PUKHRAJ BHABHUTMAL SHAH vs. INCOME TAX OFFICER

Facts

The petitioner, Pukhraj Bhabhutmal Shah, filed a settlement application under section 245C of the Income-Tax Act, 1961, on 14.10.1996, declaring undisclosed income. Initially, he declared Rs. 20 lakhs, which was later revised to Rs. 5 lakhs. Meanwhile, the Assessing Officer made a block assessment under section 158BC, assessing total income at Rs. 4,27,341/- and tax at Rs. 2,56,20,204/-. The petitioner filed an appeal (ITA No.170/Ahd/1997) before the Income Tax Appellate Tribunal (ITAT). The Settlement Commission admitted the settlement application on 11.9.1999, directing payment of additional tax. The petitioner claimed the tax was covered by seized cash. The ITAT appeal was withdrawn on 23.1.2001, as the settlement application was admitted. Later, the Settlement Commission, by an order dated 2.12.2013, abated the proceedings under section 245HA(1)(ii) due to non-compliance with section 245D(2D). The petitioner then filed a writ petition before the High Court.

Held

The High Court held that the principal relief sought, quashing the Settlement Commission's order of abatement, was rejected. The Court reasoned that the abatement order under section 245HA(1)(ii) was passed due to the petitioner's non-compliance with section 245D(2D). However, the Court found that the assessment order passed by the Assessing Officer under section 158BC of the Act would continue to subsist, as it is not automatically set aside by the abatement order. Since the petitioner had withdrawn his appeal before the ITAT based on the admission of his settlement application, and now the settlement proceedings had abated, the petitioner would be remediless if the appeal was not restored. The Court relied on the principle that justice demands allowing the petitioner to avail the remedy of appeal against the block assessment order. Therefore, the Court quashed the ITAT's order dated 23.1.2001 and restored the appeal (ITA No.170/Ahd/1997) to the file of the ITAT for decision on merits. This restoration was based on equitable considerations, not under section 245HA(2).

Key Issues

1. Whether the High Court should quash the order dated 2.12.2013 passed by the Settlement Commission under section 245D(2D) read with section 245HA(1)(ii) of the Income-Tax Act, 1961, abating the settlement proceedings. Assessee's Contention: The petitioner argued that the tax due was fully paid by adjusting seized cash, and there was no communication regarding non-payment. The abatement order was erroneous. Revenue's Contention: The Revenue contended that the petitioner had not paid the tax due as per the disclosure, violating section 245D(2D), leading to abatement. 2. Whether the High Court should quash the ITAT order dated 23.1.2001, which dismissed the petitioner's appeal, and reinstate the appeal before the ITAT. Assessee's Contention: The petitioner argued that the appeal was withdrawn because the settlement application was admitted. With the abatement of settlement proceedings, the assessment order under section 158BC would attain finality, causing prejudice. Restoring the appeal would serve the interest of justice and cause no prejudice to the revenue. Revenue's Contention: Not recorded in the judgment.