High Court Of Gujarat
Pr.CIT vs. Vallabh Pesticides Ltd. And Anr.
Section 245D(2C), 245F(2)
Asst. Year 2010-11 to 2014-15
Akil Kureshi & B. N. Karia, JJ.
R/SPECIAL CIVIL APPLICATION NO. 5940 of 2018
16th April, 2018
Counsel appeared:
Varun K.Patel for the Petitioner.: R K Patel, Darshan R Patel for the Respondent
AKIL KURESHI, J.
1. Heard learned counsel Mr. Varun Patel for the petitioner-Income Tax department and Mr. R.K.Patel appearing for respondent No.1-assessee on caveat for final disposal of the petition. Respondent No. 2 being a quasi judicial authority, it is not necessary to hear it.
2. This petition is filed by the department challenging order of the Income Tax Settlement Commission [‘Settlement Commission’ for short] dated 24.02 2018 passed under section 245D (2C) of the Income Tax Act, 1961 [‘the Act’ for short]. On 27.12.2017 respondent No.3 filed an application for settlement of its proceedings concerning assessment years 2010-11 to 2014-15 contending that till then, the assessments were pending. The department appeared before the Settlement Commission in response to the notice issued and took a stand that the application for settlement was not maintainable since on 26.12.2017, the Assessing Officer had already passed separate orders of assessment for the said assessment years. The issue was hotly debated before the Settlement Commission. The assessee took principally two contentions. First was that admittedly, till 29.12.2017, such orders were not served on the assessee. Till service of assessment orders, the case can be stated to be pending enabling the assessee to apply for settlement. The second ground raised by the assessee was that no such orders of assessment, as alleged, were passed on 26.12.2017. The assessee placed certain materials at the disposal of the Commission in support of this later contention.
3. The Settlement Commission, by the impugned order, overruled the department’s objection to the maintainability of the settlement application. The Commission was of the opinion that until orders of assessment are served on the assessee, he would have a continued right to apply for settlement. The Commission sought to distinguish the judgement of this Court in case of Shalibhadra Developers vs. Secretary reported in 245 Taxmann 160 on facts. However, with respect to the assessee’s contention that no such orders of assessment were passed on 26.12.2017, as asserted by the department, the Commission made no conclusive declaration. In other words, the Commission did not enter into the question of the orders of assessment being actually passed on 26.12.2017 or not.
4. We are of the opinion that the Commission committed serious error both in the decision and the decision making process. Firstly, it was the duty of the Commission to resolve the factual controversy raised by the assessee with respect to the passing of the orders of assessment on 26.12.2017, as alleged by the department. Secondly, on the consideration of legal issues also, the Commission committed a serious error. We would elaborate both these aspects hereafter.
5. As noted, the assessee had contended before the Commission that the department does not appear to be correct in averring that the assessment was completed on 26.12.2017 when the Assessing Officer passed his orders of assessment. In fact, the assessee suggested that the orders were pre-dated. In a communication dated 19.12.2017 made by the assessee to the Settlement Commission and other Revenue authorities, the assessee had contended as under:
“4. During the course of reassessment proceedings, the Assessing Officer was informed by the official of VPL that it intended to file a Settlement Application before the Hon’ble ITSC, Additional Bench, Mumbai. Looking to the time barring limit for completing the reassessment proceedings, the Assessing Officer had orally told the accountant of the VPL that he will not be in a position to wait beyond 29th December, 2017. Therefore VPL paid the additional tax and interest payable under the Act for filing the Settlement Application and filed the same on 27th December 2017 at about 4.00 pm. As promised by the assessing officer, VPL was under the impression that he will wait up to 29th of December 2017. Before that date, VPL has filed the petition before the Hon’ble ITSC, Additional Bench, Mumbai.
VPL has filed a settlement petition before the Hon’ble ITSC, Additional Bench, Mumbai on 27.12.2017. All of a sudden, on 29.12.2017, VPL received an envelope containing assessment orders for A.Ys 2010-11 to 2014-15 stated to have been passed on 26.12.2017.
As per the screenshot of the ‘ITD’ showing the date and time of uploading the demand, it appeared that the reassessment orders had also been passed before that. As per the records available with VPL, the reassessment orders allegedly passed on 26.12.2017 were given to dispatch at 4.18 p.m on 27.12.2017. In view of the above VPL was not able to understand as to why the reassessment orders passed on 26.12.2017 were not physically delivered to VPL on 26th December 2017 and why they were lying idle in the office of the Assessing Officer upt to next day evening. Therefore, VPL suspects that though the demand was uploaded on 26th December, 2017, the reassessment orders had not really been made till 27th December 2017. It has to be noted that the reassessment orders had been posted only at 4.18 pm on 27th December, 2017. If, in fact, the reassessment orders had been made then there was no reason as to why the same had not been physically served or not posted on the same day as the demand had been uploaded on 26.12.2017.
The above chain of events has given birth to a suspicion that in fact the reassessment orders had not been passed on 26.12.2017. Therefore VPL requests the Department to make available the digital audit of the computer (ITD Portal) in which the reassessment orders were typed on 26.12.2017. Since it is not compulsory to upload the reassessmnet orders passed under section 148 of the Act, the demands were determined early and uploaded. Therefore, VPL suspects that the reassessment orders were in fact typed on 27.12.2017, and appear to have been pre dated. VPL feels that tax was determined early and the demands were uploaded before passing detailed reassessment orders which was done on 27.12.2017.
In view of above, your honours are requested to submit a report before the Hon’ble ITSC, Additional Bench, Mumbai as also to the assessee before 22nd Feb.,2017 along with necessary evidences showing that the reassessment orders were also passed on 26.12.2017.â€
In view of such strong representation of the assessee, it was the duty of the Settlement Commission to first ascertain whether the department had in fact, passed such orders of assessment on 26.12.2017 itself. Had the Commission come to the conclusion that no such orders were passed till the assessee filed the application for settlement on 27.12.2017, the Commissioner was perfectly justified in overruling the department’s objection to the maintainability of the application for settlement. However, without doing so, the Settlement Commission held that the settlement application was maintainable which was opposed to the judgement of this Court in case of Shalibhadra Developers (supra).
In Shalibhadra Developers (supra) the assessee had applied for settlement to the Settlement Commission on 16.03.2016. According to the department, the assessment for the assessment year in question had already been completed when the Assessing Officer passed the order of assessment on 15.03.2016. According to the department, such order of assessment was also sought to be served on the representative of the assessee through hand delivery. The partners of the assessee firm, however, refused to accept the order upon which, the same were dispatched through post and duly served on the assessee on 21.03.2016.
The assessee, in the said case, had principally raised three contentions. Firstly, that no order of assessment, as alleged by the department, was passed on 15.03.2016. Secondly, that in any case, the same was not tendered for service on 15.03.2016 to the partner of the firm and lastly, that the date of service of order of assessment would be crucial for deciding whether the case was pending in the context of eligibility of an assessee to file application for settlement. The Court came to the conclusion that the order of assessment was in fact, passed on 15.03.2016, that the same was also tendered for service on the partner of the f rm on the same day and finally, and most crucially for our purpose, for the purpose of application under section 245C(1) of the Act, the case would be pending only as long as the order of assessment is not passed. The Court held that once the assessment is made by the Assessing Officer by passing order of assessment, the case can no longer be stated to be pending. Application for settlement would be maintainable only if filed before the said date. The date of dispatch or service of the order on the assessee would not be material.
After referring to several judgements of the Supreme Court and High Courts, the Court observed as under:
“31. It can thus be seen that in context of the limitation for passing the assessment or penalty orders, the Courts have consistently taken a view that it would be sufficient for the Assessing authority to pass the order of assessment or penalty. Neither its dispatch nor service would be needed to save the order from being treated as time barred. The Courts have emphasized on the expression “assessment made†and equated with the order of assessment being passed. In context of the settlement proceedings, identical expression has been used. An assessment would be deemed to be concluded on the date on which the assessment is made. We do not see any reason to interfere this expression any differently. It is true that both the expressions are used in different context. Nevertheless, the e are other reasons why even otherwise, we would not depart from what has been adopted by the Courts in the context of time limit provisions for assessment contained in the Act. As noted under sub section (1) of section 245C of the Act, an assessee can file an application for settlement at any stage of a case relating to him. A case means any proceeding for assessment or reassessment which may be pending before the Assessing Officer on the date of making an application for settlement. Thus pendency of assessment proceeding is of vital importance for maintaining an application under sub section (1) of section 245C of the Act. Upon an application for settlement being filed, the same would pass through various stages envisaged in section 245D of the Act. Under sub section (2) of section 245F, where an application made under section 245C has been allowed to be proceeded with under section 245D, the Settlement Commission shall, until an order is passed under subsection (4) of section 245D, have exclusive jurisdiction to exercise the powers and perform the functions of an income tax authority under the Ac in relation to the cases. Proviso to sub section (2) provides that where an application has been made under section 245C on or after the 1st day of June, 2007, the Settlement Commission shall have such exclusive jurisdiction from the date on which the application was made.
Thus, upon making of an application before the Settlement Commission, the Assessing Officer would be, divested of his jurisdiction over the case which would vest exclusively in the Settlement Commission. Sub section (7) of section 245D however provides that where a settlement becomes void, proceedings with respect to the matters covered by the settlement shall be deemed to have been received from the stage where the application was allowed to be proceeded with by the Settlement Commission and the incometax authority concerned, any notwithstanding anything contained in the provisions of the Act, complete such proceedings at any time before the expiry of two years from the end of the financial year in which the settlement become void.
32. The statutory provisions noted above manifest intention of the legislature to vest the jurisdiction to process a case of the assessee either in the Settlement Commission or in the Assessing Officer. No sooner an application for settlement is filed under sub section (1) of section 245C of the Act, the Assessing Officer would be divested of his jurisdiction to assess the return further. The jurisdiction would vest solely and exclusively in the Settlement Commission. If for some reason as envisaged under section 245D of the Act, proceeding for settlement becomes void, under subsection (7) thereof, the proceedings before the Assessing Officer would be deemed to have revived upon which he would complete the assessment within the extended time frame provided therein. The overwhelming intention of the legislature thus is that there can be only one order concerning an assessment, be it by the Assessing Officer termed as order of assessment or by the Settlement Commission termed as settlement order. There cannot be order of assessment by Assessing Officer for the same period for which the Commission would also pass the order of settlement. Accepting the contention of the petitioner that even if the order of assessment has been passed by the Assessing Officer, his case may still be deemed to be pending since such order was not dispatched or served, would lead to a conflicting situation. For the purpose of settlement, assessment would be deemed to be pending. For the purpose of section 143 or section 147 as the case may be, the order of assessment would be deemed to have been passed. The Settlement Commission thereafter, would be authorised to proceed and process the application for settlement and as a natural consequence, pass an order of settlement. There is no provision, to our mind, under which the order of assessment already passed by the Assessing Officer under such a situation would be obliterated. Surely, the legislature would never bring about a situation where an order of assessment would remain on record in respect of same period for which the Settlement Commission would pass a settlement order.
33. We are conscious that the situation has been viewed somewhat differently by some of the High Courts. The Bombay High Court in case of Income Tax Settlement Commission (supra) considered a situation where the order of assessment was signed on 18.3 2013 and was also dispatched to the assessee on the same day in the morning. Such post returned as unserved as refused. However, such refusal was after the date on which the application for settlement was presented before the Commission. In such background, the Court upheld the view of the Settlement Commission that the word issued should be interpreted as served and that delivery of envelop to the postal authority on 18.3.2013 canot be termed as service to the applicant. One of the factors which weighed with the Bombay High Court in the said decision was a circular of CBDT dated 12.08.2008 in which it was clarified that the assessment shall be deemed to have been completed only on the date of service of assessment order to the applicant. We may record that subsequently the circular was superseded by a circular of the Board dated 17.11.2014, in which it was clarified that the assessment shall be deemed to have been completed on the date on which the assessment order is passed.
34. When the case again arose before the Bombay High Court in case of Yashovardhan Birla (supra) after issuance of the circular by CBDT dated 17.11.2017, the Revenue contended that earlier decision in case of Income Tax Settlement Commission (supra) would not hold good. Such contention was rejected by the Bombay High Court inter alia on the premise that the Board circular cannot overrule the High Court judgement. It was also observed that the decision of the Court did not rest on the circular dated 12.8.2008.â€
10. The Court summarized its conclusion as under:
“40. Our conclusions in facts and law can be summarized thus:
The orders of assessment were passed by the Assessing Officer on 15.3.2016.
They were also tendered for service to the partners of the petitioner firm on the same day who refused to receive them and thus service was complete.
For the purpose of application under section 245C(1) of the Act, a case would be pending only as long as the order of assessment is not passed. Once the assessment is made by the Assessing Officer by passing the order of assessment, the case can no longer be stated to be pending. Application for settlement would be maintainable only if filed before the said date. Date of dispatch or service of the order on the assessee would not be material for such purpose.â€
The pronouncement of law by the High Court of Gujarat in the said judgement in case of Shalibhadra Developers (supra) was unequivocal and permitted no ambiguity. The final conclusion of the Court on the law point did not rest on its conclusion on facts. In other words, the proposition laid down by the Court in sub para 3 of para 40 noted above, did not depend on any of the facts involved in the case. It was the proposition in law to be applied by Courts, Tribunals and Authorities subordinate to the High Court when parallel facts present before them.
In the present case, in absence of any finding by the Settlement Commission that no order of assessment was passed on 26.12.2017, the Commission was bound by and duty bound to fol ow the judgement of the High Court. The Commission, therefore, ought to have declared the application of the assessee for settlement as not maintainable since such application was filed on 27.12.2017 and if the department was right, the orders of assessment were passed on 26.12.2017. The knowledge of the order of assessment of the assessee or its service on him were wholly inconsequential. The Settlement Commission committed a grave error in law disregarding the dictum of the High Court and instead, entertaining the application for settlement which was passed on 27.12.2017 i.e. after purportedly the order of assessment was made on 26.12.2017. In the process, the Commission without so saying, declared that the judgement of the High Court in case of Shalibhadra Developers (supra) was wrong. We may note the Commission’s observations and conclusions in its own language. Relevant portion of the impugned order reads thus:
“9.1 After careful examination of the facts of the case relied upon by the PCIT, we observe that the Hon’ble Gujarat High Court, while delivering its order in the case of Shalibhadra Developers vs. Secretary (supra) have not considered the fundamental law laid down by the Hon’ble Supreme Court in the case of B.J.Shelat vs. State of Gujarat (supra) wherein it has been laid down that the order takes effect only on communication of the same which could be actual or constructive. The relevant portion, as quoted by Kerala High court in the case of K. Joseph Jacob vs. Agricultural Income Tax Officer (1991) 190 ITR 464 (Ker.) is reproduced hereunder for ready reference
“…………..an order takes effect only on communication. Communication could be actual or constructive. The date when communication is made is the date of communication, and not the date on which the communication is received. Subyasachi Mukharji J. (as His Lordship then was) in Mohendra J. Thacker and Co. vs. CIT (1983) 139
ITR 793 (Cal) took the view that communication is a condition precedent to an order of assessment becoming
effective. Another Division Bench of this court in Bhaskaran vs. Addl. ITO (1963) 47 ITR 334, noticing the decisions on the point, observed
‘….where the rights of a person are effected by an order and limitation is prescribed for the enforcement of the remedy The making of the order must mean either actual or constructive communication of the said order to the party concerned ………’
9.2 From the facts of the applicant’s case, we find that till 29.12.2017, i.e. the date on which the order was served on the applicant, the applicant was not aware of the assessment order passed by the A.O and thus the applicant cannot be deprived of its right to approach the Commission on 27.12.2017 for an alternative remedy. Therefore, we are of the considered view that service of notice on the applicant is crucial and it was not done on or before 27.12.2017 when the applicant has filed settlement application and also intimated the same to the AO u/s. 245C(4) on the date. It is worth noting that when the intimation of having filed the settlement application was served by the applicant on the A.O on 27.12.2017 the A.O. duly accepted it without mentioning on it on informing that the order had already been passed.
9.3 We have also taken note of the facts of the case involved in the case of Shalibhadra Developers vs. Secretary (supra) which are different from the applicant’s case. In Shalibhadra Developers case, the service of the order was refused by the partner of the firm and hence it could be said that the service was complete. However, as would be seen from the applicant’s case, the envelope containing the order itself reached the applicant on 29.12.2017 and it was duly accepted by it. Hence, it cannot be said that the applicant got communicated about passing of the order on 27.12.2017. Under the circumstances, it would be unfair to hold that the applicant’s right to approach the Commission got extinguished before 29.12.2017.
9.4 Further, the Hon’ble Bombay High Court in the case of Yashovardhan Birla (supra) held that the assessment order for the purpose of Chapter XIX A of the Act can be said to have been made when it is served upon the assessee concerned. While commenting on the binding nature of the circular of the CBDT the Hon’ble Court have stated that, firstly, a CBDT circular cannot orverrule a decision of a Court of law and secondly, this circular was available when this court rendered the decision in CIT vs. ITSC, Additional Bench M/s. Rasiklal Kantilal & Co. (supra) and yet it does not seem to have replied upon. This is possibly fo the reason that a CBDT Circular intepreting a statutory provision is binding upon the officers of the Revenue. The subject can rely on the Circular issued by CBDT only when it is beneficial to the assessee and not oth rwise. Moreover, in para 12 of its decision in the same case the Hon’ble Bombay High Court has observed as under:
The declaration of law by this Court is binding on all authorities within the state including the Commission. The petitioner was entitled to proceed on the basis that till the service of assessment order, the case continues to be pending with assessing officer. Therefore, it was open to him to invoke the provisions of Chapter-CIC A of the Act on 30.03.2016 as till that date the assessment order was not served upon him.
9.6 Apart from the above discussion, we are of the considered opinion that the approach of the Settlement Commission should be on a different plank. The applicant gets an opportunity to approach the Settlement Commission to sort out the issues on y once which should not be denied ordinarily on a mere technical ground. The focus should be on the proper disclosure of additional income which should be full and true and the same can be decided on careful study/analysis of the application made by the applicant in due course but certainly not at this stage.â€
13. This Court in case of Shalibhadra Developers(supra) had considered all relevant aspects of the matter before coming to legal conclusion. It was not open for the Settlement Commission to disturb such ratio of the judgement of the High Court. If the Settlement Commission had noticed a judgement of the larger Bench of the same High court or a judgement of the Supreme Court which, under identical situation, laid down law to the contrary, it was open for the Settlement Commission to record that the judgement of the High Court in case of Shalibhadra Developers (supra) was rendered per incuriam. Except for this proposition, it was simply not open for the Settlement Commission to disturb the conclusions of the High Court on law points reached after detailed consideration. Strangely the Settlement Commission sought to take support from the judgement of Bombay High Court in case of Yashovardhan Birla v. Deputy Commissioner of Income-tax, Central Circle-4(1) & (3) reported in (2016) 73 taxmann.com 5 [Bombay] which was noticed by the High Court in Shalibhadra Developers (supra) in following terms:
“34. When the case again arose before the Bombay High Court in case of Yashovardhan Birla (supra), after issuance of the circular by CBDT dated 17.11.2014, the Revenue contended that earlier decision in case of Income Tax Settlement Commission (supra), would not hold good. Such contention was rejected by the Bombay High Court inter-alia on the premise that the Board circular cannot overrule the High Court judgement. It was also observed that the decision of the Court did not rest on the circular dated 12.8.2008.â€
14. One more reason which prompted the Commission to disregard the judgement of the High Court strangely was that the approach of the Settlement Commission should be on a different plank and that the opportunity to approach the Settlement Commission should not be denied on mere technical ground. We fail to understand what the Commission sought to convey by these observations.
15. The Settlement Commission also recorded that the judgement in case of Shalibhadra Developers (supra) was rendered without noticing a judgement of the Supreme Court in case of B.J.Shelat vs. State of Gujarat and ors reported in AIR 1978 SC 1109. In the said case, the issue was with respect to a Government employee’s right to seek voluntary retirement after completion of certain number of years of service. Referring to the relevant rules of Bombay Civil Services Rules, the Supreme Court observed that an absolute right is conferred to the Government servant under the said Rules to retire by giving not less than three months’ notice on his attaining the prescribed age. Such right is, however, subject to the proviso under which, it is open to the appointing authority to withhold permission to retire when he is wither under suspension or against him departmental proceedings are pending or contemplated. In this context, it was further observed that it is incumbent on the appointing authority to withhold permission to retire on one of the conditions mentioned in the said proviso. The proviso contemplates a positive action by the appointing authority. For the proviso to become operative it is necessary that the Government should not only take a decision but communicate it to the Government servant. It is not necessary that the communication should reach the Government servant. An order of suspension when once issued and sent out to the concerned Government servant must be held to have been communicated, no matter when he actually received it.
16. The Supreme Court in case of Bishnu Ram Borah vs. Parag Saikia reported in 1984 AIR 898 has held that:
“11. It is regrettable that the Board of Revenue failed to realize that like any other subordinate tribunal, it was subject to the writ jurisdiction of the High Court under Art.226 of the Constitution. Just as the judgments and orders of the Supreme Court have to be faithfully obeyed and carried out throughout the territory of India under Art. 142 of the Constitution, so should be the judgments and orders of the High Court by all inferior courts and tribunals subject to their supervisory jurisdiction within the State under Art.226 and 227 of the Constitution. We cannot but deprecate the action of he Board of Revenue in refusing to carry out the directions of the High Court. In Bhopal Sugar Industries Limited v. Income-tax Officer Bhopal, the Income-tax Officer had virtually refused to carry out the clea and unambiguous directions which a superior tribunal like the Income-tax Appellate Tribunal had given to him by its final order in exercise of its appellate powers in respect of an order of assessment made by him. The Court held that such refusal was in effect a denial of justice and is furthermore destructive of one of the basic principles in the administration of justice based as it is in this country on the hierarchy of courts. The facts of the present case are more or less similar and we would have allowed the matter to rest at that but unfortunately the judgment of the High Court directing the issue of a writ of mandamus for the grant of a liquor licence to respondents Nos. 1 and 2 cannot be sustained.â€
17. To conclude this issue, we record our displeasure about the manner in which, the Settlement Commission has disregarded a binding judgement of the High Court seeking to distinguish when facts simply did not permit any such distinction. As an authority subordinate to the High Court the duty of the Commission would always be to apply the law as is laid down by the High Court. We expect that the Commission in future would bear in mind these words.
18. Coming to the factual dispute about the orders of assessment being actually passed on 26.12.2017 itself or not, the Commission has given no finding. We cannot leave the assessee without remedy merely because the Commission chose not to examine such an issue though raised by the assessee. Learned advocate Mr. Varun Patel was not correct in contending that in absence of any challenge to the order of the Commission by the assessee, the Court cannot examine such a grievance. It is the fundamental principle of law that a judgement creditor can support the judgement on all grounds including on the grounds which may have been held against him in the judgement under challenge. In plain terms, the assessee having succeeded before the Settlement Commission he had no occasion to challenge the order. He cannot pick up an issue which may have been decided against him and make an independent challenge when the final order is in his favour. In the present case, such an issue was not even decided against him. In fact, it was not decided at all.
19. In the result, the petition is disposed of with following directions: The order of assessment dated 24.02.2018 is set aside.
The proceedings are placed before the Settlement Commission for fresh consideration from the stage of passing of the order under section 245D (2C) of the Act.
The Settlement Commission shall examine the assessee’s contention that contrary to what is suggested by the Revenue, the orders of assessment were never passed on 26.12.2017. The department as well as the assessee would be at liberty to file additional documents in this respect latest by 30.04.2018
The Settlement Commission shall, after ascertainment of this fact, pass fresh order latest by 15.05.2018 bearing in mind, the observations and declaration of law by the High Court in case of Shalibhadra Developers (supra). For any reason if it is not possible for the Commission to conclude this issue at this stage, the Commissioner would be at liberty to keep such an issue open to be judged finally while passing the final order on the application for settlement.
20. The petition is disposed of.
[Citation : 408 ITR 54]
