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Judgment
The petitioners have challenged an Order dated February 28, 2014
passed by the Settlement Commission exercising jurisdiction under
the provisions of the Income Tax Act, 1961.
Learned Senior Advocate for the petitioners has submitted that, the
petitioners had made a reference to the Settlement Commission in
respect of six assessment years commencing from 2001-2002 to
2006-2007. The Settlement Commission had added Rs.6.97 Crores
as profit and had taken profit at the rate of 8 per cent of gross turn
over and has calculated the income of the first petitioner on such
basis. The reasons as to why the Settlement Commission had
proceeded to add Rs.6.97 Crores as profit and had taken the net profit rate at 8 per cent of the gross turnover has not been stated in
the impugned order. The Settlement Commission has proceeded on
the basis of a report which is not a report under Rule 9 of the
Income Tax Rules. The petitioners had made submissions with
regard to the adjustments of Rs.6.97 Crores. Such submissions
have not been dealt with in the impugned order. The impugned
order does not reflect the submissions made and the manner in
which the same have been dealt with. The Settlement Commission
did not consider various material aspects of the matter. The sum of
Rs.6.97 Crores has been treated in the balance-sheet and the
revised balance-sheet of the petitioners in a particular way. The
profitability of the first petitioner for the previous years has not
been considered. The addition of the sum of Rs.6.97 Crores and
introduction of a rate of 8% as net profit are arbitrary.
Relying upon (2009) 315 Income Tax Reports 328 (Madras)
( Canara Jewellers v. Settlement Commission & Anr .) he has
submitted that, the Settlement Commission has acted without
jurisdiction, since the income disclosed by the assessees under
Section 245C of the Income Tax Act, 1961 has not been accepted to
be full and true disclosure of their respective income. He has relied
upon (2016) 380 Income Tax Reports 342 (Delhi) ( Agson Global Pvt. Ltd. & Ors. v. Income-Tax Settlement Commission & Ors .)
and has submitted that, the powers and functions of the
Settlement Commissioner must be in the context of and have a
nexus with the settlement. He has submitted that, the power of the
Settlement Commission under Chapter XIXA of the Income Tax Act,
1961 can be exercised for the purpose of procedure of settlement of
an application under Section 245C and not for reassessment of tax
of a particular year. The power of reassessment is vested with the
assessing authority. Relying heavily on (2013) 359 Income Tax
Reports page 450 (Bombay) ( Major Metals Ltd. v. Union of
India & Ors .) learned Senior Advocate for the petitioners has
submitted that, the Settlement Commission is empowered to call
for a report of the Commission at two stages. In the present case,
the Settlement Commission has not done so. The Settlement
Commission has acted contrary to the statute in arriving at the
order of settlement. Therefore, the impugned order of the
Settlement Commission stands vitiated.
On the aspect of introduction of the sum of Rs.6.97 Crores as
earnings of the first petitioner and the rate of net profit, learned
Senior Advocate for the petitioners has submitted that, the
Settlement Commission did not exercise best judgment in this matter. In support of such contention he has relied upon (1978)
115 Income Tax Reports 524 (Brij Bhushan Lal Parduman
Kumar, Etc. v. Commissioner of Income-Tax, Haryana,
Himachal Pradesh and New Delhi-III).
Learned Advocate appearing for the department has opposed the
writ petition. He has submitted that, the scope of examination of an
order passed by the Settlement Commission under Article 226 of
the Constitution of India is limited. The petitioner has to
demonstrate that, the impugned order of the Settlement
Commission is contrary to the statue or that the impugned order
stands vitiated by bias, fraud or malice. In the present case, none
of the grounds available to assail of the order of the Settlement
Commission is available to the petitioners. In support of the
contention with regard to the scope and ambit of a writ petition
directed against an order of the Settlement Commission, learned
Advocate for the respondents has relied upon Major Metals Ltd.
(supra), 204 Income Tax Reports 616 (SC) ( Shriyans Prasad
Jain v. Income-tax Officer ), 1993 Volume 3 Supreme Court
Cases (Supl.) 389 ( Jyotendrasinhji v. S.I. Tripathi & Ors .) and
2011 Volume 4 Supreme Court Cases 635 ( Union of India &
Ors. v. Ind-Swift Laboratories Ltd .). Learned Advocate for the respondent has referred to Section 245 I of the Income Tax Act,
1961 and has submitted that, the approach to the Settlement
Commission is a voluntary act of an assessee. The assessee has
exercised his discretion in approaching the Settlement
Commission. He cannot resile from the proceedings if he does not
accept the views of the Settlement Commission. An assessee while
approaching the Settlement Commission is aware of the
consequences of the same, at least is deemed to be aware of the
same. In the facts of the present case, learned Advocate for the
respondent has submitted that, subsequent to the order of the
Settlement Commission, an assessment was done pursuant
thereto. The petitioners had applied under Section 154 of the
Income Tax Act, 1961 on May 13, 2014 for correction of such order
of assessment. The same was disposed of by an Order dated
August 5, 2014. Therefore, the petitioners cannot be allowed to
contend that, the order of the Settlement Commission stands
vitiated since by its own action the petitioners had accepted the
order of the Settlement Commission and have acted thereon.
Learned Advocate appearing for the department has drawn the
attention of the Court to the application made by the petitioners
before the Settlement Commission. He submits that, a sum of Rs.6.97 Crores is a part and parcel of the application. The rate of
net profit is also part and parcel of the application. The Settlement
Commission has considered these aspects and has taken a view on
the subject. The petitioners are not entitled to challenge the view
taken by the Settlement Commission. The petitioners have not
been able to establish that, the Settlement Commission has acted
in contrary to the provisions of the Income Tax Act, 1961. Two
grounds of challenge made in the writ petition with regard to the
order of the Settlement commission were placed before the
Settlement Commission by the petitioners themselves.
In reply, learned Senior Advocate for the petitioners has
distinguished the cases cited on behalf of the department. He has
drawn the attention to the Court to the various passages of Major
Metals Ltd. (supra).
Whether the impugned order of the Settlement Commission dated
February 28, 2014 warrants an interference under Article 226 of
the Constitution of India is the issue for consideration in the
present writ petition.
An order of the Settlement Commission can be interfered with
under Article 226 of the Constitution of India if such order is
contrary to the provisions of the Income Tax Act, 1961 and that, such contraventions of the Act of 1961 are prejudicial to the
petitioners. A writ petition is also maintainable if it can be
substantiated that an order of the Settlement Commission stands
vitiated by bias, fraud or malice. These grounds of challenge are
noted in Ind-Swift Laboratories Ltd. (supra), Jyotendrasinhji
(supra), Major Metals Ltd. (supra), Shriyans Prasad Jain
(supra). A statutory authority is required to act in consonance with
the principles of natural justice while deciding on an issue which
affects the rights of any person. An order passed by a statutory
authority be required to have reasons and reasons being the
heartbeat of such order, a writ petition is maintainable, if it can be
substantiated that, the impugned order is non-speaking.
In the present case, it has been contended that, the impugned
order of the Settlement Commission is contrary to the Income Tax
Act, 1961 inasmuch as the Settlement Commission did not call for
a report under Rule 9 of the Income Tax Rules to consider the
addition of the sum of Rs.6.97 Crores. With respect, such a ground
is not available in the facts of the present case, as the petitioners
itself had disclosed the Rs.6.97 Crores in the Statement of Fact
filed by it while approaching the Settlement Commission. Such fact
was available on record before the Settlement Commission for consideration. Moreover, the Settlement Commission had
considered a report dated December 27/30, 2013 of the
Commissioner of Income Tax. The petitioners were allowed to make
submission thereto. The petitioners have done so. The petitioners
were heard by the Settlement Commission in such document. The
petitioners are well-aware of the contents of the report. The
foundational basis for the Rs.6.97 Crores was available on record
before the Settlement Commission. The foundational basis for the
rate of interest imposed by the Settlement Commission in the
impugned order was also available before it. The petitioners had
placed and contended a certain rate of interest. Such contention
was not accepted by the Settlement Commission and the rate of
profit was assessed at 8% per annum.
The petitioners have contended that on the aforesaid two
grounds, the impugned order of the Settlement Commission is non-
speaking. The Settlement Commission has dealt with these two
grounds in the impugned order. The petitioners may not agree with
the reasons given in the impugned order of the Settlement
Commission. However, the impugned order cannot be said to be
without any reasons so far as the two grounds are concerned. Both
the issues of the sum of Rs.6.97 Crores as well as the rate of interest have been dealt with by the Settlement Commission. A Writ
Court is not called upon to reappreciate the evidence produced
before the Settlement Commission, act as the appellate authority
and substitute the findings arrived at.
In has been contended that, the Settlement Commission did
not apply the ratio of Brij Bhushan Lal Parduman Kumar
(supra), Agson Global Pvt. Ltd. & Ors. (supra) and Canara
Jewellers (supra) in making a best judgment. There is a
distinction made between an order of assessment based on best
judgment and order of assessment on the basis of the records
available. Such distinctions are noted in the authorities cited
above. In the present case, the Settlement Commission was called
upon to arrive at the quantum of tax liability of the petitioners in
the settlement proceeding. It has taken a particular view. The Writ
Court need not enter into the factual aspect of the matter to
reapprise itself and act as an appellate authority against an order
passed by the Settlement Commission. The materials on the basis
of which the Settlement Commission had arrived at its decision to
add Rs.6.97 Crores and take 8% as the rate of net profit for the
purpose of calculation of tax were before the Settlement
Commission. The Settlement Commission has taken a view thereon, giving its reason therefor. The impugned order of the
Settlement Commission does not call for any interference. The
issue raised is answered accordingly.
In such circumstances, the writ petition fails. W.P. No. 431 of
2014 is dismissed. No order as to costs.
Learned Advocate for the petitioners seeks stay of the judgment and
order. Such prayer is considered and refused.