DELAY IN CHALLENGING THE ORDER OF SETTLEMENT COMMISSION UNDER THE INCOME TAX ACT, 1961

The Income Tax Settlement Commission (‘Commission’ for short) was a quasi-judicial body established under Chapter XIX-A, containing Sections 245A to 245M of the Income Tax Act, 1961. This Commission provided a one-time mechanism for the tax payers to settle tax disputes by making a full and true disclosure of previously undisclosed income. Section 245C of the Act provides that an assessee may, at any stage of a case relating to him, make an application in the prescribed form containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled.

On receipt of settlement application, the Commission, after observing the due formalities, may pass its final order under Section 245D(4) of the Act. The order, generally, contains any one of the following-

• The amount of undisclosed income accepted.
• The tax, interest and any penalty payabe.
• Whether immunity from penalty and/or prosecution is granted.
• Conditions, if any, to be complied with by the applicant.

The above said order passed by the Commissioner if final and conclusive on the matters covered by it, as provided in Section 245-I.  No appeal can be filed against the order of the Commission. But the same may be challenged before the High Court challenging the said order, if there are grounds such as lack of jurisdiction, violation of principle of Natural justice.

The Act does not prescribe the time limitation for filing a writ petition before the High Court to challenge the order of the Commission. However, the petition must be filed within a reasonable time.  The High Court may refused relief if there is undue delay and laches.

In Union Of India Through The Secretary, Ministry Of Finance, Department Of Revenue, New Delhi., Director General Of Income Tax (Investigation) Madhya Pradesh, Chief Commissioner Of Income Tax -1 Raipur, Principal Commissioner Of Income Tax-1 Raipur, Commissioner Of Income Tax West Bengal, Assistant Commissioner Of Income- Tax Circle- 2 (1) Raipur, Versus Additional Bench It Settlement Commission, Kolkata, Prime Ispat Ltd., Ashok Kumar Agrawal, Pawan Kumar Agrawal, Smt. Mamta Agrawal, Smt. Madhu Agrawal. - 2026 (7) TMI 1170 - CHHATTISGARH HIGH COURT, during the year 2007, a search was conducted by Income Tax Department at premises of Ashok Nanda, certain materials incriminating respondents No. 2 to 6 were gathered. On 21.10.2008, a search was conducted in Cosmos ISPAT Group Limited which led to recovery of a suitcase from the residence of Anand Kumar Agrawal, brother-in-law of Babulal Agrawal. The suitcase contained documents showing investments exceeding Rs. 30 crores in the names of Babulal Agrawal and his family members. The Income Tax Department also caused a search and seizure operation under Section132 of the Act between 4.2.2010 to 6.2.2010. The statements were recorded under Section 132(4).   On 19.2.2010, Economic Offences Wing/Anti-Corruption Wing, Chhattisgarh registered FIR against Babulal Agrawal under Sections 13 (1)(e) and 13 (2) of Prevention of Corruption Act, 1988 for possession of assets disproportionate to his known sources of income.

On 10.1.2011, Directorate of Enforcement registered a case under the Prevention of Money Laundering Act, 2002 against Babulal Agrawal and others. On 10.2.2011, notices under Section 153A of the Act were issued to the members of Agrawal Group, initiating assessment proceedings. On 30.8.2011, six assesses belonging to Agrawal Group filed applications under Section 245C(1) of Income Tax Act before the Additional Bench of Income Tax Settlement Commission, Kolkata seeking settlement of their cases.  Five of the applicants filed a writ petition before the High Court, Chhattisgarh on 02.09.211, challenging the search and seizure proceeding. In the meanwhile, the Settlement Commission admitted the settlement applications filed by the applicants on 12.09.2011. The Commission passed the final order under Section 245D (4) of the Act settling the cases of the applicants. Therefore the writ petition filed before the High Court was withdrawn. Thereafter, the Department moved an application for rectification of mistakes on 20.12.2016 under Section 245D (6) of the Act. The said application for rectification of mistakes was rejected by the Commissioner on 03.02.2017.

The petitioner department put forth the following prayers before the High Court-

• to call for the entire records concerning the case of the petitioner for its kind perusal;
• to issue an appropriate writ/order/direction and quashing the final order under section 245D (4) of the Act dated 31.10.2012 by the Commission, Kolkata;
• to issue an appropriate writ/order /direction and quashing the order under section 245D (6) of the Act dated 03.02.2017 by the Commission. Kolkata;
• to issue an appropriate writ/order/direction and initiate and take action against the respondent under section 2(C) of the Contempt of Courts Act, 1971 causing interference in the judicial proceedings by filling deliberate false distorted statement.
• to issue an appropriate writ/order/direction and in the alternative, initiate action under section 340 of the Cr. P.C. in the interest of justice, causing an investigation into the deliberate false statements made by the Respondent in their common affidavit/ at the time of filing of the writ before the High Court and also deliberate failure to disclose the (writ) Supra/before the Commission and obtaining a favourable orders.

The petitioners submitted the following before the High Court-

• The respondents No. 2 to 6 approached the Commission challenging the search and seizure proceeding by filing applications under Section 245(D)(1) of the Act.
• At the same time, five members of Agrawal Group preferred a writ petition assailing the very same proceeding.
• The respondents No. 2 to 6 suppressed material facts before the Commission therefore order passed on 31.10.2012 would amount to outcome of fraud and misrepresentation.
• The application for rectification was moved by the petitioner-department for rectification but the Commission failed to consider the grounds raised therein.

In view of the above the petitioner department prayed to allow this writ petition.

The respondents 2 to 6 submitted the following before the High Court-

•  the composite order was passed by the Commission on 31.10.2012 and it was within the knowledge of petitioner-department;
• no steps were taken by them to avoid the very order but the petitioners approached the Commission for rectification after period of five years and their application was dismissed vide order dated 3.2.2017;
• the petitioner-department preferred this writ petition on 30.4.2019 i.e. after 7 years from the date of passing of the composite order and after 2 years from the date of passing of the subsequent order dated 3.2.2017;
•  the petitioners failed to explain the cause of delay of writ petition and therefore this petition deserves to be dismissed.

The High Court heard the submissions of both the parties. The High Court observed that the respondents No. 2 to 6 approached the Commission on 30.8.2011 seeking settlement of their cases arising from the search and seizure proceeding. 5 members of the Agrawal Group approached High Court of Chhattisgarh by filing a writ petition in which similar relief was sought. However, in the order passed by the Commission dated 03.02.2017, it is stated that the subject matters of both the proceedings are different.

The High Court further observed that the order dated 31.10.2012 was passed in presence of both the parties therefore it cannot be presumed that the petitioner’s department were not aware of the outcome of the applications moved by the respondents No. 2 to 6 before the Commission.  The High Court further observed that the Department challenged the order dated 31.10.2012 after a lapse of 7 years and challenged the order dated 03.02.2017 after a lapse of 2 years. The Department failed to explain the delay.

In view of the above, the High Court found that there is no ground to interfere with the impugned orders and dismissed the writ petition filed by the Department.