Vinod R. Jadhav vs Income Tax Settlement Commission

At the very outset, Mr. Tejveer Singh, learned counsel for the Respondents state that he is appearing for all the Respondents and undertakes to file his Vakalatnama for all the Respondents within a week from today. At the request of the counsel, the Petition is taken up for final disposal at the stage of admission.

This Petition challenges the following Orders/Communication passed by the Income Tax Settlement Commission (Commission) :-

(a) Order dated 27th August, 2015 being an order passed under Section 245D(4) of the Income Tax Act, 1961 (the Act) settling the Petitioner''s application for settlement ;

(b) The order dated 20th October, 2015 being an order passed under Section 245(D)(6B) of the Act on the Petitioner''s application for rectification of the order dated 27th August, 2015.

(c) A Communication dated 28th December, 2015 from the Secretary of the Commission dismissing the Petitioner''s further application dated 23rd October, 2015 for rectification of the order dated 27th August, 2015 read with 20th October, 2015 ; and

(d) Notice dated 8th January, 2016 issued by the Deputy Commissioner of Income Tax seeking to recover the amounts due under the order dated 27th August, 2015 as modified by order dated 3rd October, 2015.

The Petitioner had by Writ Petition No. 11613 of 2015 challenged the orders dated 27th August, 2015 and 20th October, 2015 of the Commission passed under Section 245D(4) and 245(D) (6B) of the Act respectively. The Petitioner had in that Petition also sought stay of the order dated 27th August, 2015 read with order dated 20th October, 2015 till its further application dated 23rd October, 2015 for rectification was disposed of by the Commission.

On 17th December, 2015, we had disposed of Writ Petition No. 11613 of 2015 on the statement of the learned counsel for the Revenue that the rectification application dated 23rd October, 2015 had already been disposed of by the Commission and a copy of the same would be served upon the Petitioner. In the above view, we restrained the Respondent-Revenue from adopting any coercive proceedings till the service of the order passed by the Commission on the Petitioner''s rectification application dated 23rd October, 2015 and for a period of two weeks from the date of service of the order passed on the rectification application. In view of the above direction, the Petitioner withdrew the Petition No. 11613 of 2015 with liberty to file a fresh Petition challenging not only the order passed on rectification application dated 23rd October, 2015 when communicated to it along with the order dated 27th August, 2015 read with order dated 20th October, 2015 being orders passed under Section 245D(4) and 245D(6B) of the Act respectively.

It appears that the application for rectification dated 23rd October, 2015 was in fact disposed of by communication dated 28th December, 2015. This Communication rejecting the Petitioner''s application has been passed by the Secretary of the Commission and reads as under :-

"Please refer to your letter dated 23.10.2015 filed in this office on 29.10.2015.

This Commission has vide order passed under section 245D(6B) dated 20.10.2015, granted you 4 monthly instalments commencing from October 2015 for payment of tax and interest pursuant to the order under section 245D(4).

The order passed under section 245D(6B) dated 20.10.2015 has been passed after detailed deliberations and there is mistake apparent from record which needs rectification under section 245D(6B).

Your Misc. Petition dated 23.10.2015 is disposed off and treated as filed."

Two things are clearly evident from the aforesaid Communication dated 28th December, 2015 of the Secretary of the Commission as under :-

(a) one the statement made by the officer of the Respondent to their counsel on 17th December,2015 appears to be incorrect as the order dated 17th December, 2015 records the Petitioner''s rectification application dated 23rd October 2015 has already been disposed of. This, appears to be incorrect as it has been disposed of on 28th December, 2015 ; and

(b) Secondly the 2nd rectification application dated 23rd October, 2015 made to the Commission has not been considered by the Commission but by the Secretary of the Commission.

So far as the first issue is concerned, we asked Mr. Tejveer Singh who states that he was so instructed by Mr. Anand Bhaskar, the Assessing Officer who instructed him on taking instructions from the office of the Commission that the order has been passed by the Commission. We direct the Vice Chairman of the Commission at Mumbai to conduct an enquiry and fix responsibility on the person who prima facie gave incorrect instructions to its counsel on 17th December, 2015 at the hearing of Writ Petition No. 11613 of 2015 filed by the Petitioner that the rectification application dated 23/29 October, 2015 is already disposed of on 17th December, 2015, when the same was only disposed of on 28th December, 2015. The Commission will also enquire, if necessary, whether there was any basis for Mr. Anand Bhaskar to instruct its counsel that an order has already been passed on the rectification application dated 23rd October, 2015. This is a serious issue. We direct the Vice Chairman of the Commission to complete this enquiry by 22nd February, 2016 and file his report in Court by 25th February, 2016. Mr. Tejveer Singh will also co-operate in the above enquiry.

So far the second issue is concerned, we shall deal with it in the course of this order.

The genesis of the proceedings for rectification of the order dated 27th August, 2015 arose on account of the fact that the Petitioner had during the hearing of its application for settlement leading to the order dated 22nd October, 2015 sought payment in at least four quarterly instalments payable in case any additional tax liability is determined in the order passed under section 245D(4) of the Act. This submission was not considered in the order dated 27th August, 2015 passed by the Commission under Section 245D(4) of the Act. The omission to consider the above submission resulted in the Petitioner filing a rectification application dated 25th September, 2015 to the Commission seeking rectification of the order dated 27th August, 2015 passed under Section 245D(4) of the Act. The Commission by order dated 20th October, 2015, disposed of the rectification application by recording the fact that the Petitioner had specifically sought four quarterly instalment facilities during the course of hearing under Section 245D(4) of the Act. The impugned order records that it is a mistake apparent from the record and rectified its order dated 27th August, 2015 by an order under Section 245(D)(6B) of the Act. However, without considering the Petitioner''s prayer for four quarterly instalment facilities, the order dated 20th October, 2015 granted four monthly instalments to pay the tax along with interest commencing from October, 2015. This order was passed without hearing the Petitioner and even does not consider the reasons for which the Petitioner sought payment of its dues by the quarterly instalment made during the course of hearing under Section 245D(4) of the Act.

In the above circumstances, the Petitioner filed a further application for rectification dated 23rd October, 2015 inter alia pointing out the circumstances which would make it impossible for them to comply with the orders dated 27th August, 2015 as rectified by an order dated 20th October, 2015(to illustrate his properties being under attachment). It was this application for rectification which has been disposed of by the Secretary of the Commission in his Communication dated 28th December, 2015. We are unable to understand how an application for rectification of orders passed by the Settlement Commission can be disposed of by the Secretary of the Commission who would have no role to play in passing of the orders dated 27th August, 2015 and 20th October, 2015 which was sought to be rectified. It is for the Commission to consider the applications which are filed before it seeking the modification or rectification of the orders passed by it and same cannot be outsourced by the Commission to its Secretary. The Commission is composed of persons who are not only of highest integrity but also of outstanding ability having special knowledge with regard to the issues relating to direct taxes and business accounts (see Section 245B(3) of the Act). It is the aforesaid abilities of the members of the Commission which has to be brought into play while disposing of the applications for Settlement made to the Commission as also applications of rectification/modification of its orders. This has admittedly been not done in this case as the Petitioner''s application for rectification has been disposed of by the Secretary of the Commission.

In view of the above and in the peculiar facts of the present case, we set aside the orders dated 20th October, 2015 being the order passed on Petitioner''s rectification application under Section 245(D)(6B) of the Act as it is an order passed not only without hearing the Petitioner but also without recording any reasons why the rectification application made by the Petitioner is not being allowed in its entirety. Similarly, we also set aside the Communication dated 28th December, 2015 addressed by the Secretary of the Commission informing the Petitioner that the rectification application is dismissed as there is no mistake apparent from the record in the order dated 20th October, 2015. This Communication dated 28th December, 2015 of the Commission is completely without jurisdiction and thus void. Therefore, set aside.

The Commission will grant personal hearing to all parties concerned before passing a fresh order on the rectification applications dated 25th September, 2015.

At this stage, it was urged by the Revenue that in view of the Second proviso to Section 245D(6B) of the Act, in force from 1st June, 2015 a personal hearing is required to be given only if the order passed on rectification application, has the effect of modifying the liability. In this case, the orders dated 20th October, 2015 and 28th December, 2015 does not have that effect, therefore no personal hearing is required to be given. Prima facie, it appears that the second proviso has been incorporated only as a measure of ex abundanti cautela i.e. even mere corrections of arithmetical errors on the face of it should not be done by the Commission suo moto, if it has the effect of modifying the liability. It does not prima facie do away with the hearing of a rectification application particularly where facts show that there is a likelihood of injustice in the absence of a hearing. We also enquired of Mr. Tejveer Singh whether any extension of time in making the payment would amount to variation of liability. In response, Mr. Tejveer Singh states that for the purpose of this Petition, he gives up the above issue in the present facts of this case, leaving it to be urged in some appropriate case. Therefore, in the peculiar facts of this case, we hold that a personal hearing is necessary before disposal of the Petitioner''s application for rectification dated 25th September, 2015. The larger issue raised by the Revenue is not being adjudicated upon here and is left, to be decided in an appropriate case.

The Communication dated 8th January, 2016 of the Deputy Commissioner of Income Tax to the Petitioner seeking to recover the amounts recoverable consequent to the orders dated 27th August, 2015 passed under Section 245D(4) of the Act as modified is also quashed and set aside. It is made clear that for a period of two weeks from the date of communication to the Petitioner, of the order passed by the Commission on the rectification application, the Revenue will not adopt any coercive proceedings against the Petitioner.

The challenge by the Petitioner to the order dated 27th August, 2015 passed by the Commission under Section 245D(4) of the Act is not being dealt with at this stage. It is left open to be considered, if so raised by the Petitioner, after disposal of its rectification application dated 23rd October, 2015.

Mr Tejveer Singh, on instructions of Mr. F.M. Mohanty, Vice Chairman of the Commission states that the Settlement Commission will hear the Petitioner''s rectification application dated 25th September, 2015 on 1st February, 2016 at 3.00 p.m. The Petitioner undertakes to remain present on that date and assist the Commission in the early disposal of the Petitioner''s application. All contentions kept open.

Petition disposed of in above terms. No order as to costs.

However, this Petition will appear on board on 25th February, 2016 at 3. 00 p.m. to consider the enquiry report of the Vice Chairman of the Commission at Mumbai as directed in paragraph 7 herein above.