CIT vs. Anil Hastkala (Rajasthan High Court)

Settlement Commission’s “formal” orders struck down

S. 254D (4A) was amended by the Finance Act 2007 to provide that if in respect of an application filed before 1.6.2007, the Settlement Commission did not pass a final order before 31.3.2008, the proceedings would abate. S. 245HA (3) provided that the consequence of such abatement was that the income-tax authorities could, in making the assessment, use all the confidential material furnished by the assessee before the Settlement Commission. On writ petitions filed earlier by the applicants (about 350 in number), the High Court directed the Settlement Commission to dispose of the applications by 31.3.2008 so as to avoid the abatement.

To formally comply with the orders of the High Court, the Settlement Commission passed orders u/s 245D (4) on or before 31.3.2008 making a “settlement” though it made it clear in the order that in view of the number of cases and paucity of time, it was not practicable for the Commission to examine the records and investigate the case for proper settlement or to give adequate opportunity to the parties.

The Department challenged the said orders of the Commission on the ground that the Settlement Commission ought to have let the proceedings abate and remit the matter to the AO. The assessees challenged the orders on the ground that it ought to have been passed after proper hearing.

HELD, upholding the challenge:

(i) There cannot be two opinions about the irresistible conclusion that the orders of the settlement commission having been passed without a reasonable hearing, examination of records and due application of mind, are in violation of s.245-D(4) and not sustainable;

(ii) However, the argument of the Revenue that the Commission has become functus officio after 31.3.2008 and that the matter should be remitted to the AO cannot be accepted because if there is any infirmity in the decision making process of a statutory authority, the only recourse available is to remit back to the statutory authority which has decided the matters afresh in accordance with law;

(iii) The arguments of the assessee (in the petitions filed by the Revenue) that the orders of settlement should not be reviewed unless prejudice is shown by the Revenue is also not acceptable because if the statute casts an obligation upon the authority to act in accordance therewith, its non-compliance itself constitutes prejudice to the parties and it is not for this Court to probe into as to what nature of prejudice has been caused. Similarly, the argument that the Revenue is barred by the principles of promissory estoppel and ‘approbate – reprobate’ is also not acceptable;

(iv) Consequently, the matters were remitted to the settlement commission to pass fresh orders in accordance with law.