SHRI ARVINDKUMAR JAMNADAS SITAPARA vs. THE INCOME TAX SETTLEMENT COMMISSION

Facts

The petitioners, including M/s Akshar Developers, filed applications before the Income Tax Settlement Commission (ITSC) under Section 245C(1) of the Income Tax Act, 1961, following a search under Section 132. The ITSC admitted these applications under Section 245D(1). Subsequently, the Principal Commissioner of Income Tax submitted a report under Section 245D(2B). The petitioners filed a rejoinder to this report. The ITSC then passed an order dated February 2, 2018, under Section 245D(2C), rejecting the applications. This order is under challenge in these petitions before the High Court of Gujarat.

Held

The High Court held that the impugned order passed by the Settlement Commission was unsustainable. The Court found a flaw in the decision-making process, as the Settlement Commission violated the provisions of Section 245D(2C) of the Act. Specifically, the Commission allowed the CIT (DR) to object to the admission of the application and supplement the Principal Commissioner's report with oral submissions based on the record and other evidence. This was contrary to Section 245D(2C), which contemplates a decision solely on the basis of the report. The Court also noted a breach of the principles of natural justice, as reliance was placed on material other than the report at the Section 245D(2C) stage. The petitions were allowed, the impugned orders were quashed and set aside, and the applications were restored to the Settlement Commission at the stage of Section 245D(2C) to be decided afresh in accordance with law within fifteen days, without being influenced by the findings in the quashed orders.

Key Issues

1. Whether the Settlement Commission erred in passing an order under Section 245D(2C) based on arguments presented by the Commissioner of Income-tax (Departmental Representative) that went beyond the report submitted by the Principal Commissioner, thereby violating the provisions of Section 245D(2C) and principles of natural justice? Assessee's Contentions: - The Settlement Commission passed the order based on what was not in the report, rendering it bad in law. - The CIT (DR) raised objections beyond the Principal Commissioner's report, which was impermissible. - The Settlement Commission permitted the CIT (DR) to go beyond the report and raise objections to the admission of the application, violating natural justice as the petitioners' representative was not prepared to reply to new factual arguments offhand. - The order considered points not present in the report, making it bad in law. - Section 245D(2C) mandates an order based on the report, and if the report is not unfavorable, hearing the petitioner could have been dispensed with. Revenue's Contentions: - It is settled procedure for the Settlement Commission to provide an opportunity of hearing to the CIT (DR). - The court is concerned with the decision-making process, not the correctness of the order.