By TIOL News Service

AHMEDABAD, JULY 31, 2018: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether when the taxpayer is an applicant before the SETCOM, the provisions of Section 245C enable the Revenue to act as an aggrived party. NO IS THE VERDICT.

Facts of the case:

The dispute in the present case arises pursuent to filing of eleven applications u/s 245C(1) relating to different A.Ys by companies of the Comed Group of Vadodara, before the Settlement Commission. Consequent to the same, the Settlement Commission passed an order u/s 245D(4) in respect of few applications considering only some of the assessment years incorporated in each of the applications, leaving the remaining assessment years of respective applications. Subsequently, it was found by the Department that in respect of all the eleven applications, orders were passed by the Commission allowing the applications to be proceeded with further under the provisions of pre-amended Section 245D(2A) and Section 245D(2C) in respect of some of the A.Ys out of the Assessment Years for which the settlement applications were filed.

It was Department's case that as settlement applications were preferred u/s 245C before the first day of June 2007, but no order was passed under the pre-amended provisions of Section 245C(1), the applications have to be deemed to be allowed to be proceed with as on 31st July, 2007, if the due amount of tax on the income disclosed in the said settlement application and interest thereon have been paid on 31st July, 2007. It was the case on behalf of the Department that such application could be treated as invalid only in the condition if additional tax on income disclosed in such applications and the interest thereon have not been paid on or before 31st July, 2007. Therefore, it was pointed out that the order passed by Settlement Commission to proceed further with the settlement applications in respect of some of the A.Ys only and not for all the A.Ys, was absolutely illegal, wholly without jurisdiction and contrary to the provisions of the Act.

Accordingly, the Department thereafter submitted the applications before the Settlement Commission u/s 154 r/w/s 245D(6) and requested to consider the settlement application(s) for the remaining years for which the order(s) were not passed u/s 245D(1). However, such request was rejected, holding that an order u/s 245D(6B) to rectify the order passed u/s 245D(4) would tantamount to review/ recall which was not permissible under the provisions of law.

High Court held that,

++ the first question which is required to be considered is the locus of the Department to challenge the order passed by the Settlement Commission in considering the application submitted by the assessee only for some of the years and not for all the years for which the assessee had submitted the application. Therefore, the question which is posed for consideration of this Court is whether the Department/ Revenue can be said to be an "aggrieved person" / "aggrieved party" against the decision of the Settlement Commission to not consider the settlement application for all the years for which the application was submitted by the assessee. Now, it is seen the Section 245 provides remedy to the assessee to approach the Settlement Commission and pray for settlement by offering undisclosed income and offering to pay the tax on the same. Therefore, it is the assessee who approaches the Settlement Commission as per Section 245, and if at all anybody who can be said to be aggrieved by the rejection of application by the Settlement Commission and/or non-consideration of the application, is the assessee only. The Department cannot therefore be said to be aggrieved by the decision of Settlement Commission in rejecting and/or not proceeding further with the settlement application for the years for which the application is submitted by the assessee;

++ even considering the Scheme of Section 245, no such right is conferred in favour of the Department against rejection of the settlement application submitted by the assessee. Even otherwise, considering the consequences of rejecting and/or declaring the settlement application invalid by the Settlement Commission, the Department cannot be said to be aggrieved. On rejecting and/or declaring the settlement application invalid, the consequences shall be that the assessment proceedings initiated against the assessee shall have to be proceeded further as if the assessee has not approached the Settlement Commission. If the settlement application is allowed and the order is passed as per Section 245D(4) and the assessee makes payment of tax, penalty and interest as per the order passed by the Settlement Commission, in that case, the assessee may get the benefit of immunity from prosecution and penalty as per Section 245H. Therefore, the object and purpose of the proceedings before the Settlement Commission is to put an end to the dispute at the instance of assessee. On the other hand, if the settlement application is rejected and/or declared invalid, the necessary consequences of abatement of proceedings before the Settlement Commission as provided u/s 245HA shall follow. Similarly, even the submission on behalf of the Department that the applications were preferred prior to 1st June, 2007 and the order u/s 245D(1) has not been made before the 1st day of June, 2007, and therefore, such applications shall be deemed to have been allowed to be proceeded further, is not required to be entertained;

++ it is seen that number of submissions were made by the Revenue's counsel on whether the order by which the Settlement Commission decided to proceed further with the settlement application for some of the years only was received by the Department or not. Considering the material on record, it can be said that there are disputed questions of fact on the same. However, considering the subsequent communication which as such was received in which it is specifically mentioned and the Report was called only for some of years for which the order was passed, it can be said that the Department had the knowledge. That thereafter, the Settlement Commission has passed the final order u/s 245D(4) with respect to some of the years for which the order was passed. Only thereafter, the Department woke up and submitted the rectification application which is rightly rejected by the Settlement Commission. Now so far as challenge to the order passed by the Settlement Commission on merits, in case of Special Civil Applications Nos.17177/2013, 17181/2013 and 17185/2013 is concerned, at the outset, it is required to be noted that challenge to the order passed by Settlement Commission on merits is by way of amendment and when the petition was preferred originally, no such averments were made. Even thereafter, there is no specific prayer to quash and set aside the order passed by the Settlement Commission on merits. Therefore, considering the limited scope of judicial review, the order passed by the Settlement Commission is not required to be interfered with.

(See 2018-TIOL-1498-HC-AHM-IT)