Peerless General Finance And Investment Co Ltd v. Income Tax Settlement Commission
2008-02-22
B.PRAKASH RAO, L.NARASIMHA REDDY
body2008
DigiLaw.ai
Judgment : ANIRUDDHA BOSE, J. (1.) THE petitioners are a residuary non-banking company, and claims to be engaged in the business of offering small saving schemes to the public at large. In this writ petition, the petitioners challenge an order passed by the Settlement commission constituted under the provisions of Section 245b of the Income Tax act, 1961 rejecting the petitioners application for settlement. I sha, henceforth refer to this statute as "the Act". This order has been passed on 31st May 2007 but the petitioners claim to have received the order on 14th June 2007. (2.) THE settlement application relates to three assessment years being 200405, 2005-06 and 2006-07. The petitioners had filed their return on income under the relevant provisions of the Act for the aforesaid three assessment years before the Assistant Commissioner of Income Tax Circle 3, Calcutta, who is impleaded as the respondent no. 3 in this writ petition. The said respondent had issued notices under Section 142 (1) and 143 (2) of the Act to the petitioners, with a questionnaire as enclosure to such notice pertaining to the assessment year 2004-05. It appears that the petitioners had been filing replies in parts to such questionnaire, which was issued on 7th August 2006. (3.) THE petitioners decided to submit a settlement application for the said three assessment years in terms of Section 245c (1) of the Act in the prescribed form on 11th December 2006 in the office of the Income Tax Settlement commission, additional bench, being the first respondent in this writ petition. In the Settlement Application, certain additional incomes were disclosed in respect of the said three assessment years. Thereafter, the petitioners had submitted another letter on 1st May 2007 for the purpose of rectifying certain discrepancies in the case relating to the assessment year 2006-07, but this communication is not of much relevance for the purpose of adjudication of the present writ petition. (4.) AS required under the provisions of Section 245d of the Act, the Settlement commission called for a report on the settlement application filed by the petitioner from the Commissioner of Income Tax, Calcutta-1, being the respondent no. 2 in the present writ petition. The Commissioner of Income Tax furnished the report in terms of Rule 6 of the Income Tax Settlement Commission (Procedure) Rules 1997.
2 in the present writ petition. The Commissioner of Income Tax furnished the report in terms of Rule 6 of the Income Tax Settlement Commission (Procedure) Rules 1997. I shall refer to this report in the later part of this judgment as "rule 6 report. " In this report a copy of which has been made annexure "p4" to the writ petition, the Commissioner observed: "the application is suitable for settlement. It was proposed to conduct special audit u/s 142 (2a) in the case of the applicant due to nature and complexity of the case and in the meantime before special audit u/s 142 (2a) could be ordered, applicant moved application u/s 245c (1) before Honble Settlement Commission. AOs detailed report bearing No. ACIT/CIR-32006-07/854 dated 06.03.07 endorsed by addl. CIT/r-3/settlement/06-07/2142 dated 20.03.2007 (Annexures b and c) are enclosed and may be treated as part of my report to the extent consistent with my observations supra. " (5.) THEREAFTER, on 30th April 2007 a notice was issued to the petitioners informing them that the petitioners were being given an opportunity of being heard by the Settlement Commission on 7th May 2007. In the said communication, it was also stipulated: "if the APPLICANT/commissioner OF INCOME TAX WISHES TO RELY ANY evidence/papers ETC. BEFORE THE COMMISSION DURING THE COURSE OF hearing THE SAME SHOULD BE FURNISHED IN THE FORM OF PAPER BOOK IN six (6) COPIES DULY INDEXED AND PAGE NUMBERED." The said communication was addressed to the petitioners but the copy of the same was forwarded for "information and necessary action" to the Commissioner of Income Tax, Kolkata and the Commissioner of Income Tax (DR), ITSC, Kolkata. The hearing had taken place on the appointed date and at it appears that the Settlement commission in course of such hearing permitted the Commissioner of Income tax (DR) to represent the case of the department apart from hearing the authorised representative of the petitioners. Upon conclusion of such hearing the impugned order was passed. (6.) THE Income Tax authorities chose to contest the present writ petition without filing of any affidavit as argument was advanced by the petitioners mainly on legal issues.
Upon conclusion of such hearing the impugned order was passed. (6.) THE Income Tax authorities chose to contest the present writ petition without filing of any affidavit as argument was advanced by the petitioners mainly on legal issues. (7.) ONE of the main grounds on the basis of which the impugned order has been assailed by the petitioners is that at the admission stage of a settlement application, the Income Tax authorities ought not to have been given opportunity of hearing by the Settlement Commission. It has been pleaded in paragraph 14 of the writ petition that the authorised representative of the petitioners had submitted at the time of hearing before the Settlement Commission that at such stage, hearing the Commissioner of Income Tax was not in conformity with the provisions of the Act. But the Settlement Commission upon hearing the learned advocates for the petitioners and the Commissioner of Income Tax (DR) passed the order rejecting the settlement application. The operative part of the order of the Settlement Commission is reproduced below: "9. We have looked into the facts and circumstances of the case as well as the complexities involved. We have considered the arguments put forward by the A. R. as well as by the CIT (DR). It is very clear to us that there are disputes between the Department and the applicant which have arisen from year to year and which have been subjected to appeals at various stages. It is also clear that these disputes have been clearly identified over the years and they mainly relate to accounting treatment of various items of receipts and outgoings. In fact these disputes come out of Directors report of the Co. as well as auditors report. In the circumstances the disputed issues are well covered by the decision of the Appellate Authorities and do not involved any complexity which could be considered by us. 10. So far as the argument of the A. R. that once the CIT has stated that the application was suitable for settlement it deserves to be admitted is concerned it is clearly seen that the CIT has made this observation in Col.
10. So far as the argument of the A. R. that once the CIT has stated that the application was suitable for settlement it deserves to be admitted is concerned it is clearly seen that the CIT has made this observation in Col. 5 of the report but the detailed report of the AO attached with the CITs Rule 6 report clearly brings out the fact that all the disputes relate to well identified issues which have been subjected to Appeals for various years and at various stages. It is further noted that the applicant has proposed to disclose some ad-hoc amounts in the three years which have not been computed on the basis of any facts brought forwarded in the SOF. Thus, it is very clear that the manner in which the additional income disclosed has been earned and computed has not been mentioned by the applicant clearly and is not properly evidenced. 11. In view of the discussions in the preceding paragraphs and after careful consideration of the nature and circumstances of case as well as the alleged complexity of investigation and after considering the manner in which earning of undisclosed income has been set out in the application and the disclosure of additional income so made applicants petition does not qualify to be admitted u/s. 245d (1) read with section 245c of the IT Act. The application therefore, shall not be proceeded with and the same is accordingly dismissed. " (8.) THE other grounds on which the impugned order has been assailed are summarised below:- (a) As the report the Commissioner under Rule 6 recommended settlement, the Settlement Commission ought to have admitted the application straightway. The Settlement Commission ought not to have examined the Assessing Officers report, which was made part of the Rule 6 report, as the report was enclosed only for consideration to the extent it was consistent with the observations of the Commissioner recommending the application for being proceeded with for settlement. (b) At the admission stage, the Commissioner of Income Tax (DR) could not take a view inconsistent with the view of the Commissioner, Income tax, representing the same department on the question of admission of settlement application.
(b) At the admission stage, the Commissioner of Income Tax (DR) could not take a view inconsistent with the view of the Commissioner, Income tax, representing the same department on the question of admission of settlement application. (c) Since the income-tax authorities themselves proposed to conduct special audit in the case of the petitioners as per the provisions of section 142 (2a) of the Act, which can be conducted having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, the settlement application should have been directed to be proceeded with, as one of the main factors to be considered for admitting a settlement application is nature and complexity of the investigation involved therein. (d) A new provision has been introduced to Section 245d with effect from 1st June 2007 in subsection (2a) which stipulates that in cases where the settlement applications were made before 1st June 2007, but no order under sub-section (1) of Section 245d was passed till that date, i. e. 1st June 2007, such application should have been deemed to have been allowed to be proceeded with if the additional tax on the income disclosed in the settlement application and interest thereon was paid on or before 31st July 2007. The case of the petitioners is that though the order was issued on 31st May 2007, it was despatched on 12th June and actually reached them on 14th June 2007. The date of communication of the order should have been considered the date of making of the order, and thus they were entitled to the benefits of the amended provisions of Section 245d (2a) of the Act. (9.) THE provision for settlement of a case is provided in chapter XIX of the Income Tax Act. The relevant provisions of the Act which are material for the present case is contained in Section 245d of the said Act which was prevailing at the material time and the said provisions are reproduced below: 245d. Procedure on receipt of an application under section 245c.
The relevant provisions of the Act which are material for the present case is contained in Section 245d of the said Act which was prevailing at the material time and the said provisions are reproduced below: 245d. Procedure on receipt of an application under section 245c. (1) on receipt of an application under section 245c, the Settlement commission shall call for a report from the Commissioner and on the basis of the materials contained in such report and having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, the Settlement commission, shall, where it is possible, by order, reject the application or allow the application to be proceeded with within a period of one year from the end of the month in which such application was made under 245c: provided that an application shall not be rejected under this sub-section unless an opportunity has been given to the Petitioner of being heard: provided further that the Commissioner shall furnish the report within a period of forty-five days of the receipt of communication from the settlement Commission in case of all applications made under section 245c on or after the 1st day of July 6 1995 and if the Commissioner fails to furnish the report within the said period, the Settlement commission may make the order without such report. (2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3)Where an application is allowed to be proceeded with under sub-section (1), the Settlement Commission may call for the relevant records from the Commissioner and after examination of such records, if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the commissioner to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case. (4) After examination of the records and the report of the commissioner, received under sub-section (1), and the report, if any, of the Commissioner received under sub-section (3), and after giving an opportunity to the applicant and to the Commissioner to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner under sub-section (1) or sub-section (3)." (10.) FOR effective implementation of the settlement process, the Income Tax settlement Commission (Procedure Rules), Rules 1997 has been framed and the following rules are relevant for the purpose of the present proceeding. "procedure for filing settlement application. 5. (1) A settlement application shall be presented in Form No. 34b set out in Appendix II to the Income-tax Rules, 1962, by the applicant in person or by his agent, to the Secretary at the headquarters of the commission at New Delhi or of the Bench within whose jurisdiction his case falls or to any officer authorised in this behalf by the Secretary, or shall be sent by registered post addressed to the Secretary, or to such officer.
(2) A settlement application sent by post under sub-rule (1) shall be deemed to have been presented to the Secretary or the officer authorized by the Secretary on the day on which it is received in the office of the Commission. Commissioners report, etc; under section 245d (1). 6. On receipt of a settlement application, a copy of the said application (excluding the Annexure) shall be forwarded by the Commission to the commissioner with the direction to furnish his report under sub-section (1) of section 245d within 45 days of the receipt of the said copy of the application by him. Commissioners further report 9. Where an order is passed by the Commission under sub-section (1)of section 245d allowing the settlement application to be proceeded with a copy of the annexure to the said application together with a copy of each of the statements and other documents accompany such annexure, shall be forwarded to the Commissioner along with a copy of the said order with the direction that the Commissioner shall furnish a further report within ninety days of the receipt of the said annexure (including the statements and other documents accompanying it) or within such further period as the Commission may specify. If the Commissioner fails to furnish his report on or before the expiry of the specified period of 90 days or such extended period, the commission may pass the appropriate order without such report." (11.) THE substance of defence of the Income-tax authorities on the other hand has been that under the provisions of the statute itself, the Settlement commission can regulate their own procedure, and there being no express bar in the Act on hearing the department at the admission stage, no error of law had been committed by the Settlement Commission. The Settlement Commission, it has been argued, is not bound by the report of the Commissioner submitted under Rule 6 of the said Rules. On the point of complexity of investigation, the submission of the revenue authorities is that Section 142 (2a) of the Act postulates complexity of the accounts whereas under Section 245d (1), the settlement Commission is to consider complexity of investigation, and the nature of complexities contemplated in these two provisions are not identical. (12.) THE main thrust of the argument of Mr. Pratap Chatterjee assisted by Mr.
(12.) THE main thrust of the argument of Mr. Pratap Chatterjee assisted by Mr. Abhijit Chatterjee, learned Senior Counsels appearing for the petitioners has been on the aspect of permitting the Income Tax authorities to make their submission at the stage of admission by the Settlement Commission. Mr. Chatterjees submission is that under the provision of Section 245d (1) of the Act, the Settlement Commission at the admission stage can only rely on the report from the Commissioner and on the basis of materials contained in such report it may allow the application to be proceeded with or reject the application. Proviso to Section 245 (D) (1) mandates that an application shall not be rejected unless an opportunity has been given to the petitioner of being heard. (13.) IT is only after the Settlement Commission allows an application to be proceeded with, there is scope for giving opportunity of hearing to the department. The submission of the petitioners is that at the stage of consideration of the application for admission, there is no scope for giving either of the parties opportunity of hearing and the only material the Settlement commission could look at that stage was the report of the Commissioner apart from the settlement application. The right of hearing of the applicant accrued only if the application was sought to be rejected, as contemplated in the proviso to the said sub-section. He has relied on two decisions of the Honble Supreme court being the cases of Commissioner of Income Tax, Mysore, Travancore, Cochin and Coorg Vs. Indo Mercantile Bank Limited reported in AIR 1959 SC 713 and the case of J. K. Industries Vs. Chief Inspector of Factories and Bankers (1996) 6 SCC 665 for the proposition that a proviso carves out an exception to the main provision of a statute, and in the present case, since the main provision does not contemplate providing opportunity to either the department or the applicant, the right of hearing of the department stood altogether excluded at that stage of hearing. Right of hearing was provided in exception to the main provision of the statute, in the circumstances contemplated in the proviso. (14.) HE sought to elaborate on this point by taking me through the provisions of the Rule 44ca (1) of the Income Tax Rules and the statutory form being form 34b.
Right of hearing was provided in exception to the main provision of the statute, in the circumstances contemplated in the proviso. (14.) HE sought to elaborate on this point by taking me through the provisions of the Rule 44ca (1) of the Income Tax Rules and the statutory form being form 34b. He submitted that under the provisions of the statute, the full and true disclosure of income, which has not been disclosed to the assessing officer are required to be filed as part of the settlement application in a separate annexure. This is termed as Statement of Facts. Under Rule 44ca of the Income Tax rules, while calling for a report under Rule 6, the Commission has been empowered to serve on the Commissioner of Income Tax a copy of the application, but without such annexure. The Commissioner of Income Tax, under the said Rules, can be given access to such annexure only if the application is allowed to proceed. Mr. Chatterjees submission is that the object behind keeping the annexure confidential at the admission stage is to ensure that the income tax authorities do not gain access to such information till the settlement application is allowed to be proceeded. Disclosure of such materials at that stage was considered in the statute itself to be prejudicial to the interest of the assessee. (15.) THE case of the petitioners on this count is that by relying on the report of the assessing officer and the arguments of the departmental representative, the settlement Commission took the decision on materials he was not permitted to rely on at the admission stage. Relying on the decision of the Honble Supreme court in the case of Commissioner of Income Tax, Calcutta Vs. Daulatram rawatmull (87 ITR 349), Mr. Chatterjee submitted that the entire order would stand vitiated under the circumstances, as it is not possible to ascertain from the order to what extent the Settlement Commission had relied on such irrelevant or extraneous materials in coming to its finding. A parallel has been drawn with the procedure for admission of Second Appeal under the provisions of Section 100 of the Code of Civil Procedure, where the respondent has no right of audience at the admission stage, as held by an Honble Division Bench of this Court in the case of Surinder Kaur Rai Vs. Jyoti Ranjan Banerjee (2002) 4 CHN 685 .
Jyoti Ranjan Banerjee (2002) 4 CHN 685 . (16.) ON the aspect of the argument of the respondents that since the Settlement commission has the power to regulate its own procedure, in exercise of such power Income tax authorities could be given opportunity of hearing, argument of mr. Chatterjee has been that since the statute excludes hearing the Income-tax authorities at that stage, the Settlement Commission cannot import such right while hearing an application under Section 245 (D) (1) of the Act. Section 245f (7)of the Act, which empowers the Settlement Commission to regulate its own procedure cannot confer the Commission with the power which the statute excludes by implication. The two authorities relied on in support of this proposition are the decisions of the Honble Supreme Court in the cases of ITW signode India Ltd. Vs. CCE (2004) 3 SCC 48 and Mahachandra Prasad Singh Vs. Chairman, Bihar Legislative Council (2004) 8 SCC 747 . It was also argued by him that the Settlement Commission cannot have any inherent power which is vested in a "court" and the authorities relied on for this proposition are two Bench decisions of this Court in the cases of Indira Debi Vs. State ( AIR 1967 Cal 469 )and Mahbub Hossain Vs. Biswanath ( AIR 1971 Cal 381 ). The other authority Mr. Chatterjee relied on while making his submissions on this aspect of the controversy is the decision of the Honble Supreme Court in the case of ramchandra Keshav Adke Vs. Govind Joti Chavare ( AIR 1975 SC 915 ). This decision was cited in support of the proposition that the command of the legislature to do an act in a particular manner would imply a prohibition to do such act in any other manner. (17.) THE next point argued by Mr. Chatterjee was that since the Income-tax authorities themselves were contemplating Special Audit in the case of the petitioners under Section 142 (2a) of the Act, the Assessing Officer stood satisfied that complexities were involved in their case. On this count, he relied on two decisions of the Honble Allahabad High Court in the cases of U. P State Handloom corpn. Ltd. Vs. Commissioner of Income Tax (171 ITR 640) and Swadeshi Cotton mills Co. Ltd. Vs.
On this count, he relied on two decisions of the Honble Allahabad High Court in the cases of U. P State Handloom corpn. Ltd. Vs. Commissioner of Income Tax (171 ITR 640) and Swadeshi Cotton mills Co. Ltd. Vs. Commissioner of Income Tax (171 ITR 634) for the proposition that to direct special audit, complexity of the accounts of the assessee is a pre condition. In the case of Swadeshi Cotton Mills Co. Ltd. (supra), it was held: "the exercise of power to direct special audit depends upon the satisfaction of the Income-tax officer with the added approval of the commissioner. But he must be satisfied that the accounts of the assessee are of a complex nature, and, in the interests of the Revenue, the accounts should be audited by a special auditor. The Special auditor is also an auditor like the companys auditor, but he has to be nominated by the Commissioner and not by the company. The accounts are again to be audited at the cost of the company. This is the substance of the statutory provisions. The power thereunder cannot, in our opinion, be lightly exercised. The satisfaction of the authorities should not be subjective satisfaction. It should be based on objective assessment regard being had to the nature of the accounts. The nature of the accounts must indeed be of a complex nature. That is the primary requirement for directing a special audit. But the word "complexity" used in subsection (2a) is a nebulous word. Its dictionary meaning is: "the State or quality of being intricate of complex ?r that is difficult to understand. . . . . " the decision of the Allahabad High Court was subsequently quoted with approval by the Honble Supreme Court in the case of Rajesh Kumar Vs. Deputy commissioner of Income Tax (287 ITR 91). " (18.) SINCE the same expression, i. e. "complexity" has been used in two different provisions in the same statute, they must convey the same meaning, argued Mr. Chatterjee. The two decisions cited on this point were the cases of Suresh Chand vs. Gian Chisti (1990) 1 SCC 593 and Bhogilal Chunilal Pandya Vs. State of bombay ( AIR 1959 SC 356 ). (19.) MR.
Chatterjee. The two decisions cited on this point were the cases of Suresh Chand vs. Gian Chisti (1990) 1 SCC 593 and Bhogilal Chunilal Pandya Vs. State of bombay ( AIR 1959 SC 356 ). (19.) MR. Shome appearing for the respondents has primarily stressed on the point that since there is no express embargo imposed by Section 245d (1) of the act upon the Settlement Commission on inviting the departmental authorities to make their submissions at the stage of admission of an application for settlement and Section 245f (7) specifically empowers the Settlement Commission to regulate its own procedure for the exercise of its powers, it was well within the jurisdiction or power of the Commission to hear the departmental representative even at the stage of admission of a settlement application. He submitted that in a fiscal statute, no implied provision can be inferred and there is no possibility of giving any purposive interpretation. If the statute is silent on certain procedural aspect, and the authority concerned has been given the power to regulate its own procedure, then such authority would have the power to innovate its own procedure and in the instant case no prejudice could be said to have been caused to the petitioner by giving right of audience to the departmental authorities. (20.) HE conceded that at the stage of admission of a settlement application, the departmental representative ought not to have access to the Statement of Facts containing particulars of the undisclosed income which is required to be filed as an annexure to the settlement application. He, however, sought to rebut the submission of Mr. Chatterjee that in the case of the petitioners, by giving the opportunity of hearing to the departmental representative, access to such confidential material was also given. He submitted on this count that in the writ petition, there is no pleading to the effect that the Settlement Commission had allowed the departmental representative access to the content of such Statement of Facts. It was further submitted that the Statement of Facts was not disclosed before the department and at the time of consideration of the annexure, the departmental representative was requested to leave the room in which hearing was being conducted. (21.) MR.
It was further submitted that the Statement of Facts was not disclosed before the department and at the time of consideration of the annexure, the departmental representative was requested to leave the room in which hearing was being conducted. (21.) MR. Shome took me through the impugned order, and argued that the settlement Commission had come to a finding that in the disclosure, the manner in which earning of additional income had been computed had not been mentioned by the applicant clearly and the same was not properly evidenced. The applicant had proposed to disclose some ad hoc amounts in the three years which had not been computed on the basis of any fact brought forward in the statement of Facts. His submission is that such finding was arrived at by the settlement Commission independently on the basis of analysis of the Statement of Facts to which the departmental representative did not have any access. It is his submission that this Court ought not to interfere with the order impugned, as no case has been made out of that there was any ex-facie error of law in coming to such finding. Since the statement of Facts is not available to this Court also, the decision taken by the Settlement Commission on considering the Statement of Facts could not be scrutinised by this Court. (22.) HE also contested the case of the petitioners that once the Commissioner makes a recommendation in the Rule 6 report, a contrary stand could not be taken by the department before the Settlement Commission. His argument on this point is that while furnishing the Rule 6 report, the Commissioner of Income tax does not have any access to the Statement of Facts. This is within the jurisdiction of the Settlement Commission to consider recommendation of the commissioner contained in the Rule 6 report in the light of the Statement of facts and the Rule 6 report in any event is not binding on the Settlement commission. It is also within the jurisdiction of the Settlement Commission to take a contrary stand vis-?-vis the Rule 6 report for the purpose of admission of a settlement application. So far as the Income-tax authorities are concerned, there is also no bar on taking a view contrary to that taken in the Rule 6 report.
It is also within the jurisdiction of the Settlement Commission to take a contrary stand vis-?-vis the Rule 6 report for the purpose of admission of a settlement application. So far as the Income-tax authorities are concerned, there is also no bar on taking a view contrary to that taken in the Rule 6 report. (23.) ON the aspect of the petitioners submission that since the department had decided to proceed on statutory audit, the complexity of investigation, which is one of pre-conditions for admitting a case for settlement ought to be automatically inferred, his case is that under Section 142 (2a), the pre-condition is that there must be complexity of accounts whereas under Section 245d (1), the requirement is that there must be complexity of investigation. He submitted that the complexity envisaged in these two provisions convey different implications. If the Settlement Commission comes to its own finding that there is no complexity of investigation involved in the case upon considering the Statement of Facts, such finding ought to prevail even if the Income-tax authorities had found there is complexity of accounts warranting Special Audit. (24.) MR. Shome has cited a decision of the Honble Rajasthan High Court in the case of Hem Chand Govil Vs. Income-Tax Settlement Commission and Ors. (292 ITR 646) to demonstrate that it is the practise of the Settlement Commission to hear both the assesse and the Income-tax authorities even at the admission stage. My attention was drawn to the following passage of this decision: "the Settlement Commission after hearing both the assessee as well as the Revenue by order dated September 30, 1996, held that in view of the complexity of the investigation involved, the application for settlement about the assessment year 1989-90 does not deserve to be proceeded with because the disputed matters have already reached the Income-Tax Appellate Tribunal (for short "the Tribunal") which is the final appellate authority on question of fact and its findings will finally decide the issues regarding disputed additions and also the issue of assessibility. " (25.) HE relied on three authorities, being a decision of the Honble Supreme court in the case of Commissioner of Income-Tax Vs. Express Newspaper Ltd. (206 itr 443), and two decisions of Honble High Court of Madras and the Honble allahabad High Court respectively in the cases of V. M. Shaik Mohammed Rowther Vs.
" (25.) HE relied on three authorities, being a decision of the Honble Supreme court in the case of Commissioner of Income-Tax Vs. Express Newspaper Ltd. (206 itr 443), and two decisions of Honble High Court of Madras and the Honble allahabad High Court respectively in the cases of V. M. Shaik Mohammed Rowther Vs. Settlement Commission (IT and WT) and Ors. (236 ITR 581), Shyam Glass Works vs. Income-Tax Settlement Commission and Another (228 ITR 672) in support of his submission that full and true disclosure is necessary to maintain an application for settlement under Section 245c of the Act. (26.) ON the aspect of scope of interference of the Writ Court in a proceeding in which the order of Settlement Commission is challenged, Mr. Shomes submission is that such order could be assailed on restricted grounds, and he cited the decision of the Honble Supreme Court in the case of Jyotendrasinhji Vs. S. I. Tripathi and Ors. (201 ITR 611) and the case of N. Krishnan Vs. Settlement commission (180 ITR 585) on this count. In the case of N. Krishnan, interference has been held to be permissible only on three grounds, being " (i) if grave procedural defects such as violation of the mandatory procedural requirements of the provisions in Chapter XIXA-and/or violation of the rules of natural justice is made out; (ii) if it is found that there is no nexus between the reasons given and the decision taken by the Settlement Commission (iii) this Court cannot interfere either with an error of fact or error of law alleged to have been committed by the Settlement Commission. " On these three grounds, he has prayed for dismissal of the writ petition. (27.) I propose to deal first with the submission made on behalf of the petitioners that by that very fact that the Income-tax authorities themselves had proposed special audit in the case of the petitioners, the fundamental requirement for proceeding with the settlement application stood satisfied. In my opinion, however, the legislature has contemplated complexity of different nature in Sections 142 (2a) and 245d of the Act. The expression used in Section 142 (2a)of the Act, is "complexity of the accounts of the assessee," whereas in Section 245d (1), the expression is "complexity of the investigation.
In my opinion, however, the legislature has contemplated complexity of different nature in Sections 142 (2a) and 245d of the Act. The expression used in Section 142 (2a)of the Act, is "complexity of the accounts of the assessee," whereas in Section 245d (1), the expression is "complexity of the investigation. " Though the word "complexity" is common in both these provisions, it does not automatically follow that the respective authorities exercising their powers under these two different provisions have to take into consideration the same materials while taking their decision. The word "investigation" implies making enquiries to come to a finding on a particular issue or issues, and while the Settlement Commission considers the application in which additional income is disclosed, it is to consider what would be the nature of enquiry necessary in respect of the case for which settlement application is made. Under Section 142 (2a), the Assessing Officer may direct special audit if he finds the accounts submitted before him by the assessee to be of complex nature with the previous approval of the Commissioner, by an accountant to be nominated by the Chief Commissioner or Commissioner. The reasons for which the complexity of investigation and the complexity of the accounts are required to be considered by the Settlement Commission and the assessing Officer are different, as I have observed earlier. (28.) MOREOVER, the respective authorities under the provisions of Section 245d and 142 (2a) of the Act are also required to consider factors other than "complexity of the accounts" and "complexity of the investigation. " On receiving the "rule 6 Report", the Settlement Commission is to come to a decision as to whether it will allow the application to be proceeded with on the basis of the materials contained in such report, and while taking such decision the commission is to have regard to the nature and circumstances of the case or the complexity of the investigation involved therein, meaning the complexity of the investigation involved in the case. Thus, they need not confine their examination only on the complexity of the investigation while considering an application for settlement for the purpose of admission. (29.) THE Settlement Commission, in any event, is an independent authority not bound to follow the decision of Assessing Officer under Section 142 (2a) of the act, on the aspect of the complexity involved in accounts.
(29.) THE Settlement Commission, in any event, is an independent authority not bound to follow the decision of Assessing Officer under Section 142 (2a) of the act, on the aspect of the complexity involved in accounts. Law stipulates that the settlement Commission must come to their own finding. Thus, I do not accept the submission of the petitioners that just because special audit was proposed in the case of the petitioners, complexity should have been automatically presumed for the purpose of admitting a settlement application under Section 245d (1) of the Act. (30.) I also decline to accept Mr. Chatterjees submission that the Income-tax authorities could not have taken a stand before the Settlement Commission that no complexity of investigation was involved, as they themselves had proposed to conduct special audit, and for the latter purpose formation of opinion as regards complexity in the accounts of the assessee is sine qua non. I have already observed that the factors to be considered by the respective authorities under these two provisions [i. e. Sections 142 (2a) and 245d (1)] are different. Thus the decisions in the cases of U. P State Handloom Corpn. Ltd. (supra), Swadeshi cotton Mills Co. Ltd. (supra), Rajesh Kumar (supra) do not assist the petitioners in any way. The proposition that if an expression is used in two different parts of a statute, they ought to convey the same meaning, in support of which the decisions of the Honble Supreme Court in the cases of Suresh Chand (supra) and bhogilal Chunilal Pandiya (supra) were cited also does not apply in the present case. The common expression here is "complexity" but it has been used in two different context in two provisions of statute. The word "complex" cannot dominate the context in which it is used in these two sections independently. (31.) A point has also been taken, but not emphatically pressed at the time of hearing, that the order shall be treated to have been passed on the date of its communication, and thus the amended provision of Section 245d (2a) would be applicable in the present case. The date of the order of rejection of the petitioners application is 31st May 2007. It was despatched to the petitioners under the cover of a letter dated 12th June 2007, a copy of which has been made Annexure "p6" to the writ petition.
The date of the order of rejection of the petitioners application is 31st May 2007. It was despatched to the petitioners under the cover of a letter dated 12th June 2007, a copy of which has been made Annexure "p6" to the writ petition. The petitioners claim to have received this communication on 14th June 2007. (32.) WILL such delayed despatch make the date the order 14th June 2007, so as to entitle the petitioners to take benefit of the deeming provision in the amended subsection (2a) to Section 245d of the Act? I do not think so. An order comes into existence on the day it is passed. If it is not passed in open court, or without prior intimation to the party concerned, which often happens if it is an administrative or a quasi-judicial authority and not a regular judicial authority which passes the order, for the purpose of computing limitation the date of the order may be deemed to be the date on which the order is communicated. It may be a defence if breach of the order is alleged, and the alleged violator may be exonerated if he demonstrates he had no knowledge of the order after the same was passed, till the date the order was communicated to him. But that would not alter the date on which the order was made. Accordingly, this plea of the petitioners also stands rejected. (33.) NOW I shall examine the issue as to whether the Settlement Commission has considered any irrelevant material, or the material whose consideration was impermissible in law, in passing the order of rejection. On behalf of the petitioners, argument has been advanced on this issue on two planks. Firstly, it has been contended that at the admission stage, the Settlement Commission could only consider the Rule 6 Report, and the Statement of Facts. He is required to form an opinion, considering these materials, having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, whether to reject the same, or to allow the application to be proceeded with. The case of the petitioners is that it was impermissible at that stage to look into the detailed report of the Assessing Officer, which was annexed to the Rule 6 report.
The case of the petitioners is that it was impermissible at that stage to look into the detailed report of the Assessing Officer, which was annexed to the Rule 6 report. The second plank of the petitioners argument on this point has been that the very act of giving opportunity of hearing to the Income-tax authorities amounted to breach of the provision of the statute, and since the decision of the Settlement commission was influenced by the submissions made on behalf of the Income-tax authorities, the decision stood vitiated as extraneous factors or materials were considered by the Settlement Commission. (34.) IN the present case, the Commissioner in the Rule 6 report had opined that the application was suitable for Settlement. To this report, he annexed two documents, being the detailed report of the Assessing Officer and the endorsement thereof by the Additional Commissioner of Income Tax, which were marked "b" and "c". The Commissioner, referring to these annexures, observed that those reports "may be treated as part of my report to the extent consistent with my observations supra. " (35.) IT is apparent from the observations of the Commissioner contained in the rule 6 report that part of the detailed report of the Assessing Officer was not consistent with the observation of the Commissioner made in Column 5 of the report. The first sentence of the response of the Commissioner in column 5 of the Rule 6 report contains the statement of the Commissioner to the effect that the application is suitable for settlement. This statement is in the nature of a recommendation. The rest of the observations contained in this column relates to factual situation as regards proposal of the department to go for special audit. Then there is reference to the report of the Assessing Officer. The observation of the Commissioner, which is referred to in the last sentence of this response is thus relatable to the recommendation part of the Commissioners report. The other part of the response merely contains factual statements. (36.) NOW one of the factors which the Settlement Commission is to consider for the purpose of admission of a settlement application is the "materials contained" in the Rule 6 report. Submission of Mr.
The other part of the response merely contains factual statements. (36.) NOW one of the factors which the Settlement Commission is to consider for the purpose of admission of a settlement application is the "materials contained" in the Rule 6 report. Submission of Mr. Chatterjee is that the Settlement commission should have considered only that part of the report of the Assessing officer which was consistent with the recommendation of the Commissioner, as that is the only part of the report which can come within the ambit of the expression "material contained" in the report. The Settlement Commission could not have considered any other part of the report of the Assessing Officer. (37.) IT is apparent from the impugned order the Settlement Commission had considered the entire report of the Assessing Officer. It has been specifically recorded in paragraph 10 of the Order impugned that the Settlement commission had considered the entire report of the Assessing Officer. But by doing so, I do not think the Settlement Commission had acted beyond the provisions of the statute. Under the statue, the Commission could refer to the materials contained in the report. The report of the Assessing Officer was made part of the Rule 6 report. The Commissioner, in the Rule 6 report did not specify which part of the report was consistent with his observations. Thus, to appreciate the Rule 6 report, the consideration of the entire report of the Assessing Officer by the Settlement Commission was inevitable. While considering the report of the assessing Officer, if the Settlement Commission found certain facts relevant and on that basis it came to an independent opinion which went contrary to the recommendation of the Commissioner in Rule 6 report, I do not find any irregularity in such decision making process. (38.) I also accept the case of the Income-tax authorities that the Rule 6 report is not binding on the Settlement Commission. Considering the two other factors stipulated in Section 245d (1) of the Act, "being nature and circumstances of the case" or "complexity of the investigation involved therein", the Settlement commission may take a decision contrary to what has been recommended in the "rule 6 report". (39.) BUT this is not the sole ground on which the application of the petitioners have been rejected.
(39.) BUT this is not the sole ground on which the application of the petitioners have been rejected. The Settlement Commission has recorded in the order that they have looked into the facts and circumstances of the case as well as the complexities involved. There is also finding to the effect that certain ad-hoc amounts were disclosed and such amount had not been computed on the basis of any facts brought forward in the Statement of Facts. (40.) IT is permissible for the Writ Court to subject an order of the Settlement commission to a test to ascertain if it suffers from any grave procedural defects. This level of scrutiny is permissible, as has been held by the Honble Supreme court in the case of Jyotendrasinhji (supra). The case of N. Krishnan (supra) is also an authority on this principle. In the case of Jyotendrasinhji (supra), it was held: ". . . . . . Indeed it would be difficult to predicate the reason and considerations which induce the Commission to make a particular order, unless the Commission itself choose to give reasons for its order. Even if it gives reasons in a given case, the scope of enquiry in the appeal remains the same as indicated above, viz. , whether it is contrary to any of the provisions of the Act. In this context, it is relevant to note that the principle of natural justice (audi alteram partem) has been incorporated in Section 245d itself. The sole overall limitation upon the Commission that it should act in accordance with the provisions of the Act. The scope of enquiry, whether by the High court under Article 226 or by this Court under Article 136 is also the same whether the order of the Commission is contrary to any of the provisions of the Act and if so, apart from ground of bias, fraud and malice, which of course constitute a separate and independent category, has it prejudiced the petitioner/appellant. . . . . . " (41.) BEFORE, however, I examine the argument of the petitioners that by affording opportunity of hearing to the Income-tax authorities at the admission stage the Settlement Commission acted contrary to the provisions of the law, I shall briefly analyse the provisions of the law relating to admission of a settlement application.
. . . . . " (41.) BEFORE, however, I examine the argument of the petitioners that by affording opportunity of hearing to the Income-tax authorities at the admission stage the Settlement Commission acted contrary to the provisions of the law, I shall briefly analyse the provisions of the law relating to admission of a settlement application. (i) A settlement application under Section 245c (1) of the Act is required to be filed with the Settlement Commission in Form 34b set out in Appendix II to the Income Tax Rules, 1962. The disclosure of income has to be made in an Annexure to the application. (ii) On receiving this application, a copy of the application is sent to the Commissioner, but without the annexures with a direction to furnish report under Section 245d (1) of the Act within 45 days of receipt of the copy of the application. (iii) Under Rule 7 of the Settlement Commission (Procedure) Rules 1997, both the applicant and the Commissioner has been given the liberty to refer to or rely upon any other documents, statements or other papers, but for this purpose, copies of the paper books containing such papers are required to be filed by way of a paper book at least two weeks before the date of hearing. (iv) The first proviso to Section 245d (1) stipulates that the application shall not be rejected unless the applicant has been given an opportunity of hearing. (42.) A plain reading of Section 245d (1) reveals that there is no provision for giving opportunity of hearing to any of the parties at the time of admission, if the commission allows the application to proceed with. The statute has mandated three factors which shall be considered at that stage, being the materials contained in the Rule 6 report, nature and circumstances of the case or the complexities of investigation involved therein. Opportunity of hearing is to be given to the applicant only if the commission contemplates rejection of the application.
The statute has mandated three factors which shall be considered at that stage, being the materials contained in the Rule 6 report, nature and circumstances of the case or the complexities of investigation involved therein. Opportunity of hearing is to be given to the applicant only if the commission contemplates rejection of the application. (43.) UNDER sub-section 3 of Section 245d, if an application is allowed to be proceeded with, the Settlement Commission may call for the relevant records from the Commissioner and after examination of such records, if the Settlement commission opines that any further enquiry or investigation in the matter is necessary, then only direction can be made on the Commissioner to make further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to that case. It is only after examination of the reports and the records of the Commissioner received under sub-section (1) and the report of the Commissioner received under sub-section (3), and after giving an opportunity to the applicant and to the Commissioner to be heard, the Settlement Commission is empowered to make such orders as they may think fit on the matters covered by the application or any other matter relating to the case. Thus, in the provision of Section 245d, the legislature has prescribed the stages in which opportunity of hearing is to be afforded to the assessees and the Income-tax authorities. In view of such specific provision, should one read into the provisions of sub-clause (1) of Section 245d of the Act opportunity of hearing? (44.) THE argument of the respondents on this point was that one should not imply an excluding provision which is not specifically provided in the statute, and the Commission, in exercise of its power to regulate its own procedure, can take a decision as to whom it should afford opportunity of hearing and at what stage. The statute is silent on the aspect of hearing in Section 245d (1), except in the manner prescribed in the proviso. Mr.
The statute is silent on the aspect of hearing in Section 245d (1), except in the manner prescribed in the proviso. Mr. Chatterjees argument on this point is that if there is a proviso to a section permitting or stipulating certain course, and the main provision is silent on the course to be taken by an authority, then the content of the proviso shall be construed to be an exception to the main provision, and the mandate of the main provision ought to be strictly followed. The authorities relied on by Mr. Chatterjee in support of such submission are the decisions of the Honble Supreme Court in the cases reported in AIR 1959 SC 713 and (1996) 6 SCC 665 . I also accept the submission of Mr. Chatterjee that the provisions in a subordinate legislation cannot determine the main provision. The two authorities, reported in (2004) 3 SCC 48 and (2004) 8 SCC 747 are clear on the point that subordinate legislation cannot curtail the content and scope of the substantive provision of the statute. (45.) CONSIDERING the authorities cited by the petitioners, I do not think the commissions decision to hear the Income-tax authorities was strictly in accordance with the provision of statute. The Commission also does not have any inherent power, being a creature of statute, and not being a regular Court. The authorities for this proposition are the decisions of this Court in the cases of indira Devi (supra) and Mahbub Hossain (supra). (46.) NEXT comes the question as to whether in terms of sub-section 7 of Section 245f, in exercise of their power to regulate their own procedure the Commission can give opportunity of hearing to the Income-tax authority. I do not think the commission ought to do. Since the statute itself has prescribed clearly what has to be done at individual stages for considering an application for settlement, such a course ought to be followed. The provisions of the statute prescribes the stages in which the applicant and the departmental representative are to be heard, and in Section 245d (1) there is no provision for affording opportunity of hearing to the petitioners, which has been specifically provided at a subsequent stage under section 245d (4). Giving opportunity of hearing to the Income-tax authorities at the time of consideration of the application for settlement thus constitutes a deviation from the procedure prescribed in the statute.
Giving opportunity of hearing to the Income-tax authorities at the time of consideration of the application for settlement thus constitutes a deviation from the procedure prescribed in the statute. (47.) BUT mere deviation from a procedure prescribed by the statute would not ipso facto vitiate the order of the settlement. In the case of Jyotendrasinhji (supra), the Honble Supreme Court has held that interference by the Writ Court would be warranted if an order of the Settlement Commission is contrary to the provisions of the statute, and the same causes prejudice to the petitioner who applies for quashing the order before the Writ Court. Such prejudice could be said to have been caused if the Settlement Commission had relied on solely on the submission of the Income-tax authorities, and such authorities had in turn brought to notice of the Commission any extraneous material. I find from the order, however, that the documents which was examined by the Settlement commission were all made available to it through the legitimate channel, being the Statement of Facts and the Report of the Assessing Officer. There is also reference to the Directors Report and the Auditors Report of the petitioners. But it is not the case of the petitioners that the Directors Report and the Auditors report are extraneous materials. (48.) I, however, do not think the nature of deviation on which the impugned order has been challenged is of such degree which goes against the real intention of the legislature. In this case, by permitting the Commissioner of Income Tax to make submissions at the stage of admission, I do not think any grave prejudice has been caused to the petitioners. As I have observed earlier in this judgment, none of the documents on which the Settlement Commission has placed reliance on can be said to be extraneous. The only aspect of the matter where the petitioners could have suffered prejudice was in disclosure of the Statement of facts to the Income-tax authorities. However, there is no pleading in the writ petition to the effect that the Income-tax authorities actually gained access to the statement of Facts. It is not possible for this Court to examine whether at the time on perusal of the Statement of Facts by the Commission the Income-tax authorities were asked to leave the room where the hearing was being held.
It is not possible for this Court to examine whether at the time on perusal of the Statement of Facts by the Commission the Income-tax authorities were asked to leave the room where the hearing was being held. Even if the revenue authorities had gained access to such Statement of Facts, the petitioners may have been prejudiced, but such prejudice cannot vitiate the impugned order. The remedy of the petitioners would lie elsewhere in such circumstances, as it was within the jurisdiction of the authority to examine the statement of Facts. If the Statement of Facts itself was an extraneous material for consideration at the admission stage of a settlement application, and it was only through the Income-tax authorities the Settlement Commission had gained access to the information contained therein at the admission stage, my conclusion would have been different. But here the situation is reverse. The hearing authority was empowered to look into the document, but not the Income-tax authorities. If the latter had gained access to the material only because such procedural deviation, then the Income-tax authorities may be precluded from relying on such materials in any other proceeding, but that would not render the impugned order invalid. (49.) IN the impugned order, thus the only defect or deficiency on the part of the settlement Commission was in considering the arguments of the Income-tax authorities. On this point, learned counsel for the petitioners placed reliance on the decision of the Honble Supreme Court in the case of Commissioner of Income-tax, Calcutta Vs. Daulatram Rawatmull (supra) to argue that since submissions of the departmental authority was considered by Settlement Commission, such submissions also influenced the decision and this was an extraneous consideration on the basis of which such decision was made. It was further argued, relying on the same authority, that if a decision is taken partly on relevant factors and partly on irrelevant factors, it is not possible to ascertain which part of the decision was influenced by the relevant factor and which part was influenced by extraneous factors, and the entire order must fail in such a situation. (50.) TO apply this proposition of law, however, the nature of the extraneous factors would have to be considered. It is not the case of the petitioners that the income-tax authorities had advanced argument on something wholly irrelevant to the proceeding.
(50.) TO apply this proposition of law, however, the nature of the extraneous factors would have to be considered. It is not the case of the petitioners that the income-tax authorities had advanced argument on something wholly irrelevant to the proceeding. The Settlement Commission had also confined their examination of the petitioners application to the three factors which are required to be considered at that stage. Thus permitting the Income-tax authorities to participate in the hearing per se did not result in any grave prejudice to the petitioners. (51.) STRONG reliance was placed by the petitioners on the decision of the Honble supreme Court in the case of Ramchandra Keshav Adke Vs. Govind Jyoti Chavare ( AIR 1975 SC 915 ) in support of their submission that if a statute mandates a thing to be done in a particular way, it must be done in that way, and in no other way. This authority in substance, incorporates the principle of law laid down by the Judicial Committee of the Privy Council in the case of Nazir Ahmed Vs. Emperor (AIR 1936 PC 253). But this authority must be considered in the light of degree of prejudice which is being caused by the act which is in deviation of the statute. This restraint is warranted particularly when what is being scrutinised is the decision of the Settlement Commission in a proceeding under Article 226 of the Constitution of India in view of the decision of the Honble Supreme Court in the case of Jyotendrasinhji (supra). If the application was rejected without affording an opportunity of hearing to the petitioners, that would have been fatal to the impugned order. But merely affording an opportunity of hearing to the revenue authorities while considering an application for admission of a settlement application, in the absence of any other aggravating factors would not vitiate the impugned order. (52.) THE decision reported in Surinder Kaur Rai Vs. Jyoti Ranjan Banerjee (2002)4 CHN 685 , is an authority for the proposition that at the stage of admission of a second appeal, there is no scope for hearing the respondent. I have my doubt, however, that if a Court chooses to hear the respondents at the admission stage of a Second Appeal and upon hearing the respondents, the appeal is not admitted, whether that would constitute a ground for setting aside the order of dismissal.
I have my doubt, however, that if a Court chooses to hear the respondents at the admission stage of a Second Appeal and upon hearing the respondents, the appeal is not admitted, whether that would constitute a ground for setting aside the order of dismissal. It is true that the Settlement Commissioner is not a Court and does not possess any inherent power or jurisdiction but for the purpose of taking decision, but if there is a minor deviation from the provisions of a statute without resulting any grave consequential prejudice, I do not think the same would be fatal. Having regard to circumstances of the instant case. (53.) AUTHORITIES were also cited on behalf of the respondents that there must be full and final disclosure. But I do not think there is any scope for examining the question as to whether the petitioners had made such disclosure in the present proceeding. That would be for the Settlement Commission to decide. I also accept the petitioners argument that a practise followed over a long period of time cannot gain legitimacy if it is contrary to statute. But as I have already held that the deviation in this case was not a fatal one, this proposition of law does not advance the case of the petitioners. (54.) THE writ petition stands accordingly dismissed, and all interim orders stand dissolved. There shall, however, be no order as to cost.