High Court overturns Settlement Commission's decision, emphasizes due process & allows settlement applications.

The High Court set aside the Settlement Commission's rejection of the appellant's application under Section 245D(4) of the Income Tax Act, citing violations of natural justice and procedural requirements. The Court directed the matter to the Interim Board for Settlement, instructing a decision within six weeks while emphasizing adherence to due process. Additionally, the Court clarified that pending appeals do not bar settlement applications, restoring the status quo ante and highlighting the ineffectiveness of assessment orders during writ petition pendency. Attachment proceedings were deemed infructuous due to the lapse of the provisional attachment period.

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Issues Involved:
1. Validity of the Settlement Commission's rejection of the application under Section 245D(4) of the Income Tax Act.
2. Alleged violation of principles of natural justice and procedural requirements.
3. Jurisdiction and authority of the Interim Board for Settlement post-abolition of the Settlement Commission.
4. Impact of pending appeals on the settlement application.

Detailed Analysis:

1. Validity of the Settlement Commission's Rejection:
The appellant filed an application under Section 245D(4) of the Income Tax Act seeking settlement of tax disputes. The Settlement Commission initially allowed the application but later reversed its decision, rejecting the application on the grounds of non-disclosure of full and true income. The Commission's rejection was based on a report suggesting further investigation into the appellant's income sources. The High Court found that the Commission's reliance on additional reports without affording the appellant an opportunity to respond violated principles of natural justice and procedural requirements under the Act.

2. Violation of Principles of Natural Justice and Procedural Requirements:
The High Court emphasized that the Settlement Commission must adhere to principles of natural justice, including granting the appellant an opportunity to rebut reports and evidence against them. The Commission's failure to provide such an opportunity, especially considering the time constraints cited, was deemed arbitrary and in violation of Section 245D(4) and 245G of the Act. The Court noted that the Commission's approach appeared biased, particularly since a senior member of the Commission had previously supervised the investigation against the appellant, leading to potential institutional bias.

3. Jurisdiction and Authority of the Interim Board for Settlement:
With the abolition of the Settlement Commission and the establishment of the Interim Board for Settlement, the High Court addressed whether the Interim Board could entertain the appellant's application. The Court concluded that the Interim Board could consider applications remanded by the High Court, as the powers of the High Court under Article 226 of the Constitution cannot be curtailed by statutory amendments. The Court directed the Interim Board to dispose of the application within six weeks, considering all materials and providing sufficient opportunity to the appellant.

4. Impact of Pending Appeals on the Settlement Application:
The Court addressed the contention that pending appeals for certain assessment years would bar the settlement application. It was clarified that once the Settlement Commission's order is set aside and the matter is remanded, the status quo ante is restored, rendering the assessment orders and any pending appeals otiose. The Court referred to the Supreme Court's judgment in Calcutta Discount Co. Ltd. v. ITO, emphasizing that assessment orders made during the pendency of a writ petition do not affect the right to relief under Article 226.

Conclusion:
The High Court set aside the Settlement Commission's order rejecting the appellant's application and remanded the matter to the Interim Board for Settlement. The Interim Board was directed to dispose of the application within six weeks, ensuring compliance with principles of natural justice and considering all relevant materials. The Court also noted that the attachment proceedings had become infructuous due to the lapse of the maximum period for provisional attachment.

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