Rejection of Settlement application for not disclosing refund granted due to failure of chartered accountant to inform- High Court quashed the order
ABCAUS Case Law Citation:
ABCAUS 2396 (2018) 07 HC
Important Case Laws Cited/relied upon by the parties:
Vascon Engineers Ltd., vs. Income-tax Settlement Commission and Others (2015) 376 ITR 360
The instant writ had been filed by the assessee challenging the order of the Income Tax Settlement Commission in rejecting the application of the petitioner assessee as arbitrary unjust and illegal and to consequently direct it to permit the petitioner to file a fresh application u/s 245C of the Income Tax Act 1961 (the Act).
The petitioner filed an application under Section 245C of the Act before the Settlement Commission. On the application being entertained, the Settlement Commission passed an order under section 245D(1) of the Act after taking note of the details furnished in the application for settlement as well as the paper book filed along with it, that all the requirements laid down under section 245(C) (1) have been fulfilled by the petitioner.
Accordingly, the Settlement Commission held that the application is fit to be allowed to be proceeded with further. An order to the said effect was passed without prejudice to the finding that may be given at a later stage of the proceedings. Pursuant to the said order, the Principal Commissioner of Income Tax (PCIT) submitted a report under section 245D(2B) of the Act. The petitioner was given an opportunity to offer his comments on the report which the petitioner filed.
Just three days before the hearing was listed, the PCIT submitted a supplementary report under section 245D(1). In the said report, the PCIT had stated that a refund had already been issued to the petitioner for an assessment year by the CPC, Bengaluru after processing the original return filed by the petitioner and thus, there exists no refund due which can be adjusted against the additional tax liability. The report stated that additional income offered before the Settlement Commission resulted in additional tax liability, however, the petitioner had not paid any tax on the additional income offered. Hence, it was reported that the petitioner had not paid the tax in full for the additional income offered before the Settlement Commission, therefore, cannot be said to have fulfilled the condition and requested the Commission to declare the application as invalid.
The petitioner submitted a representation before the Settlement Commission stating that PCIT had reported that the petitioner had received refund vide cheque and the petitioner has verified the form 26AS along with Bank Account and accepted the receipt of the said refund. It was further submitted that the petitioner had claimed the above refund for adjustment in respect of the additional tax liability arising in the application filed before the Commission and the said sum was claimed inadvertently and stated that it is an unintentional one and he may kindly be pardoned.
However, the Settlement Commission, after taking into consideration the supplementary report filed by the PCIT, passed the impugned order treating the application as invalid under section 245D(2C) of the Act. The reason given was that there was short fall in payment of tax and interest, due to issue of refund prior to the date of making application, which was not considered in the settlement application and that the petitioner had made a false claim on refund and hence, the application was not maintainable and liable for rejection.
In the settlement application the balance tax payable had been shown. According to the Petitioner, while computing that amount, the petitioner had considered the refund claim and reflected the balance amount and therefore it was a genuine mistake as the Form 26AS corresponding to the relevant assessment year in Part D which deals with details of paid refund stated “No transaction present”. Thus, the plea of the petitioner was that it was an unintentional, inadvertent mistake and that being technical, should not have been taken as a ground to reject the application as invalid.
The petitioner stated that his erstwhile Chartered Accountants failed to inform the petitioner with regard to the depositing of the amount in one of their Bank Accounts towards refund of tax for the relevant assessment year and keeping in mind the circumstances of the proceedings, the petitioner was under the bona fide belief that the refund due to them would not be processed in such an expeditious manner, i.e., within a span of two months from the date of filing of returns for the assessment year and that too, in a case where search action was taken under section 132 of the Act.
The Hon’ble High Court observed that those figures were clearly reflected in the application filed before the Settlement Commission and the application having been allowed to be proceeded with the Settlement Commission, PCIT had full materials before it to examine the correctness of the claim made by the petitioner in their application, while requesting the Settlement Commission to settle their due, yet this issue was not pointed out in the first report of the PCIT. As per counter affidavit filed, it was stated that the PCIT was not aware of the fact that the refund was already granted when he had submitted his report.
The Hon’ble High Court opined that considering the facts and circumstances of the case and more particularly, that the Income Tax Department themselves where not aware of the fact that the refund had been processed and granted, when PCIT filed its first report and was brought on record only by way of supplementary report later, it was inadvertently omitted by the petitioner and the petitioner having pleaded ignorance and inadvertence and sought for pardon, the Settlement Commission could not have treated the petitioner’s case as one of making a false claim of refund.
The Hon’ble High Court observed that the Settlement Commission did not conduct an enquiry to satisfy itself that the stand taken by the PCIT by way of a supplementary report could be a valid ground to come to a conclusion that the assessee had made a false claim on the refund due. The Settlement Commission did not endeavor to go into the aspect as to why this information was not placed by the PCIT while filing the earlier report under Section 245D(2B) of the Act. Thus, to hold that the assessee had misrepresented facts without an enquiry into the matter more so, in the light of the stand taken by the assessee pleading inadvertence and bona fide mistake,
The Hon’ble High Court opined that there was a flaw in the decision making process. Therefore, the Court was well justified in exercising its jurisdiction under Article 226 of the Constitution of India, which confers power of judicial review on this Court over orders passed by Courts and Tribunals. The Settlement Commission having been held to be a Tribunal, the petitioner was entitled to seek judicial review of the order of the Settlement Commission in a petition under Article 226 of the Constitution of India.
The Hon’ble High Court pointed out the recommendations made by the Wanchoo Committee for establishing a settlement machinery under the Act. It was pointed out that the door for compromise with an errant taxpayer, should not, for ever, remain closed, as in the administration of fiscal laws, whose primary objective is to raise revenue, there has to be room for compromise and settlement .
It was emphasised that the Settlement Commission was constituted for settling complicated claims of tax evaders as an extraordinary measure for giving an opportunity to such persons to make a confession and have the matters settled once for all and purchase peace. Thus, the Settlement Commission is a forum before which the assessee surrenders himself and it is not a forum for challenging the legality of assessment order or other orders passed in any proceedings under the Act. The Scheme of the Act clearly shows that the power conferred on the Settlement Commission is wide, as it has the power to give immunity against prosecution or imposition of penalty.
Accordingly, the writ petition was allowed, the impugned order was set side and the matter was remanded to the Income Tax Settlement Commission for fresh consideration
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