Summary
The Settlement Commission, to meet a High Court deadline of 31.03.2008, settled the appellants' undisclosed income while recording that it could not examine the records or give the parties adequate opportunity under Section 245D(4) of the Income Tax Act. The Supreme Court agreed with the High Court that such an order was a nullity, but held that the High Court should then have remitted the application for a fresh decision rather than dismiss the writ petition, and it set aside the Commission's order and the consequent reassessment.
Issues
- Whether an order of the Settlement Commission under Section 245D(4) of the Income Tax Act, 1961, passed only to meet a court-imposed deadline and admittedly without examining the records or hearing the parties, is a valid order.
- Whether the High Court, having found the Settlement Commission's order to be a nullity, was right to dismiss the writ petition instead of remitting the settlement application for a fresh decision.
- What follows for the show-cause notice and reassessment order which the Assessing Officer issued on the strength of the Commission's observation under Section 245F(4).
Provisions considered
- Section 245D(4), Income Tax Act, 1961The Commission must examine the records and give both the applicant and the Commissioner adequate opportunity before settling the case; an order passed while admitting that this was not practicable is a nullity and the application has to be decided afresh after following that procedure. (¶¶ 2, 3, 5)
- Section 245HA (inserted by the Finance Act, 2007), Income Tax Act, 1961Noted as the provision under which pending settlement applications would abate if not decided by 31.03.2008, which led the High Court to direct disposal by that date. (¶ 2)
- Section 245F(4), Income Tax Act, 1961The Commission's observation that the Assessing Officer could act on matters not placed before it led to the show-cause notice and reassessment; both were set aside along with the Commission's order. (¶¶ 2, 4)
- Section 245AA, Income Tax Act, 1961Since the Settlement Commission has been wound up, the matter was remitted to the interim Board constituted under this section. (¶ 4)
Held
- An order of the Settlement Commission which itself records that it was not practicable to examine the records, investigate the case or give adequate opportunity under Section 245D(4), and which was passed only to comply with the High Court's deadline, is a nullity and not an order in the eye of law. (¶ 3)
- Having found the Commission's order to be a nullity, the High Court ought to have remitted the matter to the Commission for a fresh order on merits after following the procedure in Section 245D(4), instead of dismissing the writ petition. (¶ 3)
- The reassessment order passed by the Assessing Officer on the strength of the Commission's observation under Section 245F(4) falls with the Commission's order and is set aside. (¶ 4)
- Because the Settlement Commission has been wound up, the application stands remitted to the interim Board under Section 245AA, which may call for a fresh report under Rule 9 and must pass a reasoned final order after due procedure under Section 245D(4), preferably within six months of the first hearing. (¶¶ 4, 5)
Result
Appeals allowed; High Court's judgment, the Settlement Commission's order dated 31.03.2008 and the consequent assessment/reassessment order set aside; settlement application remitted to the interim Board for a fresh reasoned decision in accordance with Section 245D(4), preferably within six months of the first hearing. No costs.