The main legal point established in the judgment is that the order of the Settlement Commission should be in conformity with the provisions of the law, and reasons must be given for the decision.

JUDGMENT :

(K.R. Shriram, J.)

1. Petitioner, a bank in the private sector filed its return of income for Assessment Year 1997-98 on 1st December 1997. In the computation, petitioner returned income of Rs.12,73,80,111/- being interest accrued as due on Government securities and debentures held by petitioner as on 31st March 1997.

2. By an order dated 28th March 2000 2nd Respondent (ACIT) completed the Assessment for Assessment Year 1997-98. In the Assessment Order among other adjustments, the 2nd Respondent held that a sum of Rs.25,17,19,849/- being interest on Government securities held by petitioner had accrued to petitioner as on 31st March 1997 and as such was liable to tax under Section 5 of the Act. The 2nd Respondent further held that a sum of Rs.12,73,80,111/- being interest received by petitioner in the Financial Year 1996-97 (Assessment Year 1997-98) and offered as income was in fact income of the preceding year, i.e., Assessment Year 1996-97 and was wrongly offered to tax in Assessment Year 1997-98. Accordingly 2nd Respondent brought to tax in Assessment Year 1997-98 a sum of Rs.12,43,39,738/- (incorrectly mentioned as Rs.12,46,39,738/-) being the difference between Rs.25,17,79,849/- accruing in Assessment Year 1997-98 and Rs.12,73,80,111/- offered by petitioner as income for Assessment Year 1997-98.

3. On 24th March 2000 petitioner filed an application under Section 245 C (Application for settlement of cases) of the Income Tax Act, 1961 (the Act) before the Settlement Commission in respect of Assessment Year 1997-98. The application was filed only for surrendering its claim for depreciation on certain leased assets.

4. Petitioner’s application was admitted on 22nd November 2000 by 1st Respondent, viz., The Settlement Commission. The Commissioner of Income Tax, in reply to the Settlement Application, filed a report under Rule 9 of the Settlement Commission (Procedure) Rules, 1997, inter alia, praying for addition of Rs.12,43,39,738/- being the net amount of interest accrued be brought to tax placing reliance on the findings of 2nd Respondent in the Assessment Order. The Settlement Commission after hearing the parties passed an order dated 28th February 2007 disposing the Settlement Application. Aggrieved by this order dated 28th February 2007, petitioner has filed this petition seeking the following reliefs :

(a) That this Hon’ble Court be pleased to issue a Writ of Certiorari or any other writ order or direction under Article 226 of the Constitution of India calling for the records of the case leading to the passing of the Impugned Order (Exhibit “I” hereto) and after going through the same and examining the question of legality thereof insofar as it relates to the addition and/or adjustment to Interest Income, quash, cancel and set aside the Impugned Order (Exhibit “I” hereto) insomuch as it relates to the additions/ adjustments to Interest Income;

(b) That this Hon’ble Court be pleased to issue a Writ of Mandamus or any other writ order or direction under Article 226 of the Constitution of India ordering and directing the 2nd Respondent to assess interest income on Government Securities as returned by the Petitioner;

(c) That this Hon’ble Court be pleased to issue a Writ of Prohibition or any other writ order or direction under Article 226 of the Constitution of India ordering and directing the 2nd Respondent from taking any action in furtherance to the Impugned Order (Exhibit “I” hereto) insofar as it relates to the additions/ adjustments to Interest Income.

(d) That the hearing and final disposal of this petition

(i) the operation of the Impugned Order insofar as it relates to the additions/adjustments to Interest Income be stayed; and

(ii) the 2nd Respondent, her successors in office, subordinates, servants and agents be restrained by an order and injunction of this Hon’ble Court from taking any steps to recover Rs.16,83,56,055/- being the demand raised pursuant to the Impugned Order insofar as it pertains to ad