AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2008 (2) TMI 401
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....years before the Assistant Commissioner of Income Tax Circle 3, Calcutta, who is impleaded as the respondent no. 3 in this writ petition. The said respondent had issued notices under Section 142(1) and 143(2) of the Act to the petitioners, with a questionnaire as enclosure to such notice pertaining to the assessment year 2004-05. It appears that the petitioners had been filing replies in parts to such questionnaire, which was issued on 7th August 2006. 3. The petitioners decided to submit a settlement application for the said three assessment years in terms of Section 245C(1) of the Act in the prescribed form on 11th December 2006 in the office of the Income Tax Settlement Commission, additional bench, being the first respondent in this writ petition. In the Settlement Application, certain additional incomes were disclosed in respect of the said three assessment years. Thereafter, the petitioners had submitted another letter on 1st May 2007 for the purpose of rectifying certain discrepancies in the case relating to the assessment year 2006-07, but this communication is not of much relevance for the purpose of adjudication of the present writ petition. 4. As required under the pro....
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....issues. 8. One of the main grounds on the basis of which the impugned order has been assailed by the petitioners is that at the admission stage of a settlement application, the Income Tax authorities ought not to have been given opportunity of hearing by the Settlement Commission. It has been pleaded in paragraph 14 of the writ petition that the authorised representative of the petitioners had submitted at the time of hearing before the Settlement Commission that at such stage, hearing the Commissioner of Income Tax was not in conformity with the provisions of the Act. But the Settlement Commission upon hearing the learned Advocates for the petitioners and the Commissioner of Income Tax (DR) passed the order rejecting the settlement application. The operative part of the order of the Settlement Commission is reproduced below: "9. We have looked into the facts and circumstances of the case as well as the complexities involved. We have considered the arguments put forward by the authorized representative as well as by the CIT (DR). It is very clear to us that there are disputes between the Department and the applicant which have arisen from year to year and which have been subjecte....
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....with for settlement. (b) At the admission stage, the Commissioner of Income Tax (DR) could not take a view inconsistent with the view of the Commissioner, Income Tax, representing the same department on the question of admission of settlement application. (c) Since the Income-tax authorities themselves proposed to conduct special audit in the case of the petitioners as per the provisions of Section 142(2A) of the Act, which can be conducted having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, the settlement application should have been directed to be proceeded with, as one of the main factors to be considered for admitting a settlement application is nature and complexity of the investigation involved therein. (d) A new provision has been introduced to Section 245D with effect from 1st June 2007 in sub-section (2A) which stipulates that in cases where the settlement applications were made before 1st June 2007, but no order under sub-section (1) of Section 245D was passed till that date, i.e. 1st June 2007, such application should have been deemed to have been allowed to be proceeded with if the additional tax on the income ....
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....ther matter relating to the case. (4) After examination of the records and the report of the Commissioner, received under sub-section (1), and the report, if any, of the Commissioner received under sub-section (3), and after giving an opportunity to the applicant and to the Commissioner to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner under sub-section (1) or sub-section (3)." 11. For effective implementation of the settlement process, the Income Tax Settlement Commission (Procedure Rules), Rules 1997 has been framed and the following rules are relevant for the purpose of the present proceeding. "5. Procedure for filing settlement application. - (1) A settlement application shall be presented in Form No. 34B set out in Appendix II to the Income-tax Rules, 1962, by the applicant in....
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....45D(1), the Settlement Commission is to consider complexity of investigation, and the nature of complexities contemplated in these two provisions are not identical. 13. The main thrust of the argument of Mr. Pratap Chatterjee assisted by Mr. Abhijit Chatterjee, learned Senior Counsels appearing for the petitioners has been on the aspect of permitting the Income Tax authorities to make their submission at the stage of admission by the Settlement Commission. Mr. Chatterjee's submission is that under the provision of Section 245D(1) of the Act, the Settlement Commission at the admission stage can only rely on the report from the Commissioner and on the basis of materials contained in such report it may allow the application to be proceeded with or reject the application. Proviso to Section 245(D)(1) mandates that an application shall not be rejected unless an opportunity has been given to the petitioner of being heard. 14. It is only after the Settlement Commission allows an application to be proceeded with, there is scope for giving opportunity of hearing to the department. The submission of the petitioners is that at the stage of consideration of the application for admissio....
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....ts of the departmental representative, the Settlement Commission took the decision on materials he was not permitted to rely on at the admission stage. Relying on the decision of the Hon'ble Supreme Court in the case of Commissioner of Income Tax, v. Daulatram Rawatmull [1973] 87 ITR 349, Mr. Chatterjee submitted that the entire order would stand vitiated under the circumstances, as it is not possible to ascertain from the order to what extent the Settlement Commission had relied on such irrelevant or extraneous materials in coming to its finding. A parallel has been drawn with the procedure for admission of Second Appeal under the provisions of Section 100 of the Code of Civil Procedure, where the respondent has no right of audience at the admission stage, as held by an Hon'ble Division Bench of this Court in the case of Surinder Kaur Rai v. Jyoti Ranjan Banerjee (2002) 4 CHN 685. 17. On the aspect of the argument of the respondents that since the Settlement Commission has the power to regulate its own procedure, in exercise of such power Income tax authorities could be given opportunity of hearing, argument of Mr. Chatterjee has been that since the statute excludes hearing the I....
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....udited by a special auditor. The Special auditor is also an auditor like the company's auditor, but he has to be nominated by the Commissioner and not by the company. The accounts are again to be audited at the cost of the company. This is the substance of the statutory provisions. The power thereunder cannot, in our opinion, be lightly exercised. The satisfaction of the authorities should not be subjective satisfaction. It should be based on objective assessment regard being had to the nature of the accounts. The nature of the accounts must indeed be of a complex nature. That is the primary requirement for directing a special audit. But the word "complexity" used in sub-section (2A) is a nebulous word. Its dictionary meaning is: "The State or quality of being intricate of complex or that is difficult to understand." 19. The decision of the Allahabad High Court was subsequently quoted with approval by the Hon'ble Supreme Court in the case of Rajesh Kumar v. Deputy Commissioner of Income Tax [2006] 287 ITR 91." 20. Since the same expression, i.e. "complexity" has been used in two different provisions in the same statute, they must convey the same meaning, argued Mr. ....
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....he manner in which earning of additional income had been computed had not been mentioned by the applicant clearly and the same was not properly evidenced. The applicant had proposed to disclose some ad hoc amounts in the three years which had not been computed on the basis of any fact brought forward in the statement of Facts. His submission is that such finding was arrived at by the Settlement Commission independently on the basis of analysis of the Statement of Facts to which the departmental representative did not have any access. It is his submission that this Court ought not to interfere with the order impugned, as no case has been made out of that there was any ex-facie error of law in coming to such finding. Since the statement of Facts is not available to this Court also, the decision taken by the Settlement Commission on considering the Statement of Facts could not be scrutinised by this Court. 24. He also contested the case of the petitioners that once the Commissioner makes a recommendation in the Rule 6 report, a contrary stand could not be taken by the department before the Settlement Commission. His argument on this point is that while furnishing the Rule 6 report, t....
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....garding disputed additions and also the issue of assessibility." 27. He relied on three authorities, being a decision of the Hon'ble Supreme Court in the case of Commissioner of Income-Tax Vs. Express Newspaper Ltd. [1994] 206 ITR 443, and two decisions of Hon'ble High Court of Madras and the Hon'ble Allahabad High Court respectively in the cases of V.M. Shaik Mohammed Rowther v. Settlement Commission (IT & WT) & Ors. [1999] 236 ITR 581, Shyam Glass Works v. Income-Tax Settlement Commission and Another [1997] 228 ITR 672 in support of his submission that full and true disclosure is necessary to maintain an application for settlement under Section 245C of the Act. 28. On the aspect of scope of interference of the Writ Court in a proceeding in which the order of Settlement Commission is challenged, Mr. Shome's submission is that such order could be assailed on restricted grounds, and he cited the decision of the Hon'ble Supreme Court in the case of Jyotendrasinhji v. S.I. Tripathi & Ors. [1993] 201 ITR 611 and the case of N. Krishnan v. Settlement Commission [1989] 180 ITR 585 (karn) on this count. In the case of N. Krishnan [1989] 180 ITR 585 (karn), interference has been held to ....
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.... Act are also required to consider factors other than "complexity of the accounts" and "complexity of the investigation." On receiving the "Rule 6 Report", the Settlement Commission is to come to a decision as to whether it will allow the application to be proceeded with on the basis of the materials contained in such report, and while taking such decision the Commission is to have regard to the nature and circumstances of the case or the complexity of the investigation involved therein, meaning the complexity of the investigation involved in the case. Thus, they need not confine their examination only on the complexity of the investigation while considering an application for settlement for the purpose of admission. 32. The Settlement Commission, in any event, is an independent authority not bound to follow the decision of Assessing Officer under Section 142(2A) of the Act, on the aspect of the complexity involved in accounts. Law stipulates that the Settlement Commission must come to their own finding. Thus, I do not accept the submission of the petitioners that just because special audit was proposed in the case of the petitioners, complexity should have been automatically pres....
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....inistrative or a quasi-judicial authority and not a regular judicial authority which passes the order, for the purpose of computing limitation the date of the order may be deemed to be the date on which the order is communicated. It may be a defence if breach of the order is alleged, and the alleged violator may be exonerated if he demonstrates he had no knowledge of the order after the same was passed, till the date the order was communicated to him. But that would not alter the date on which the order was made. Accordingly, this plea of the petitioners also stands rejected. 36. Now I shall examine the issue as to whether the Settlement Commission has considered any irrelevant material, or the material whose consideration was impermissible in law, in passing the order of rejection. On behalf of the petitioners, argument has been advanced on this issue on two planks. Firstly, it has been contended that at the admission stage, the Settlement Commission could only consider the Rule 6 Report, and the Statement of Facts. He is required to form an opinion, considering these materials, having regard to the nature and circumstances of the case or the complexity of the investigation invol....
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....onsidered only that part of the report of the Assessing Officer which was consistent with the recommendation of the Commissioner, as that is the only part of the report which can come within the ambit of the expression "material contained" in the report. The Settlement Commission could not have considered any other part of the report of the Assessing Officer. 40. It is apparent from the impugned order the Settlement Commission had considered the entire report of the Assessing Officer. It has been specifically recorded in paragraph 10 of the Order impugned that the Settlement Commission had considered the entire report of the Assessing Officer. But by doing so, I do not think the Settlement Commission had acted beyond the provisions of the statute. Under the statue, the Commission could refer to the materials contained in the report. The report of the Assessing Officer was made part of the Rule 6 report. The Commissioner, in the Rule 6 report did not specify which part of the report was consistent with his observations. Thus, to appreciate the Rule 6 report, the consideration of the entire report of the Assessing Officer by the Settlement Commission was inevitable. While considerin....
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....Act and if so, apart from ground of bias, fraud and malice, which of course constitute a separate and independent category, has it prejudiced the petitioner/appellant……" 44. Before, however, I examine the argument of the petitioners that by affording opportunity of hearing to the Income-tax authorities at the admission stage the Settlement Commission acted contrary to the provisions of the law, I shall briefly analyse the provisions of the law relating to admission of a settlement application. (i) A settlement application under Section 245C(1) of the Act is required to be filed with the Settlement Commission in Form 34B set out in Appendix II to the Income Tax Rules, 1962. The disclosure of income has to be made in an Annexure to the application. (ii) On receiving this application, a copy of the application is sent to the Commissioner, but without the annexures with a direction to furnish report under Section 245D(1) of the Act within 45 days of receipt of the copy of the application. (iii) Under Rule 7 of the Settlement Commission (Procedure) Rules 1997, both the applicant and the Commissioner has been given the liberty to refer to or rely upon any other documents, s....
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....own procedure, can take a decision as to whom it should afford opportunity of hearing and at what stage. The statute is silent on the aspect of hearing in Section 245D(1), except in the manner prescribed in the proviso. Mr. Chatterjee's argument on this point is that if there is a proviso to a section permitting or stipulating certain course, and the main provision is silent on the course to be taken by an authority, then the content of the proviso shall be construed to be an exception to the main provision, and the mandate of the main provision ought to be strictly followed. The authorities relied on by Mr. Chatterjee in support of such submission are the decisions of the Hon'ble Supreme Court in the cases reported in AIR 1959 SC 713 and (1996) 6 SCC 665. I also accept the submission of Mr. Chatterjee that the provisions in a subordinate legislation cannot determine the main provision. The two authorities, reported in (2004) 3 SCC 48 and (2004) 8 SCC 747 are clear on the point that subordinate legislation cannot curtail the content and scope of the substantive provision of the statute. 48. Considering the authorities cited by the petitioners, I do not think the Commission's....
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....eport are extraneous materials. 51. I, however, do not think the nature of deviation on which the impugned order has been challenged is of such degree which goes against the real intention of the legislature. In this case, by permitting the Commissioner of Income Tax to make submissions at the stage of admission, I do not think any grave prejudice has been caused to the petitioners. As I have observed earlier in this judgment, none of the documents on which the Settlement Commission has placed reliance on can be said to be extraneous. The only aspect of the matter where the petitioners could have suffered prejudice was in disclosure of the Statement of Facts to the Income-tax authorities. However, there is no pleading in the writ petition to the effect that the Income-tax authorities actually gained access to the Statement of Facts. It is not possible for this Court to examine whether at the time on perusal of the Statement of Facts by the Commission the Income-tax authorities were asked to leave the room where the hearing was being held. Even if the revenue authorities had gained access to such Statement of Facts, the petitioners may have been prejudiced, but such prejudice canno....
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.... 54. Strong reliance was placed by the petitioners on the decision of the Hon'ble Supreme Court in the case of Ramchandra Keshav Adke Vs. Govind Jyoti Chavare (AIR 1975 SC 915) in support of their submission that if a statute mandates a thing to be done in a particular way, it must be done in that way, and in no other way. This authority in substance, incorporates the principle of law laid down by the Judicial Committee of the Privy Council in the case of Nazir Ahmed Vs. Emperor (AIR 1936 PC 253). But this authority must be considered in the light of degree of prejudice which is being caused by the act which is in deviation of the statute. This restraint is warranted particularly when what is being scrutinised is the decision of the Settlement Commission in a proceeding under Article 226 of the Constitution of India in view of the decision of the Hon'ble Supreme Court in the case of Jyotendrasinhji (supra). If the application was rejected without affording an opportunity of hearing to the petitioners, that would have been fatal to the impugned order. But merely affording an opportunity of hearing to the revenue authorities while considering an application for admission of a settlem....