2017 (8) TMI 936 - HC - Income Tax

Settlement Commission's Order Upheld: Petitioners' Disclosures Deemed Relevant with Reasons Given

The Court upheld the Settlement Commission's order, finding that it was based on the petitioners' disclosures and submissions, considered relevant ... Settlement Commission exercising jurisdiction under the provisions of the Income Tax Act, 1961 - Held that:- There is a distinction made between an order of assessment based on best judgment and order of assessment on the basis of the records available. In the present case, the Settlement Commission was called upon to arrive at the quantum of tax liability of the petitioners in the settlement proceeding. It has taken a particular view. The Writ Court need not enter into the factual aspect of the matter to reapprise itself and act as an appellate authority against an order passed by the Settlement Commission. The materials on the basis of which the Settlement Commission had arrived at its decision to add ₹ 6.97 Crores and take 8% as the rate of net profit for the purpose of calculation of tax were before the Settlement Commission. The Settlement Commission has taken a view thereon, giving its reason therefor. The impugned order of the Settlement Commission does not call for any interference. The issue raised is answered accordingly. Issues:Challenge to Settlement Commission's order under Income Tax Act, 1961.Analysis:1. The petitioners challenged an Order passed by the Settlement Commission regarding the addition of Rs. 6.97 Crores as profit at 8% of gross turnover for the first petitioner. The petitioners argued that the reasons for this decision were not stated, their submissions were not considered, and various material aspects were overlooked. They contended that the Settlement Commission acted beyond its jurisdiction and did not follow the proper procedure under Rule 9 of the Income Tax Rules.2. The Senior Advocate for the petitioners cited precedents to support the argument that the Settlement Commission's actions were unlawful, emphasizing that the Commission's powers are limited to settlement procedures, not reassessment of tax. The Settlement Commission's failure to call for a report at two stages and its arbitrary decision-making process were highlighted as grounds for challenging the order.3. The Senior Advocate further argued that the Settlement Commission did not exercise best judgment in determining the earnings and net profit rate for the first petitioner, referencing a relevant case law. On the other hand, the Advocate for the department opposed the writ petition, stating that the scope of challenging the Settlement Commission's order is limited under Article 226 of the Constitution of India.4. The Court considered whether the Settlement Commission's order warranted interference under Article 226. It was noted that the Settlement Commission's order could be challenged if it contravened the Income Tax Act, was prejudicial to the petitioners, or was vitiated by bias, fraud, or malice. The importance of natural justice principles and the requirement for reasons in a statutory authority's order were highlighted.5. The Court found that the Settlement Commission's decision was based on the petitioners' own disclosures and submissions. The Commission had considered a report by the Commissioner of Income Tax and allowed the petitioners to present their case. The Court emphasized that the Settlement Commission had provided reasons for its decision, even if the petitioners disagreed with them.6. It was argued that the Settlement Commission did not apply the best judgment principle correctly, but the Court held that it was not its role to reevaluate the evidence or act as an appellate authority. The Court concluded that the Settlement Commission had considered the relevant materials and provided reasons for its decision, thus dismissing the writ petition.7. The Court rejected the petitioners' claim that the Settlement Commission did not follow certain legal precedents in making its decision, stating that the Commission had the authority to determine the tax liability in the settlement proceeding. The Court upheld the Settlement Commission's order, finding no grounds for interference.8. Consequently, the writ petition was dismissed, and no costs were awarded. A request for a stay of the judgment was also refused by the Court.