2011 (3) TMI 277 - HC - Income Tax

Search and seizure - Rule 9 of the Income-tax Settlement Commission (Procedure) Rules 1997 - Block assessment - Undisclosed income - It is stated that after payment of entire tax as per the order of the Settlement Commission dated March 4 2008 the orders of attachment over the properties were lifted on November 18 2008 - It is on the basis of subsequent revelation the certificates produced by the petitioner dated April 15 1994 and April 18 1995 should have been forged one the said application has been filed to revoke the settlement order - The seizure of duplicate audited accounts from the auditor by which it was found that two sets of audit reports were found - Settlement Commission cannot declare its settlement order as void and such power has been entrusted with the Settlement Commission which is evident from section 245D(6) of the Act - it is to be reiterated that the statutory authorities are presumed to perform their functions in a fair manner and by issuance of the impugned show-cause notice there is nothing to come to the conclusion that the first respondent who is the authority to decide under the provisions of the Income-tax Act has predetermined the issue - it is made clear that the petitioner shall be entitled to submit its objections to the show-cause notice within four weeks from the date of receipt of the order and there-after the first respondent is directed to consider the entire aspects of the matter including the points raised by the petitioner in the objections in an impartial manner and decide the issue in accordance with the provisions of the Act and on the basis of the materials - Writ petition is closed

Summary

Issues Involved:
1. Validity of the notice issued by the Income-tax Settlement Commission.
2. Alleged fraud and misrepresentation by the petitioner.
3. Jurisdiction of the Settlement Commission to reopen the settlement.
4. Maintainability of the writ petition against the show-cause notice.
5. Return of documents and share certificates seized during the search.

Detailed Analysis:

1. Validity of the Notice Issued by the Income-tax Settlement Commission:
The petitioner challenged the notice issued by the Income-tax Settlement Commission on the grounds that there was no reason for reopening the settlement effected on March 4, 2008. The petitioner argued that the materials relied upon for reopening were already available at the time of the original settlement order. The petitioner contended that the notice was issued without jurisdiction and constituted harassment, as it did not disclose how the certificates in question were found to be bogus and forged.

2. Alleged Fraud and Misrepresentation by the Petitioner:
The second respondent filed an application under section 245D(6) of the Income-tax Act to declare the settlement void, alleging that the petitioner produced bogus certificates in respect of work-in-progress and made misrepresentations regarding the purchase of Vintage Hotel property. The second respondent claimed that the petitioner produced fraudulent certificates dated April 15, 1994, and April 18, 1995, showing exaggerated amounts contrary to the entries in the measurement books. The second respondent also alleged that duplicate audited accounts seized from the auditors showed two sets of audited reports, indicating fraud.

3. Jurisdiction of the Settlement Commission to Reopen the Settlement:
The court noted that section 245D(6) of the Income-tax Act provides the Settlement Commission with the power to declare a settlement void if it is subsequently found to be obtained by fraud or misrepresentation of facts. The court held that the issuance of the show-cause notice by the Settlement Commission did not indicate a predetermined issue and that it was within the Commission's jurisdiction to declare its order void if obtained by fraud or misrepresentation.

4. Maintainability of the Writ Petition Against the Show-Cause Notice:
The court observed that normally, a writ petition challenging a show-cause notice is not maintainable unless the notice is issued without jurisdiction or amounts to an abuse of process of law. The court found that the impugned notice was a show-cause notice and that the petitioner had the opportunity to submit its objections before the Settlement Commission. The court cited the Supreme Court's decision in Union of India v. Vicco Laboratories, which held that interference at the show-cause notice stage should be rare and not in a routine manner.

5. Return of Documents and Share Certificates Seized During the Search:
The petitioner requested the return of documents and share certificates seized during the search conducted on June 21, 2001. The court directed the first respondent to consider the petitioner's objections to the show-cause notice and to pass consequential orders regarding the return of documents as requested by the petitioner.

Conclusion:
The court dismissed the writ petitions, stating that the petitioner shall be entitled to submit its objections to the show-cause notice within four weeks from the date of receipt of the order. The first respondent was directed to consider the entire aspects of the matter, including the points raised by the petitioner in the objections, in an impartial manner and decide the issue in accordance with the provisions of the Act and on the basis of the materials. The court also directed the first respondent to pass consequential orders regarding the return of documents as requested by the petitioner.