TMI Blog2008 (2) TMI 401X X X X Extracts X X X X X X X X Extracts X X X X ..... HA BOSE J. Pratap Chatterjee, Abhijit Chatterjee and Tapan Nag Chowdhury for the petitioner. Mr. D. K. Shome for the respondents. JUDGMENT ANIRUDDHA BOSE, J.:- The petitioners are a residuary non-banking company, and claims to be engaged in the business of offering small saving schemes to the public at large. In this writ petition, the petitioners challenge an order passed by the Settlement Commission constituted under the provisions of Section 245B of the Income Tax Act, 1961 rejecting the petitioners application for settlement. I shall henceforth refer to this statute as "the Act". This order has been passed on 31 st May 2007 but the petitioners claim to have received the order on 14 th June 2007. 2. The settlement application relates to three assessment years being 2004-05, 2005-06 and 2006-07. The petitioners had filed their return on income under the relevant provisions of the Act for the aforesaid three assessment 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, wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of income tax wishes to rely any evidence/papers etc. before the commission during the course of hearing the same should be furnished in the form of paper book in six (6) copies duly indexed and page numbered." 6. The said communication was addressed to the petitioners but the copy of the same was forwarded for "information and necessary action" to the Commissioner of Income Tax, Kolkata-1, Kolkata and the Commissioner of Income Tax (DR), ITSC, Kolkata. The hearing had taken place on the appointed date and at it appears that the Settlement Commission in course of such hearing permitted the Commissioner of Income Tax (DR) to represent the case of the department apart from hearing the authorised representative of the petitioners. Upon conclusion of such hearing the impugned order was passed. 7. The Income Tax authorities chose to contest the present writ petition without filing of any affidavit as argument was advanced by the petitioners mainly on legal 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the nature and circumstances of case as well as the alleged complexity of investigation and after considering the manner in which earning of undisclosed income has been set out in the application and the disclosure of additional income so made applicant's petition does not qualify to be admitted u/s. 245D(1) read with section 245C of the I. T. Act. The application therefore, shall not be proceeded with and the same is accordingly dismissed." 9. The other grounds on which the impugned order has been assailed are summarised below:- (a) As the report the Commissioner under Rule 6 recommended settlement, the Settlement Commission ought to have admitted the application straightway. The Settlement Commission ought not to have examined the Assessing Officer's report, which was made part of the Rule 6 report, as the report was enclosed only for consideration to the extent it was consistent with the observations of the Commissioner recommending the application for being proceeded 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an application shall not be rejected under this subsection unless an opportunity has been given to the Petitioner of being heard: Provided further that the Commissioner shall furnish the report within a period of forty-five days of the receipt of communication from the Settlement Commission in case of all applications made under section 245C on or after the 1 st day of July 6 1995 and if the Commissioner fails to furnish the report within the said period, the Settlement Commission may make the order without such report..... (3) Where an application is allowed to be proceeded with under subsection (1), the Settlement Commission may call for the relevant records from the Commissioner and after examination of such records, if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the Commissioner to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other 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 Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys of the receipt of the said annexure (including the statements and other documents accompanying it) or within such further period as the Commission may specify. If the Commissioner fails to furnish his report on or before the expiry of the specified period of 90 days or such extended period, the Commission may pass the appropriate order without such report." 12. The substance of defence of the Income-tax authorities on the other hand has been that under the provisions of the statute itself, the Settlement Commission can regulate their own procedure, and there being no express bar in the Act on hearing the department at the admission stage, no error of law had been committed by the Settlement Commission. The Settlement Commission, it has been argued, is not bound by the report of the Commissioner submitted under Rule 6 of the said Rules. On the point of complexity of investigation, the submission of the revenue authorities is that Section 142(2A) of the Act postulates complexity of the accounts whereas under Section 245D(1), the Settlement Commission is to consider complexity of investigation, and the nature of complexities contemplated in these two provisions are not identi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sure of income, which has not been disclosed to the assessing officer are required to be filed as part of the settlement application in a separate annexure. This is termed as Statement of Facts. Under Rule 44CA of the Income Tax rules, while calling for a report under Rule 6, the Commission has been empowered to serve on the Commissioner of Income Tax a copy of the application, but without such annexure. The Commissioner of Income Tax, under the said Rules, can be given access to such annexure only if the application is allowed to proceed. Mr. Chatterjee's submission is that the object behind keeping the annexure confidential at the admission stage is to ensure that the income tax authorities do not gain access to such information till the settlement application is allowed to be proceeded. Disclosure of such materials at that stage was considered in the statute itself to be prejudicial to the interest of the assessee. 16. The case of the petitioners on this count is that by relying on the report of the assessing officer and the arguments of the departmental representative, the Settlement Commission took the decision on materials he was not permitted to rely on at the admission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prohibition to do such act in any other manner. 18. The next point argued by Mr. Chatterjee was that since the Income-tax authorities themselves were contemplating Special Audit in the case of the petitioners under Section 142(2A) of the Act, the Assessing Officer stood satisfied that complexities were involved in their case. On this count, he relied on two decisions of the Hon'ble Allahabad High Court in the cases of U.P State Handloom Corpn. Ltd. v. Commissioner of Income Tax [1988] 171 ITR 640 and Swadeshi Cotton Mills Co. Ltd. v. Commissioner of Income Tax [1988] 171 ITR 634 for the proposition that to direct special audit, complexity of the accounts of the assessee is a precondition. In the case of Swadeshi Cotton Mills Co. Ltd. [1988] 171 ITR 634, it was held (page 637) : "The exercise of power to direct special audit depends upon the satisfaction of the Income-tax officer with the added approval of the Commissioner. But he must be satisfied that the accounts of the assessee are of a complex nature, and, in the interests of the Revenue, the accounts should be audited by a special auditor. The Special auditor is also an auditor like the company's auditor, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rities. 22. He conceded that at the stage of admission of a settlement application, the departmental representative ought not to have access to the Statement of Facts containing particulars of the undisclosed income which is required to be filed as an annexure to the settlement application. He, however, sought to rebut the submission of Mr. Chatterjee that in the case of the petitioners, by giving the opportunity of hearing to the departmental representative, access to such confidential material was also given. He submitted on this count that in the writ petition, there is no pleading to the effect that the Settlement Commission had allowed the departmental representative access to the content of such Statement of Facts. It was further submitted that the Statement of Facts was not disclosed before the department and at the time of consideration of the annexure, the departmental representative was requested to leave the room in which hearing was being conducted. 23. Mr. Shome took me through the impugned order, and argued that the Settlement Commission had come to a finding that in the disclosure, the manner in which earning of additional income had been computed had not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no complexity of investigation involved in the case upon considering the Statement of Facts, such finding ought to prevail even if the Income-tax authorities had found there is complexity of accounts warranting Special Audit. 26. Mr. Shome has cited a decision of the Hon'ble Rajasthan High Court in the case of Hem Chand Govil v. Income-Tax Settlement Commission Ors. [2007] 292 ITR 646 to demonstrate that it is the practise of the Settlement Commission to hear both the assesse and the Income-tax authorities even at the admission stage. My attention was drawn to the following passage of this decision(page 648): "The Settlement Commission after hearing both the assessee as well as the Revenue by order dated September 30, 1996, held that in view of the complexity of the investigation involved, the application for settlement about the assessment year 1989-90 does not deserve to be proceeded with because the disputed matters have already reached the Income-Tax Appellate Tribunal (for short "the Tribunal") which is the final appellate authority on question of fact and its findings will finally decide the issues regarding disputed additions and also the issue of assessibility. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is common in both these provisions, it does not automatically follow that the respective authorities exercising their powers under these two different provisions have to take into consideration the same materials while taking their decision. The word "investigation" implies making enquiries to come to a finding on a particular issue or issues, and while the Settlement Commission considers the application in which additional income is disclosed, it is to consider what would be the nature of enquiry necessary in respect of the case for which settlement application is made. Under Section 142(2A), the Assessing Officer may direct special audit if he finds the accounts submitted before him by the assessee to be of complex nature with the previous approval of the Commissioner, by an accountant to be nominated by the Chief Commissioner or Commissioner. The reasons for which the complexity of investigation and the complexity of the accounts are required to be considered by the Settlement Commission and the Assessing Officer are different, as I have observed earlier. 31. Moreover, the respective authorities under the provisions of Section 245D and 142(2A) of the Act are also required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. The common expression here is "complexity" but it has been used in two different context in two provisions of statute. The word "complex" cannot dominate the context in which it is used in these two sections independently. 34. A point has also been taken, but not emphatically pressed at the time of hearing, that the order shall be treated to have been passed on the date of its communication, and thus the amended provision of Section 245D(2A) would be applicable in the present case. The date of the order of rejection of the petitioners' application is 31 st May 2007. It was despatched to the petitioners under the cover of a letter dated 12 th June 2007, a copy of which has been made Annexure "P6" to the writ petition. The petitioners claim to have received this communication on 14 th June 2007. 35. Will such delayed despatch make the date the order 14 th June 2007, so as to entitle the petitioners to take benefit of the deeming provision in the amended sub-section (2A) to Section 245D of the Act? I do not think so. An order comes into existence on the day it is passed. If it is not passed in open court, or without prior intimation to the party concerned, which often ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... servations supra." 38. It is apparent from the observations of the Commissioner contained in the Rule 6 report that part of the detailed report of the Assessing Officer was not consistent with the observation of the Commissioner made in Column 5 of the Report. The first sentence of the response of the Commissioner in column 5 of the Rule 6 report contains the statement of the Commissioner to the effect that the application is suitable for settlement. This statement is in the nature of a recommendation. The rest of the observations contained in this column relates to factual situation as regards proposal of the department to go for special audit. Then there is reference to the report of the Assessing Officer. The observation of the Commissioner, which is referred to in the last sentence of this response is thus relatable to the 'recommendation part' of the Commissioner's report. The other part of the response merely contains factual statements. 39. Now one of the factors which the Settlement Commission is to consider for the purpose of admission of a settlement application is the "materials contained" in the Rule 6 report. Submission of Mr. Chatterjee is that the Settlement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible for the Writ Court to subject an order of the Settlement Commission to a test to ascertain if it suffers from any grave procedural defects. This level of scrutiny is permissible, as has been held by the Hon'ble Supreme Court in the case of Jyotendrasinhji (supra). The case of N. Krishnan (supra) is also an authority on this principle. In the case of Jyotendrasinhji (supra), it was held: "……Indeed it would be difficult to predicate the reason and considerations which induce the Commission to make a particular order, unless the Commission itself choose to give reasons for its order. Even if it gives reasons in a given case, the scope of enquiry in the appeal remains the same as indicated above, viz., whether it is contrary to any of the provisions of the Act. In this context, it is relevant to note that the principle of natural justice (audi alteram partem) has been incorporated in Section 245D itself. The sole overall limitation upon the Commission that it should act in accordance with the provisions of the Act. The scope of enquiry, whether by the High Court under Article 226 or by this Court under Article 136 is also the same whether the order of the Commission is contrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that any further enquiry or investigation in the matter is necessary, then only direction can be made on the Commissioner to make further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to that case. It is only after examination of the reports and the records of the Commissioner received under sub-section (1) and the report of the Commissioner received under sub-section (3), and after giving an opportunity to the applicant and to the Commissioner to be heard, the Settlement Commission is empowered to make such orders as they may think fit on the matters covered by the application or any other matter relating to the case. Thus, in the provision of Section 245D, the legislature has prescribed the stages in which opportunity of hearing is to be afforded to the assessees and the Income-tax authorities. In view of such specific provision, should one read into the provisions of sub-clause (1) of Section 245D of the Act opportunity of hearing? 47. The argument of the respondents on this point was that one should not imply an excluding provision which is not specifically provided in the statute, and the Commission, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of consideration of the application for settlement thus constitutes a deviation from the procedure prescribed in the statute. 50. But mere deviation from a procedure prescribed by the statute would not ipso facto vitiate the order of the settlement. In the case of Jyotendrasinhji (supra), the Hon'ble Supreme Court has held that interference by the Writ Court would be warranted if an order of the Settlement Commission is contrary to the provisions of the statute, and the same causes prejudice to the petitioner who applies for quashing the order before the Writ Court. Such prejudice could be said to have been caused if the Settlement Commission had relied on solely on the submission of the Income-tax authorities, and such authorities had in turn brought to notice of the Commission any extraneous material. I find from the order, however, that the documents which was examined by the Settlement Commission were all made available to it through the legitimate channel, being the Statement of Facts and the Report of the Assessing Officer. There is also reference to the Director's Report and the Auditor's Report of the petitioners. But it is not the case of the petitioners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Hon'ble Supreme Court in the case of Commissioner of Incometax, Calcutta Vs. Daulatram Rawatmull (supra) to argue that since submissions of the departmental authority was considered by Settlement Commission, such submissions also influenced the decision and this was an extraneous consideration on the basis of which such decision was made. It was further argued, relying on the same authority, that if a decision is taken partly on relevant factors and partly on irrelevant factors, it is not possible to ascertain which part of the decision was influenced by the relevant factor and which part was influenced by extraneous factors, and the entire order must fail in such a situation. 53. To apply this proposition of law, however, the nature of the extraneous factors would have to be considered. It is not the case of the petitioners that the Income-tax authorities had advanced argument on something wholly irrelevant to the proceeding. The Settlement Commission had also confined their examination of the petitioners' application to the three factors which are required to be considered at that stage. Thus permitting the Income-tax authorities to participate in the hearing per se did ..... X X X X Extracts X X X X X X X X Extracts X X X X
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