Settlement Commission order set aside for breach of natural justice; remanded for fresh hearing to hear objections and responses expeditiously

SC set aside the Settlement Commission's order of August 7, 1987, finding a breach of natural justice and remanded the settlement petition (filed January 22, 1977) for fresh disposal. The Commission must hear and consider the Commissioner's objections and the applicant's responses, give the applicant an opportunity to show why those objections should not be accepted, and then pass such orders as it deems fit under law. The Court limited its review to procedural legality and directed the Commission to dispose of the matter expeditiously.

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Issues:
Appeal against Settlement Commission's order dated August 7, 1987 under Income-tax Act, 1961 - Violation of principles of natural justice - Amendment to section 245D - Entitlement to be heard on Commissioner's objections - Judicial review of Settlement Commission's decision-making process.

Analysis:
The judgment pertains to an appeal against the Settlement Commission's order dated August 7, 1987, concerning the settlement of assessments for the years 1948-49 to 1975-76 under the Income-tax Act, 1961. The appellant applied for settlement under section 245C, which was a composite application for multiple assessment years. The court highlighted the purpose of the Settlement Commission, emphasizing its role in dealing with cases involving significant tax liabilities and potential criminal culpability. The Wanchoo Committee's recommendation led to the enactment of Chapter XIX-A of the Income-tax Act, 1961, establishing the framework for settlements.

The Commissioner of Income-tax objected to the appellant's proposal for certain years, leading to the rejection of the application for those years by the Settlement Commission. The appellant sought a recall of the order, citing a lack of opportunity for a hearing as required by section 245D(1). The court emphasized the importance of natural justice, citing precedents to support the right of an applicant to be heard before the rejection of a settlement application. The Finance Act, 1979, introduced amendments to section 245D, empowering the Settlement Commission to overrule the Commissioner's objections under certain conditions.

The court found that the order of August 24, 1977, rejecting the application was a nullity due to a violation of natural justice principles. The subsequent amendment to section 245D empowered the Commission to reconsider the objections, allowing the appellant to contest them. The court stressed the need for a fair hearing on the objections raised by the Commissioner, ensuring the appellant's right to present arguments against the objections. The decision focused on the legality of the procedure followed by the Settlement Commission, emphasizing the importance of the decision-making process in judicial review.

Ultimately, the court allowed the appeal, setting aside the impugned order and remanding the matter to the Settlement Commission for a proper hearing and disposal of the settlement petition. The Commission was instructed to consider both the Commissioner's objections and the appellant's responses, making decisions in accordance with the law. The court urged the Commission to expedite the proceedings, refraining from expressing opinions on the validity of objections at that stage. The appeal was disposed of without costs, emphasizing the need for procedural fairness and adherence to natural justice principles in settlement proceedings.

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