to note is that, these figures wereclearly reflected in the application filed before theSettlement Commission and the application having been allowedto be proceeded with the Settlement Commission, pursuant to itsorder dated 21.12.2017, PCIT had full materials before it toexamine the correctness of the claim made by the petitioner in https://hcservices.ecourts.gov.in/hcservices/ their application, while requesting the Settlement Commission tosettle their due, yet this issue was not pointed out in thereport of the PCIT dated 05.02.2018. 7. What is interesting to note is that, these figures wereclearly reflected in the application filed before theSettlement Commission and the application having been allowedto be proceeded with the Settlement Commission, pursuant to itsorder dated 21.12.2017, PCIT had full materials before it toexamine the correctness of the claim made by the petitioner in https://hcservices.ecourts.gov.in/hcservices/ their application, while requesting the Settlement Commission tosettle their due, yet this issue was not pointed out in thereport of the PCIT dated 05.02.2018. 8. On a reading of the report dated 05.02.2018 filed undersection 245D(2B) of the Act by the PCIT, it is clear that athorough study has been made and correctness and adequacy ofadditional taxes and interest paid by the petitioner has beenverified and wherever PCIT found that the tax and interestcalculation were found to be correct it has been so stated andwherever the department had their reservation for stating thatthere is no true and full disclosure, the same has beenexplicitly mentioned. Thus, the fact that the refund ofRs.98,18,350/- was granted to the petitioner vide cheque dated25.10.2016, pursuant to the proceedings of the CPC, Bengaluruwas not within the knowledge of the PCIT. The petitioner alsopleads ignorance and stated that his previous ChartedAccountants did not inform him. The fact that the refund wasalready been granted by cheque dated 25.10.2016 came to thenotice of the PCIT much later and placed before the SettlementCommission by way of supplementary report dated 13.02.2018.The petitioner pleaded inadvertence, stated that the error isunintentional and sought for pardon before the SettlementCommission. 9. The respondents in their counter affidavit, which hasbeen heavily relied on by the learned Senior Standing Counselappearing for the Revenue, have stated that when the PCIT foundthat the petitioner had misrepresented facts relating to thepayment of taxes due on the income admitted, more particularly,the fact that the refund of Rs.98,18,350/- was already creditedto the petitioner's account. 10. The facts as stated in the counter affidavit disclosethat the PCIT was not aware of the fact that the refund wasalready granted when he had submitted his report dated05.02.2018. In other words, the 2nd respondent-Department doesnot dispute the fact that the grant of refund was brought onrecord before the Settlement Commission only vide SupplementaryReport dated 13.02.2018, three days prior to the hearing of theapplication. 11. It has to be seen as to how the Settlement Commissionhas dealt with such cases. In the case of M/s. Hatsun AgroProducts Limited, who filed an application before the SettlementCommission for the assessment year 2008-09 to 2014-15, more orless a similar issue arose before the Tribunal with regard tothe claim of the assessee for adjustment of refund towardsadditional tax on the income disclosed before the Commission.In that case, the Settlement Commission gave an opportunity to the assessee to pay the sum, since the refund is only anotional figure till it is crystalised/issued. 11. It has to be seen as to how the Settlement Commissionhas dealt with such cases. In the case of M/s. Hatsun AgroProducts Limited, who filed an application before the SettlementCommission for the assessment year 2008-09 to 2014-15, more orless a similar issue arose before the Tribunal with regard tothe claim of the assessee for adjustment of refund towardsadditional tax on the income disclosed before the Commission.In that case, the Settlement Commission gave an opportunity to the assessee to pay the sum, since the refund is only anotional figure till it is crystalised/issued. 12. Chapter XIX A was inserted by the Taxation Laws(Amendment) Act, 1976 with effect from 01.04.1976. Thechapter introducing such Act was to provide an avenue forsettlement i.e., expeditious settlement of cases and to avoidlong term litigation. The powers of Settlement Commission havebeen spelt out in the said chapter which shows that thecommission has wide powers while processing application forsettlement of the cases. In fact, section 245E of the Act,confers power to the said Commission to reopen the completedproceedings. Further, section 245F(1) confers powers vested inIncome tax Authority under the Act on the Settlement Commission.Thus, the purpose of insertion of Chapter XIX A of the Actshould be borne in mind while an application is presentedbefore the Commission for settlement. At this juncture, itwould be apt to refer to the recommendations made by the WanchooCommittee for establishing a settlement machinery under the Act.It was pointed out that the door for compromise with an erranttaxpayer, should not, for ever, remain closed, as in theadministration of fiscal laws, whose primary objective is toraise revenue, there has to be room for compromise andsettlement. A rigid attitude would not only inhibit a one-timetax-evader or an unintending defaulter from making clean breastof his affairs, but would also unnecessarily strain theinvestigational resources of the Department in cases of doubtfulbenefit to revenue, while needlessly proliferating litigationand holding up collections. Therefore, it was suggested thatthere should be a provision in the law for a settlement with thetaxpayer at any stage of the proceedings. 13. Further, it was pointed out that each individual casecan be considered on its merits and full disclosures not only ofthe income but of the modus operandi of its build up can beinsisted on, thus sealing off chances of continued evasionthrough similar practices. Full power is conferred on theSettlement Commission to call for a report from any of theincome-tax authorities and to pass orders allowing theapplication filed by an assessee fully or partly or to rejectthe application, but the application could not be proceeded withby the Settlement Commission if it forms the opinion that therehas been concealment of particulars of income or perpetration offraud by the applicant. 14. Considering the facts and circumstances of the caseand more particularly, that the Income Tax Departmentthemselves where not aware of the fact that the refund has beenprocessed and granted on 25.10.2016, when they filed reportdated 05.02.2018 and was brought on record only by way of 14. Considering the facts and circumstances of the caseand more particularly, that the Income Tax Departmentthemselves where not aware of the fact that the refund has beenprocessed and granted on 25.10.2016, when they filed reportdated 05.02.2018 and was brought on record only by way of supplementary report dated 13.02.2017, it was inadvertentlyomitted by the petitioner and the petitioner having pleadedignorance and inadvertence and sought for pardon, the SettlementCommission could not have treated the petitioner's case as oneof making a false claim of refund. In fact, in paragraph 9 ofthe affidavit filed in support of the writ petition, thepetitioner has stated that his former Charted Accountantsdid not inform him about the same , was under the bona fidebelief that the refund due to him would not be processed insuch an expeditious manner, that too, within a short span oftwo months from the date of filing of returns for the assessmentyear 2016-17. 14. The learned Senior Standing Counsel for the Revenuestrenuously contended that it is a clear case of failure to givefull and true disclosure. 15. I am unable to accept the said stand for the reasonthat the application before the Settlement Commission containedall details and thus the Department which has to peruse the sameand file a report as required under section 245D(2C) of theAct. The explanation offered by the Revenue stating that thepetitioner has not specifically claimed the refund ofRs.98,18,350/- is not acceptable, since the application has tobe scrutinised as a whole and all details have to be verifiedfor its correctness, more particularly, the details inEnclosure B of the application. Thus, I find that theapplication ought not to have been rejected on such technicalground, bearing in mind the object and purpose for which ChaperIIXA was inserted in the Income Tax Act. 16. In Vascon Engineers Ltd., vs. Income-tax SettlementCommission and Others, reported in (2015) 376 ITR 360, writpetition was filed before the High Court of Bombay challengingan order passed by the Settlement Commission under Section 245D(2C) of the Act dismissing the application on the ground thatthe application for settlement as filed is not valid for failureto pay taxes on the additional declared income as contended bythe Commissioner of Income-tax. The Court while examining as towhether the decision making process of the Commission was justand proper pointed out that a rejection of the application ondubious / suspicious ground made out in the report should not beallowed by the Commission without some enquiry to satisfy itselfabout the stand of the Commissioner. The circumstancessurrounding the Commissioner's report viz., of equal amount ofinterest demand to refund granted by the intimation, notannexing the intimation to the report and the intimation itselfbeing served upon the petitioner therein after over one year andit is purported issue and after the Commissioner's report alsoraised questions about its authenticity. Thus, it was pointed out, an unjustified rejection without proper enquiry into thestand of the Revenue would cause prejudice to the assessee asall the information made available during the settlementproceedings would be capable of use by the Assessing Officer tothe prejudice of the applicant in regular assessmentproceedings. Therefore, non-enquiry into issues, which weresuspicious, by the Commission, before rejecting the applicationfor settlement evidence a flaw in the decision making process. 17. In the case on hand, a Supplementary Report wasfiled by the PCIT on 13.02.2018, to which the petitionersubmitted his response pleading inadvertence and that he wasunder the bona fide belief that the refund claimed is yet to beprocessed given the short span of time after filing of hisreturn of income. 17. In the case on hand, a Supplementary Report wasfiled by the PCIT on 13.02.2018, to which the petitionersubmitted his response pleading inadvertence and that he wasunder the bona fide belief that the refund claimed is yet to beprocessed given the short span of time after filing of hisreturn of income. 18. On a reading of the impugned order dated 16.02.2018, Ifind that the Settlement Commission did not conduct an enquiryto satisfy itself that the stand taken by the PCIT by way of asupplementary report could be a valid ground to come to aconclusion that the assessee had made a false claim on therefund due. The Settlement Commission did not endeavor to gointo the aspect as to why this information was not placed by thePCIT while filing the report dated 05.02.2018 under Section 245D(2B) of the Act. Thus, to hold that the assessee hadmisrepresented facts without an enquiry into the matter more so,in the light of the stand taken by the assessee pleadinginadvertence and bona fide mistake, I have no hesitation to holdthat there is a flaw in the decision making process. Therefore,this Court is well justified in exercising its jurisdictionunder Article 226 of the Constitution of India, which conferspower of judicial review on this Court over orders passed byCourts and Tribunals. The Settlement Commission having beenheld to be a Tribunal, the petitioner is entitled to seekjudicial review of the order of the Settlement Commission in apetition under Article 226 of the Constitution of India. It isto be borne in mind that the Settlement Commission wasconstituted for settling complicated claims of tax evaders as anextraordinary measure for giving an opportunity to such personsto make a confession and have the matters settled once for alland purchase peace. Thus, the Settlement Commission is a forumbefore which the assessee surrenders himself and it is not aforum for challenging the legality of assessment order or otherorders passed in any proceedings under the Act. The Scheme ofthe Act clearly shows that the power conferred on the SettlementCommission is wide, as it has the power to give immunity againstprosecution or imposition of penalty. 19. For the above reasons, this court is of the view thatthe petitioner should be permitted to proceed further and for https://hcservices.ecourts.gov.in/hcservices/ which purpose the petitioner should be given an opportunity topay the tax. 20. In the result, the the writ petition is allowed, theimpugned order is set side and the matter is remanded tothe 1st respondent- Income Tax Settlement Commission,Additional Bench,Chennai for fresh consideration. The 1strespondent is directed to afford an opportunity to thepetitioner to make good the short fall in payment of tax andinterest for the relevant assessment years within a period oftwo weeks from the date of receipt of a copy of this order andthereafter the Settlement Commission proceed with theapplication on merits and in accordance with law. No costs.Consequently, connected miscellaneous petition is closed. Sd/-Assistant Registrar(CS-VIII)//True Copy// Sub Assistant RegistrarRjTo 1 Income Tax Settlement Commission Additional Bench, Chennai Ministry of Finance Department of Revenue 640, Anna Salai, Nandanam Chennai- 600 035. 2 Assistant Commissioner of Income Tax Central circle 3(1), Chennai New No. 46 Mahatma Gandhi Road Chennai- 600 034. +1cc to Mr.R.SIVARAMAN, Advocate, S.R.No.38848 +1cc to Mr.A.P.SRINIVAS, Advocate, S.R.No.38448 W.P.No.5333 of 2018 &W.M.P. Nos.6553 & 6554 of 2018 TR(05/07/2018) https://hcservices.ecourts.gov.in/hcservices/