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IN THE HIGH COURT OF JHARKHAND AT RANCHI
D.N. PATEL & RATNAKER BHENGRA, JJ.
Pawan Kumar, Proprietor of M/s. Prasad Hardware – Petitioner
Versus
Union of India and Others – Respondents
WP (T) No. 6904 of 2013 with I.A. Nos. 835, 2153 of 2015 and 8553 of 2013
Decided On : 18.5.2015
Income Tax - Settlement Commission - Section 245-D(4) of the Income Tax Act, 1961 - Summary of Acts and Sections: Section 245-D(4), Section 245-C(1), Section 245-F, Section 44-AD, Section 145, Section 144, Section 226(3), Rule 9 of the Income Tax Settlement Commission (Procedure) Rules, 1997 - The court quashed the order passed by the Settlement Commission dated 27th/28th June, 2013 under Section 245-D(4) of the Income Tax Act, 1961, as well as the orders passed by the Settlement Commission dated 24th September, 2013 and the notices issued by the Income Tax Department under Section 226(3) of the Act, 1961 dated 27th January, 2015.
Fact of the Case:
The petitioner challenged the order passed by the Settlement Commission, which made additions of Rs. 62,50,000/- and Rs. 73,50,663/- for assessment years 2010-11 and 2011-12 respectively, over and above the income declared by the petitioner. The petitioner argued that the Settlement Commission exceeded its jurisdiction and made additions based on presumptions and surmises, without evidence.
Finding of the Court:
The court quashed the orders passed by the Settlement Commission and the notices issued by the Income Tax Department, citing that the Settlement Commission's estimation of unaccounted turnover and profit rate was based on irrelevant considerations and lacked evidence, violating the provisions of the Income Tax Act, 1961.
Issues: The main issue was whether the Settlement Commission's orders and the notices issued by the Income Tax Department were valid, considering the Settlement Commission's jurisdiction and the evidence presented.
Ratio Decidendi: The court held that the Settlement Commission's estimation of unaccounted turnover and profit rate lacked evidence and was based on irrelevant considerations, violating the provisions of the Income Tax Act, 1961. The court also emphasized that the Settlement Commission cannot exercise substantive powers of Income Tax Authorities, but only the procedural powers vested in the Income Tax Authorities under Section 245F of the Income Tax Act.
Final Decision: The court quashed the orders passed by the Settlement Commission and the notices issued by the Income Tax Department, remanding the matter to the Settlement Commission for a fresh decision.
1. This writ petition has been preferred challenging the order passed by the Settlement Commission dated 27th/28th June, 2013 under Section 245-D(4) of the Income Tax Act, 1961 (hereinafter referred to as the Act, 1961 for the sake of brevity) which is at Annexure-6 to the memo of this writ petition. By this order additions have been made of Rs. 62,50,000/- and Rs. 73,50,663/- in respect of assessment years 2010-11 and 2011-12 respectively, over and above income declared by this petitioner in its settlement application preferred for the aforesaid period under Section 245-C(1) of the Act, 1961.
2. Factual Matrix
(i) Petitioner filed Returns for the assessment years 2010-11 and 2011-12 on 23rd September, 2010 and 29th September, 2011, respectively.
(ii) Survey under Section 133-A of the Act, 1961 was conducted by the Income Tax Department on 21st/22nd October, 2011.
(iii) This petitioner preferred settlement application under Section 245-(C)(1) of the Act, 1961 before the Settlement Commission. Alongwith this application this petitioner is also paying income tax with interest at Rs. 38,45,471/- on disclosure of additional income of Rs. 1,04,00,000/-.
(iv) The Settlement Commission passed an order under Section (preferred by the assesee under Section 245-C) 245-D(2C) of the Act, 1961 has allowed an application to proceed with. This order is dated 27th March, 2012/3rd April, 2012 (Annexure-4 to the memo of this petition). This order was passed after calling for report from the Commissioner of Income Tax. The report given by the Commissioner of Income Tax is at Annexure-3 and 5 of this writ petition. Thereafter adequate opportunity of being heard was given to the petitioner and ultimately, final hearing was fixed by the Settlement Commission and vide order dated 27/28th June, 2013 final order was passed by the Settlement Commission under Section 245-D(4) which is at Annexure6 to the memo of this petition which is the impugned order passed by the Settlement Commission. By virtue of this order Settlement Commission has made additions of Rs. 62,50,000/- and Rs. 73,50,663/- totaling Rs. 1,36,00,663/- for the assessment years 2010-11 and 2011-12 respectively over and above the declared income of this petitioner. This is being reflected from para 11 of the order passed by the Settlement Commission. This order has been passed under Section 245-D(4) of the Act, 1961.
(v) A recall/rectification petition was preferred by this petitioner before the Settlement Commission under Section 245-D(6B) of the Act, 1961. This application was dismissed by the Settlement Commission vide order dated 24th September, 2013. This is at Annexure-7 to the memo of this petition.
(vi) Thereafter, the department of the Income Tax has passed an order and served demand notices for the assessment years 2010-11 and 2011-12 on 24th July, 2013, to give effect to the order passed by the Settlement Commission.
(vii) Two garnishee notices both dated 27th January, 2015 were issued by the respondents-Income Tax Department under Section 226(3) of the Act, 1961 for attaching the bank account of this petitioner.
(viii) Thus, being aggrieved by the order passed by the Settlement Commission dated 27/28th June, 2013 as well as against the order passed by the Settlement Commission dated 24th September, 2013 and also being aggrieved by the notices issued by the respondents, the present writ petition alongwith I.A. No. 835 of 2015 has been preferred by this petitioner.
3. Arguments canvassed by the counsel for the petitioner:-
(i) It is submitted by the counsel for the petitioner that the Settlement Commission has exceeded its jurisdiction, by additions of Rs. 62,50,000/- and Rs. 73,50,663/- for the assessment years 2010-11 and 2011-12 respectively, over and above the income declared by the petitioner, while passing an order dated 27/28th of June, 2013 which is at Annexure-6 to the memo of this petition.
(ii) Looking to the order passed by the Settlement Commission dated 27th/
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