Income Tax – Settlement Commission passed orders without hearing and examination of records to meet deadline – cases to go back to Commission and not AOs – amounts already deposited not to be refunded: Rajasthan HC
Primary question for consideration in a bunch of writ petitions preferred by Revenue and cross petitions by different assessees is with regard to applications filed before settlement commission 
on or before 01/06/2007 and assailing orders of Settlement Commission, on the premise that if impugned order of Settlement commission U/s 245-D(4) of Income Tax Act, is held to be legally unsustainable, in such an eventuality, whether matters are to be remitted back to settlement commission to examine afresh in accordance with law or to the assessing authority in view of proceedings initiated under Chapter-XIX-A on being held to be abated in terms of S.245 – HA of the Act ?
Assessee ( Prakash Chand Jalan ) filed application before Settlement Commission on 27/09/2001 for A.Yrs 1997-98 to 2000-01 U/s 245 (C) containing a full & true disclosure of his income having not been disclosed before the Assessing officer.
Settlement commission was supposed to pass order U/s 245-D(4); and at this stage, amendment came into force w.e.f . 01/06/07 vide Finance Act, 2007, whereby sub-section 4A was inserted to S.245 -D of the Act and obligation was casted upon settlement commission to pass order U/s 245-D(4) on or before 31/03/08, otherwise proceedings pending before it shall stand abated as provided U/s 245-HA(1); in that eventuality, it would be remitted to the assessing officer or income tax authority before whom proceedings at the time of making application was pending and for being disposed of in accordance with statute as if no application U/s 245-C having been made.
Due to a sword over the assessees, who had already made full & true disclosure before settlement commission about their income having not been disclosed before assessing authority, the tax was also paid at the time of admission of their applications where settlement commission prima facie examined the records taking note of report U/r 9 of Rules, 1997 submitted by commissioner (IT); and if Settlement Commission failed to decide pending application & proceedings were since going to be abated by 31/03/2008, assessees preferred CWP -2982/2008 wherein this Court issued a mandamus directing settlement commission to decide their applications on or before 31/03/2008 since they had a fear and rightly so, because of their applications having remained pendente & likely to abate by virtue of amendment vide Finance Act, 2007 which will create complication for them.
However, after taking note of number of assessments pending & paucity of time, as observed in orders impugned that it is not practicable for the Commission to examine the records and investigate the cases for proper settlement, rather impracticable to afford adequate opportunity to respective parties as provided U/s 245-D(4) as it was directed by this Court to pass orders on or before 31/03/08; consequently, settlement commission invariably passed orders a day before or on 31/03/08 in all cases.
It would be pertinent to extract part of order being relevant which are almost verbatim in all the orders impugned either by assessees or by the revenue:-
“3. In all the principal Bench of the Commission has till 26/03/2008 received more than 324 orders from various High courts in the month of March, 2008, directing the Principal Bench to complete the cases by 31/03/2008.
4. This would involve more than 1500 assessments. The Settlement commission deals only with the assessments which involve complexity of investigation and the application is intended to provide quietus to litigation. For example, in one group of cases where 23 applications are involved, the paper book, which has been filed before the Settlement commission runs into thirty thousand pages. It goes without saying that sufficient and proper opportunity is required to be given both to the applicant and the commissioner of income tax for arriving at a proper settlement.
5. At this juncture, it is not practicable for the Commission to examine the records and investigate the case for proper settlement. Even giving adequate opportunity to the applicant and the department, as laid down in section 245- D( 4) of Income Tax Act, 1961 is not practicable. However, to comply with the directions of the Hon’ble High Court, we hereby pass an order U/s 245- D( 4) of Income Tax Act, 1961 :
Facts are almost same in writ petitions filed by the Revenue wherein the assessees are respondents.
It is also pertinent to state that in para 10, the assessees were called upon to deposit amount of tax along-with interest within 35 days from the date of receipt of intimation from the assessing officer in consonance with S.245-D(6A ); and accordingly, the Revenue certainly issued notice U/s 156 of the Act to respective assessee and as informed to this Court, all the assessees who are either writ petitioners or respondents in writ petitions of the Revenue, have deposited amount of tax assessed by settlement commission under orders impugned and rightly so, since as required U/s 245-D(6A), if assessee fails to deposit amount of tax payable under orders of settlement commission U/s 245-D(4) within thirty five days of receipt of certified copy thereof, he is liable to pay simple interest @ 15% p.a.
The High Court observed, “ S.245D (4) casts an obligations upon settlement commission to examine the records, report of Commissioner (IT) if any, and afford opportunity of hearing to the assessee & Commissioner (IT) either in person or through representative duly authorised in this behalf, and after examining such further evidence as having been placed before it or obtained by Commission, may in accordance with the IT Act, pass such order as it thinks fit. In instant bunch, from a bare perusal, it clearly manifest that observations made therein speak volumes about procedure having been adopted by settlement commission in deciding applications under orders impugned as the Commission specifically observed that it is impracticable to examine the records & investigate the cases for proper settlement and even opportunity of hearing as contemplated U/s 245-D (4) is also not practicable; but since this Court directed Commission to pass order before 31/03/08, in para 6, at its own assessed the undisclosed income of applicants for being taxed, as is almost self same verbatim in all the orders impugned.
Question arises for consideration as to whether in the facts of instant cases, there can be considered to be true compliance of statutory mandate U/s 245- D( 4) of the Act. There cannot be two opinions about it and irresistible conclusion is that settlement commission has failed to afford a reasonable opportunity of hearing nor examined the records as per statutory requirement of law and has passed orders impugned without due application of mind; in such circumstances, orders impugned in no manner are legally sustainable and are in violation of S.245 – D( 4) of the Act.”
That apart, it was common contention on behalf of assessees and the Revenue that if orders are not sustainable being in violation of S.245 -D(4), as per Counsel for assessees, it must be remitted back to settlement commission while according to Counsel for Revenue, since settlement commission has become functus officio after 31/03/08, matter deserves to be remitted back to the assessing authority as contemplated U/s 245HA (2) who will make assessment of respective assessees in accordance with law as if no such application has been submitted by respective assessees before settlement commission .
As already informed, all the assessees have deposited amount of tax in terms of orders impugned, a joint request was made that such deposited tax amount be refunded back to respective assessees, in case matter is remitted back to the settlement commission. However, since settlement commission would examine the matters afresh after affording opportunity of hearing to the parties, this Court considers it appropriate that what has been deposited by respective assessees under orders impugned would be subject to final outcome of their applications U/s 245-C under orders being passed Us 245- D( 4) of the Act and as a consequence whereof, if there would be any refund ordered, assessee would certainly be entitled for interest @ 15% per annum.
The orders dt.31 /03/08 and 29/03/08 passed by settlement commission in the bunch of petitions are hereby quashed and set aside. However, matters are remitted back to the respective settlement commission benches to decide applications of assessees filed U/s 245-C after affording opportunity of hearing to the parties and after due compliance of S.245 -D(4) of the Act may pass fresh orders in accordance with law. Parties are directed to appear before concerned Settlement commission on 14/09/09.
