2021 (9) TMI 49 - HC - Income Tax

Settlement Commission's Jurisdiction Overstepped: Fairness and Justice Emphasized

The Court found that the Settlement Commission exceeded its jurisdiction by making substantial additions to the disclosed income and not adhering to the ... Validity of Settlement Commission order u/s 245D(4) - provisions relating to settlement of cases - Proof of true and full disclosure of income - whether petitioner is estopped to challenge the decision of the Settlement Commission after having made the requisite payments in 15 installments? - HELD THAT:- This Court finds that the petitioner himself submitted an application stating therein true and full disclosure of his income which was found to be incorrect. A person, who himself has not come out with clean hands, cannot take the benefit of the law for his own purposes - Settlement Commission, after having taken note of the report of the Commissioner of Income Tax, proceeded to assess the total income of the petitioner and has thereafter settled the income. On an application moved by the petitioner, installments were also increased from 6 to 15. The payments have already been made accordingly. In Brij Lal & ors.[2010 (10) TMI 8 - SUPREME COURT] the Settlement Commission passes the order which is a complete code in itself. It is a quasi-judicial authority and there is no provision for the Settlement Commission to remand the matter back to the AO - contention of the petitioner solely based on the observations made in different context by the Supreme Court and the High Court of Madras and Bombay that the Settlement Commission should have rejected his application cannot be sustained once the Settlement Commission has reached to the conclusion that there is no full and true disclosure of income. The stage is no more available for the petitioner. Once the Settlement Commission has ceased with the matter and has proceeded to take on record the reports and has reached to the conclusion that additional income is required to be added to the income as purportedly submitted to be the full and true undisclosed income, the option is not available for the applicant-petitioner, who has approached the Settlement Commission, to withdraw his application and ask for assessment to be done by the regular AO. This Court finds that the Settlement Commission had, in-fact, directed for getting the FSL report relating to the documents, which were made a basis for adding of income to the disclosed income as submitted by the petitioner, without waiting for the result of the FSL report and without giving an opportunity to the petitioner to contest the report submitted by the Commissioner of Income Tax regarding full and true disclosure and the Settlement Commission has proceeded further with the matter and passed the impugned order. The petitioner was also not given opportunity of hearing. The principles of Audi-alteram-partem, which are imbibed and inherent in the entire procedure relating to Settlement Commission which is akin to arbitration proceedings, have been violated. This Court is not convinced with the submission of learned counsel for the Revenue that the petitioner is estopped to challenge the decision of the Settlement Commission after having made the requisite payments in 15 installments. There is no estoppel against the law. The Settlement Commission, which is a quasi-judicial body, is required to adhere to the principles of law in stricto sensu. The contention of Revenue that the petition deserves to be dismissed on the ground of acquiescence is noticed for rejection. In cases relating to Revenue, the law of acquiescence would have no application because the orders are of mandatory nature where a person is bound to comply with the orders of the AO/Settlement Commission. If the assessee has deposited the revenue as assessed, he cannot be said to have acquiesced to the findings arrived at for computing the amount. A person would always be entitled for seeking a judicial review to such assessment. Neither the Revenue Department nor the assessee can be estopped from challenging the orders of assessment which may be passed by the AO/Commissioner or the Settlement Commission. While this Court does not accept the contention of the petitioner regarding the Settlement Commission not being empowered to make assessment, it accepts the second submission of learned counsel for the petitioner that the Settlement Commission ought to have examined the matter after giving opportunity of hearing to the petitioner with regard to the true and correct disclosure and the assessment ought to have been done by giving fair opportunity to the petitioner. In this regard, the FSL report also should have been taken into consideration. Matter restored back. Issues Involved:1. Legality and validity of the order dated 19/12/2013 passed by the Income Tax Settlement Commission under Section 245D(4) of the Income Tax Act, 1961.2. Legality and validity of the orders dated 18/06/2014 and 21/02/2014 passed under Section 245D(6B) of the Income Tax Act, 1961.3. Jurisdiction of the Settlement Commission to proceed with an application after finding that the assessee has not truly and fully disclosed the income.4. Whether the Settlement Commission can proceed to make an assessment after adding undisclosed income and pass orders including such non-disclosure.5. Adherence to the principles of natural justice and audi alteram partem by the Settlement Commission.6. Estoppel and acquiescence in challenging the Settlement Commission’s order after compliance.Issue-wise Detailed Analysis:1. Legality and Validity of the Order Dated 19/12/2013:The petitioners challenged the legality, validity, and propriety of the order dated 19/12/2013 passed by the Income Tax Settlement Commission under Section 245D(4) of the IT Act. The petitioners contended that the Settlement Commission acted beyond its jurisdiction by assuming the role of an Assessing Officer instead of its statutory role. The Commission disbelieved the true and full disclosure of income made by the petitioners and made substantial additions to the disclosed income.2. Legality and Validity of the Orders Dated 18/06/2014 and 21/02/2014:The petitioners also challenged the orders dated 18/06/2014 and 21/02/2014 passed under Section 245D(6B) of the IT Act. The Settlement Commission had partly accepted the application for rectification under Section 245D(6B), which the petitioners found arbitrary and without jurisdiction.3. Jurisdiction of the Settlement Commission:The petitioners argued that the Settlement Commission exceeded its jurisdiction by proceeding with the application after finding that the assessee had not made a true and full disclosure of income. The petitioners relied on several judgments, including Ajmera Housing Corporation Vs. CIT, which emphasized that full and true disclosure of income is a prerequisite for a valid application under Section 245C(1) of the IT Act.4. Assessment by the Settlement Commission:The petitioners contended that the Settlement Commission should have rejected the application once it found the disclosure to be untrue. The Commission, however, proceeded to assess the total income of the petitioner and made substantial additions, which the petitioners argued was beyond its jurisdiction. The Court referred to the Supreme Court’s judgment in Brij Lal & Ors. Vs. Commissioner of Income Tax, which clarified that the Settlement Commission has the authority to make assessments and pass orders under Section 245D(4).5. Principles of Natural Justice:The Court found that the Settlement Commission violated the principles of audi alteram partem by not waiting for the Forensic Science Laboratory (FSL) report and not giving the petitioners an opportunity to contest the report submitted by the Commissioner of Income Tax. The Court emphasized that the Settlement Commission, being a quasi-judicial body, must adhere to the principles of natural justice.6. Estoppel and Acquiescence:The Revenue argued that the petitioners were estopped from challenging the order as they had complied with the payment directions and benefited from the Settlement Commission’s order. The Court rejected this argument, stating that there is no estoppel against the law, and the petitioners are entitled to seek judicial review of the assessment.Conclusion:The Court concluded that while the Settlement Commission has the authority to make assessments, it must adhere to the principles of natural justice. The matter was remanded back to the Settlement Commission to reconsider the case afresh after giving a fair and proper opportunity to the petitioners and obtaining the FSL report. The writ petitions were partly allowed, and all pending applications were disposed of.