CW 12911/08 //1// In the High Court of Judicature for Rajasthan Jaipur Bench ** 1- Civil Writ Petition No.12911/2008 Commissioner of Income Tax Central Jaipur Versus M/s Anil Hastkala (P) Ltd & Anr. (And Cognate matters shown in Schedule A) /Reportable/ And 2- Civil Writ Petition No.5036/2008 Prakash Chand Jalan Versus Commnr of Income Tax Central Jaipur & Anr. (And Cognate matters shown in Schedule B) Date of Order ::: 13/08/09 Hon'ble Mr. Justice Ajay Rastogi Mr. JK Singhi ) Mr. Anuroop Singhi ) for Revenue Mr. N.M.Ranka, Sr. Adv. & Sarva Shri Anant Kasliwal) Vaibhav Kasliwal, NK Jain, SK Tewari, & Ms Anupma Parashar ) for Assessees Sarva Shri Sanjay Jhanwar, GC Garg, Samit Bishnoi ) Gunjan Pathak, Naresh Gupta, & Ms Nivedia Sarda ) Mr. Vinod Sharma for Mr. Ashok Bansal) for assessees Since bunch of cross-petitions filed by Assessees as well as by Revenue assailing orders of Settlement Commission in cases of different assessees, involve self-same issue for consideration; hence at request, were finally heard together for its disposal by this common order at admission stage. Primary question for consideration in a bunch of writ petitions preferred by Revenue and cross petitions by different assessees is with regard to applications filed before settlement commission on or before 01/06/2007 and assailing orders of Settlement Commission, CW 12911/08 //2// on the premise that if impugned order of Settlement commission U/s 245-D(4) of Income Tax Act, 1961 (“Act”) is held to be legally unsustainable, in such an eventuality, whether matters are to be remitted back to settlement commission to examine afresh in accordance with law or to the assessing authority in view of proceedings initiated under Chapter-XIX-A on being held to be abated in terms of S.245- HA of the Act ? Except on few aspects, as regards orders of settlement commission U/s 245-D(4) of the Act to be referred in later part, Assessees-writ petitioners & respondent- Revenue in cross petitions, both are joint on the issue that the procedure adopted by settlement commission while passing orders impugned is in violation of S.245-D(4) of the Act & without following the mandate of statute; however, Counsel for assessees have tried to convince that once orders of settlement commission are in violation of principle of natural justice as having been passed without due application of mind & appreciation of material on record, matters must be remitted back to settlement commission to decide afresh according to law. CW 12911/08 //3// However though supported the submissions but Counsel for revenue has also tried to convince that once orders of settlement commission are not legally sustainable as per amendment made under Finance Act, 2007 being enforced w.e.f. 01/06/07, proceedings stand abated in terms of S.245-HA – as a consequence whereof, matter is required to be remitted to the assessing authority or any other income tax authority before whom proceedings were pending while making application in terms of S.245-HA(2) of the Act. To examine the controversy at hand, bare facts necessarily for adjudication, being common in bunch of all the petitions except as regards dates of making applications & assessment years, are being taken note out of CWP-5036/08 (Prakash C.Jalan Vs. Settlement & Ors) & so also from CWP-11515/08 (CIT Central Vs. Ravi Prakash Modi & Anr.). Re. CWP-5036/2008 (Prakash C.Jalan Vs.Settlement Commission) Assessee (Prakash Chand Jalan) filed application before Settlement Commission on 27/09/2001 for A.Yrs 1997-98 to 2000-01 U/s 245 (C) containing a full & true disclosure of his income having not been disclosed before the CW 12911/08 //4// Assessing officer. After fulfillment of statutory requirement under the Act upon receipt of application, Settlement Commission summoned a report from Commissioner (IT) as provided U/r 9 of Income Tax Settlement Commission (Procedure) Rules, 1997 (“Rules, 1997”) - on the basis of material contained therein (supra), allowed the application to be proceeded with, which ordinarily is called to be “motion hearing”; and after application being admitted, examined the assessees and so also commissioner (IT) who are parties to the litigation; and after inquiry being made U/s 245-D(3), settlement commission was supposed to examine the records-report of Commissioner (IT) U/s 245-D(1) & the report, if any, received U/s 245-D(3) and after affording opportunity of hearing to parties (assessee & revenue) either in person or through representative authorised on their behalf. Settlement commission was supposed to pass order U/s 245-D(4); and at this stage, amendment came into force w.e.f. 01/06/07 vide Finance Act, 2007, whereby sub-section 4A was inserted to S.245-D of the Act and obligation was casted upon settlement commission to pass order U/s 245-D(4) on or before 31/03/08, CW 12911/08 //5// otherwise proceedings pending before it shall stand abated as provided U/s 245-HA(1); in that eventuality, it would be remitted to the assessing officer or income tax authority before whom proceedings at the time of making application was pending and for being disposed of in accordance with statute as if no application U/s 245-C having been made. Due to a sword over the assessees, who had already made full & true disclosure before settlement commission about their income having not been disclosed before assessing authority, the tax was also paid at the time of admission of their applications where settlement commission prima facie examined the records taking note of report U/r 9 of Rules, 1997 submitted by commissioner (IT); and if Settlement Commission failed to decide pending application & proceedings were since going to be abated by 31/03/2008, assessees preferred CWP-2982/2008 wherein this Court issued a mandamus directing settlement commission to decide their applications on or before 31/03/2008 since they had a fear and rightly so, because of their applications having remained pendente & likely to abate by virtue of amendment vide Finance Act, 2007 which will CW 12911/08 //6// create complication for them. However, after taking note of number of assessments pending & paucity of time, as observed in orders impugned that it is not practicable for the Commission to examine the records and investigate the cases for proper settlement, rather impracticable to afford adequate opportunity to respective parties as provided U/s 245-D(4) as it was directed by this Court to pass orders on or before 31/03/08; consequently, settlement commission invariably passed orders a day before or on 31/03/08 in all cases. In instant bunch, applications were decided by 31/03/08. It would be pertinent to extract part of order being relevant for present purpose, which are almost verbatim in all the orders impugned either by assessees or by the revenue ad infra:- “3. In all the principal Bench of the Commission has till 26/03/2008 received more than 324 orders from various High courts in the month of March, 2008, directing the Principal Bench to complete the cases by 31/03/2008. 4. This would involve more than 1500 assessments. The Settlement commission deals only with the assessments which involve complexity of investigation CW 12911/08 //7// and the application is intended to provide quietus to litigation. For example, in one group of cases where 23 applications are involved, the paper book, which has been filed before the Settlement commission runs into thirty thousand pages. It goes without saying that sufficient and proper opportunity is required to be given both to the applicant and the commissioner of income tax for arriving at a proper settlement. 5. At this juncture, it is not practicable for the Commission to examine the records and investigate the case for proper settlement. Even giving adequate opportunity to the applicant and the department, as laid down in section 245-D(4) of Income Tax Act, 1961 is not practicable. However, to comply with the directions of the Hon'ble High Court, we hereby pass an order U/s 245-D(4) of Income Tax Act, 1961 : 6. The undisclosed income is settled as under : 1.Parkash Chand Jalan Rs.20,00,000/- 2.Rajendra Prasad Jalan Rs.40,00,000/- 3.Nawal Kumar Jalan Rs.30,00,000/-” Re. CWP-11515/2008 (CIT Central Vs. Ravi Prakash Modi) Facts are almost self same in writ petitions filed by the Revenue wherein the assessees are respondents. In CWP-11515/08, it appears that some where in the year 2002, applications were CW 12911/08 //8// filed by assessees and after pleadings were complete and when the case was not finally heard by settlement commission, they also approached this Court and got directions issued – in pursuance whereof, settlement commission decided their applications by common order dt.29/03/08, in which also, paras are almost self-same as in order dt.31/03/08 impugned in bunch of petitions of assessees (quoted supra) but it is pertinent to extract relevant paras only to show that in para 5 of order impugned, settlement commission recorded at its own that it would be impracticable to examine the records & to afford adequate opportunity to the assessees & the Revenue as provided under statute; but at the same time, the Commission still settled undisclosed income ad infra: “3. In all the principal Bench of the Commission has till 26/03/2008 received more than 324 orders from various High courts in the month of March, 2008, directing the Principal Bench to complete the cases by 31/03/2008. 4. This would involve more than 1500 assessments. The Settlement commission deals only with the assessments which involve complexity of investigation and the application is intended to CW 12911/08 //9// provide quietus to litigation. For example, in one group of cases where 23 applications are involved, the paper book, which has been filed before the Settlement commission runs into thirty thousand pages. It goes without saying that sufficient and proper opportunity is required to be given both to the applicant and the commissioner of income tax for arriving at a proper settlement. 5. At this juncture, it is not practicable for the Commission to examine the records and investigate the case for proper settlement. Even giving adequate opportunity to the applicant and the department, as laid down in section 245-D(4) of Income Tax Act, 1961 is not practicable. However, to comply with the directions of the Hon'ble High Court, we hereby pass an order U/s 245-D(4) of Income Tax Act, 1961 : 6. The undisclosed income is settled as under : i) Badri Narain Modi Rs.48,00,000/- ii)Smt. Champa Modi Rs.04,00,000/- iii)Ravi Prakash Modi Rs.11,00,000/- iv)Renu Modi Rs.07,00,000/- v)Pawan Modi Rs.09,00,000/- vi)Nidu /gardens (P) Ltd Rs.03,00,000/- vii)Modi Exports House Rs.04,00,000/- viii)IndianAgate Industries Rs.04,00,000/- ix)Ganpati Gems & Arts Rs.08,00,000/-” It is also pertinent to state that in para 10, the assessees were called upon to deposit amount of tax alongwith interest within 35 days from the date of receipt of intimation CW 12911/08 //10// from the assessing officer in consonance with S.245-D(6A); and accordingly, the Revenue certainly issued notice U/s 156 of the Act to respective assessee and as informed to this Court, all the assessees who are either writ petitioners or respondents in writ petitions of the Revenue, have deposited amount of tax assessed by settlement commission under orders impugned and rightly so, since as required U/s 245-D(6A), if assessee fails to deposit amount of tax payable under orders of settlement commission U/s 245-D(4) within thirty five days of receipt of certified copy thereof, he is liable to pay simple interest @ 15% p.a. Re. CWP-12911/2008 CIT Central Vs. M/s Anil Hastkala (P) Ltd In CWP-12911/08, after the order was passed U/s 245-D(4) on 29/03/08 (Ann.2), misc. application was filed by assessee (respondent) on 23/04/08 U/s 245-F(i) seeking certain rectification of mistakes in the order passed U/s 245-D(4) in regard to assessment made by settlement commission and year-wise break up of amount settled; and after copy of misc. application being served upon the revenue, it was allowed vide order dt.04/06/08, which was obviously after cut-off date (31/03/08), and CW 12911/08 //11// after which according to the Revenue, settlement commission has since become functus officio, proceedings stood abated for all practical purposes. Counsel for assessees submits that as required U/s 245-D(4) of the Act, settlement commission is under legal obligation to examine the records & report of Commissioner (IT), if any, submitted U/r 9 of Rules, 1997 & to afford opportunity of hearing to applicants (assessees) & Commissioner (IT) upon having appeared in person or through authorised representatives on their behalf, and after examination of further evidence having been placed before it - taking note whereof, settlement commission could have passed the order U/s 245-D(4) of the Act; but in instant bunch, aforesaid procedure has completely been given a go-bye by settlement commission as is clearly evident from para 5 of orders impugned which clearly discloses that settlement commission was not in a position to examine the records & so also afford adequate opportunity of hearing as required under law; inasmuch as it has shown having felt impracticable in view of so-called paucity of time which always remains and a common CW 12911/08 //12// grievance for such authorities while using settled phrases that the time is not adequate; and without application of mind & appreciating evidence on record, still the amount of tax has been assessed in later para 6 of orders impugned. According to Counsel, very procedure adopted by settlement commission in passing orders impugned is a farce and not legally sustainable being violative of S.245-D(4) of the Act. Counsel further submits that if statute casts obligation to hold any procedure, settlement commission was to comply with statutory requirement and no deviation there from was permitted under law and exercise of proceeding being judicial one, settlement commission was under legal obligation to assign reasons in support of amount of tax being assessed – in absence whereof, what has been assessed under orders impugned being not supported by material on record is not legally sustainable and deserves to be set aside. As regards scheme of the Act and scope of judicial review U/Art.226 of the Constitution, Counsel has placed reliance upon decisions of Apex Court in Jyotendra Singhji CW 12911/08 //13// Vs. SL Tripathi & Others (1993 (201)ITR 611) & Commnr. Of Income Tax Vs. Om Prakash Mittal (2005(273) ITR 326). However, Counsel appearing for assessees in writ petition filed by Revenue, have tried to support orders impugned and submit that once the assessees have deposited the tax as assessed by settlement commission after notice being served by the Revenue, atleast the Revenue cannot file writ petitions after acceptance of tax assessed by settlement commission and are bound by principles of promissory estoppel in assailing findings recorded under orders impugned and cannot be permitted to approbate & reprobate at the same time. Counsel for assessee further submits that hearing as provided U/s 245-D(4) of the Act is to be considered in context of statutory requirement in view of amendment under Finance Act, 2007 – as per which applications pending on or before 01/06/2007 have to be decided by settlement commission by 31/03/08 and this Hon'ble Court has directed settlement commission to decide applications by 31/03/08; and as observed in orders impugned, there being more than 1500 CW 12911/08 //14// applications pending were to be decided by 31/03/08; so if settlement commission taking note of prima facie material on record, made assessment that has to be considered in compliance of S.245-D(4) of the Act. It has further been urged that atleast the Revenue has not been able to justify by placing any material on record by which this Court may infer that amount of tax assessed by settlement commission is not prima facie based on material on record – in absence whereof, merely because opportunity of hearing if being not afforded to the Revenue, that alone will not nullify the order of settlement commission under challenge herein. It has also been urged that very nomenclature “settlement commission” is not a mechanism for adjudication of a dispute and there is always for settlement commission to examine the record and may assess amount of tax payable in the facts of each case and no detailed reasons are required to be recorded supporting it under orders impugned. In support, Counsel relied upon CIT Mumbai Vs. Anjum M.H.Ghaswala (2002(1) SCC 633). However, all the Counsel for Assessees either appearing for writ petitioners or for CW 12911/08 //15// respondents in petitions of the Revenue, jointly submit that certainly vested rights stood created in favour of assessees for grant of protection of immunity from prosecution & penalty U/s 245-H due to non-disclosure of confidential record having been disclosed by the assessee before settlement commission and also because of non-availability of remedy of appeal against order impugned being it conclusive U/s 245-I of the Act; and if this Court comes to the conclusion that orders impugned of settlement commission are not legally sustainable because of non-compliance of S.245-D(4), the mater atleast be remitted back to the settlement commission to examine afresh in accordance with law after affording opportunity of hearing providing all kinds of protection available to them which settlement commission has also noticed in its orders impugned. Counsel further submits that since settlement commission passed orders on their applications on or before 31/03/08, and S.245- HA(1)(iv) only takes note of such application on which settlement commission failed to pass order U/s 245-D(4) within time prescribed U/s 245-D(4A); as such proceedings in their cases CW 12911/08 //16// be remitted back only to settlement commission and not to the assessing authority by treating proceedings pendente before settlement commission on being abated U/S 245-HA(2) of the Act. Counsel for Revenue (respondents in bunch of petitions) has made one & foremost contention that once orders passed by settlement commission is in violation of S.245-D(4), the same is a nullity in the eye of law as if no such order having been passed and in such situation, it would relate back to the date of passing of the order; and proceedings having remained pendente before settlement commission on 31/03/08, certainly stood abated U/s 245-HA of the Act; and settlement commission having become functus officio after 31/03/2008 and that being so, all matters are to be remitted back to the assessing officer in terms of S.245-HA(2) of the Act so as to be governed by Finance Act, 2007 on having become effective. Counsel relied upon 1989(1) SCC 628. Counsel further submits that once settlement commission has become functus officio, no jurisdiction can now be conferred upon it to decide applications and matter can CW 12911/08 //17// not be remitted conferring jurisdiction upon settlement commission to decide applications in view of S.245-HA of the Act. In support, Counsel relied upon decisions in RSRTC Vs. B.Mukand Bairwa (2009(4) SCC 299), Chiranjilal Vs. Jasjit Singh (1993(2) SCC 507) & AR Antulay Vs. RS Nayak (1988(2) SCC 602. Counsel for Revenue further submits that if statute is unambiguous leaving no room of doubt for interpretation, it has to be read as a whole and it cannot be further supplemented by judicial interpretation and if there is equity, it is the law which would prevail and the equity has no role to play. In support, Counsel relied upon Raghunath Bareja Vs. Punjab National Bank (2007(2) SCC 230). I have considered rival contentions of Counsel for parties and with their valuable assistance,examined material on record. Before adverting to examine the issue raised herein for consideration, this Court considers it appropriate to take note of Scheme introduced under Chapter XIX-A of the Act relating to settlement of cases. It appears to have been inserted by the Taxation Laws (Amendment) Act, 1975 w.e.f. April 1, 1976. A somewhat similar provision was contained in sub-sections (1A) CW 12911/08 //18// to (1D) of S.34 of Indian Income Tax Act, 1922 introduced in year 1954. However, provisions of Chapter XIX-A are qualitatively different and more elaborate than provisions of the 1922 Act. Proceedings commenced under Chapter XIX-A are judicial as envisaged in S.245-L within the meaning of Ss.193 & 228 and for purposes of S.196 of Indian Penal Code. Chapter XIX-A is a complete Code in itself as regards settlement of cases for having provided a complete mechanism other than procedure provided under the IT Act. Legislature conferred all powers upon Settlement Commission being vested in IT authority under the Act as provided U/s 245-F and what is being decided by settlement commission is conclusive providing no remedy of revision/review or appeal to the assessee or revenue, envisaged in S.245-I of the Act. Settlement commission is constituted U/s 245-B and its jurisdiction & powers are governed by S.245-BA. Proceedings under Chapter XIX-A commences upon application being made by assessee who can file at any stage of case pending relating to him in the manner as prescribed containing full & true disclosure of income which has not been disclosed before CW 12911/08 //19// assessing authority, the manner in which income has been derived, additional amount of income tax payable thereon and all other particulars, before the settlement commission so as to have the case settled U/s 245-C of the Act. After application U/s 245-C being filed by assessee, S.245-D provides procedure to be followed. Sub-sections (1), (2A), (2B), (3) & (4) to S.245-D being relevant for purposes read ad infra: “245-D. Procedure on receipt of an application under section 245C. (applicable prior to Finance Act, 2007 w.e.f. 01/06/07)- (1) On receipt of an application under section 245C, the settlement commission shall call for a report from the Commissioner and on the basis of materials contained in such report and having regard to the nature and circumstances of the case or the complexity of investigation involved therein, the settlement commission, shall where it is possible, by order, reject the application or allow the application to be proceeded with within a period of one year from the end of the month in which such application was made under section 245-C; Provided that an application shall not be rejected under this sub-section unless an opportunity has been given to CW 12911/08 //20// the applicant 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 1st day of July, 1995 and if the Commissioner fails to furnish the report within the said period, the settlement commission may make the order without such report.” (2A) Subject to the provisions of sub- section (2B) the assessee shall, within thirty five days of the receipt of a copy of the order under sub-section (1) allowing the application to be proceeded with, pay the additional amount of income tax payable on the income disclosed in the application and shall furnish proof of such payment of the settlement commission. (2B) if the Settlement commission is satisfied, on an application made in this behalf by the assessee, that he is unable for good and sufficient reasons to pay the additional amount of income tax referred to in-sub-section (2A) within the time specified in that sub- section, it may extend the time for payment of the amount which remains unpaid or allow payment of by instalments if the assessee furnishes adequate security for the payment thereof. - (2C) Where the additional amount of CW 12911/08 //21// income tax is not paid within the time specified under sub-section(2A), then, whether or not the Settlement Commission has extended the time for payment of the amount which remains unpaid or has allowed payment thereof by instalments under sub-section (2B), the assessee shall be liable to pay simple interest at fifteen per cent per annum on the amount remaining unpaid from the date of expiry of the period of thirty five days referred to in sub- section (2A). (2D) Where the additional amount of income tax referred to in sub-section (2A) is not paid by the assessee within the time specified under that sub- section or extended under sub-section (2B), as the case may be, the settlement commission may direct that the amount of income tax remaining unpaid, together with any interest payable thereon under sub-section (2C), be recovered and any penalty for default in making payment of such additional amount may be imposed and recovered, in accordance with the provisions of Chapter XVII, by the assessing officer having jurisdiction over the assessee. (3) Where an application is allowed to be proceeded with under sub-section