Madras H.C : Settlement Commission has jurisdiction to declare its order as void

High Court Of Madras

Chandragiri Construction Co. Vs. Income-Tax Settlement Commission, Additional Bench

Block Period : 1996-97 to 2001-02

Section : 245D

P. Jyothimani, J.

Writ Petition Nos. 3780, 18871 Of 2010 And M.P. No. 2 Of 2010

March 16, 2011

ORDER

1. The writ petition in W.P. No. 3780 of 2010 has been filed by the petitioner company challenging the notice issued by the Income-tax Settlement Commission viz., the first respondent dated 8-2-2010, while the writ petition in W.P. No. 18871 of 2010 has been filed for a direction against the respondents to return the documents and share certificates seized during the search conducted on 21-6-2001 from the premises of the petitioner and also to direct the respondents to permit the petitioner to submit its audited returns with the concerned Assessing Officer.

2. The petitioner company is a Class-I contractor in the States of Kerala, Tamil Nadu, Karnataka and Puducherry and income-tax assessee and it forms part of the group of firms and individuals totalling 12 in number, who are treated as a group of assessees under the Income-tax Act viz.,

(i) M/s. Chandragiri Construction Company,

(ii) M/s. Chandragiri Construction Co.,

(iii) M/s. Padhoor Plantations Private Limited,

(iv) M/s. Hotel Periyar Ltd.,

(v) M/s. Vintage Hotels Private Limited,

(vi) T.B. Kunhimahin Haji,

(vii) S.L.P. Kunhibi,

(viii) K.M. Muhammed Sherief,

(ix) K.M. Mohideen Kunhi,

(x) K.M. Ahammed Nizar,

(xi) K.M. Thahira and

(xii) K.M. Arifa.

(a)It is stated that a search was conducted by the respondent Department in the premises of the petitioner and other family businesses on 21-6-2001 and no adverse materials except certain share certificates of the companies were seized. The department considered the accounts of M/s. Chandragiri Construction Company for the year 1995-96 as one period and accounts of the said company and other assessees constituting 12 assessees in one block period for the period from 1996-97 to 2001-02.

(b)After the search was made, the second respondent submitted a report as per Rule 9 of the Income-tax Settlement Commission (Procedure) Rules, 1997 with various contentions raised against the assessees and the assessees were given opportunity to give reply. Since the Income-tax Department attached all the properties, payments due and all other receivables, the petitioner approached the Assessing Officer under section 281B of the Income-tax Act for lifting the attachment.

(c)The Assessing Officer viz., the Deputy Commissioner of Income-tax passed an order of assessment on 31-3-2003 under section 158BC on the undisclosed income. Under Work-In-Progress (WIP), as against the claim of the petitioner at Rs. 11,95,00,000 and Rs. 7,15,00,000 as on 31-3-1994 and 31-3-1995, in Rule 9 report the same were arrived at Rs. 1,53,08,199 and Rs. 1,49,13,635. In respect of the value of purchase of M/s. Vintage Hotel land, Bangalore by the assessee, the claim of the assessee is Rs. 1,20,22,970 while in Rule 9 report it was stated as Rs. 9,09,20,200.

(d)The petitioner Group of Firms filed an application before the first respondent, the Settlement Commission under section 245C(1) of the Income-tax Act on 2-6-2003 and after a direction was issued by this Court in the writ petition filed by the petitioner, the first respondent conducted an enquiry and passed an order on 4-3-2008, accepting the petitioner’s offer of Rs. 1,56,55,628 as undisclosed income for the block period from 1-4-1995 to 21-6-2001 and permitted the petitioner to incorporate the balance as per the unaccounted balance sheet for the period from 1-4-1995 to 31-3-2001 into the regular account and also directed the company to pay tax within 35 days. In view of the co-operation extended by the petitioner, the first respondent granted immunity from initiation of prosecution under the Income-tax Act and also under the Indian Penal Code.

(e)It is stated that after payment of entire tax as per the order of Settlement Commission dated 4-3-2008, the orders of attachment over the properties were lifted on 18-11-2008. Thereafter, the second respondent filed an application under section 245D(6) of the Income-tax Act to declare that the settlement passed by the first respondent dated 4-3-2008 is void on the ground that the petitioner firm produced bogus certificates in respect of WIP dated 15-4-1994 and 18-4-1995, showing exaggerated amounts contrary to the entries in the measurement books, that the petitioner made misrepresentation of fact regarding the purchase of Vintage Hotel property in Bangalore and that the duplicate audited accounts seized from the auditors of the assessee-company show that there are two sets of audited reports. It was, based on the same the first respondent issued the impugned notice dated 8-2-2010, directing the petitioner to offer explanation.

3. The notice issued by the first respondent, the Settlement Commission, is challenged on the ground that there is no reason for the proposed reopen of the settlement which was effected by the first respondent on 4-3-2008, since the materials which are relied upon by the second respondent for reopening were already very much available at the time when the original settlement order was passed on 4-3-2008; that the first respondent having passed the settlement order has no jurisdiction since while passing the order on 4-3-2008, the first respondent considered all the relevant material facts and therefore, the notice itself is a harassment; that the impugned notice also does not disclose as to how two certificates issued by the petitioner dated 15-4-1994 and 18-4-1995 were found to be bogus and forged ones; that the certificates in question were issued 15 years back in respect of transactions which took place many years before and in such circumstances, even without furnishing a copy of the application made by the second respondent, the first respondent issued the impugned notice and therefore, there is a delay of 15 years which results in gross violation of the principles of natural justice; that the impugned notice itself predetermined the entire issue as if the petitioner had produced forged certificates; that even in respect of the purchase of Vintage Hotel property at Bangalore, every point was discussed in detail at the time of original settlement dated 4-3-2008 and the points raised were totally rejected; that the order dated 4-3-2008 having attained finality, cannot be reopened by the first respondent and that the impugned show-cause notice was issued with premeditation and no useful purpose would be served by raising any objection and therefore, the show-cause notice is challenged.

4. In the counter affidavit filed by the second respondent it is stated that the initiation of block assessment proceedings for the accounting years 1996-97 to 2001-02 and the proceedings under section 147 of the Income-tax Act for the accounting year 1995-96 was as per law and not on convenience. It is stated that a search operation was conducted by the department on 26-1-2001 and the assessment year 1995-96 which was reopened under section 147 by the issue of notice under section 148 was not covered by the block period and materials indicating income which escaped assessment for the assessment year 1995-96 were also found during the course of search.

(a)It is stated that the department had not attached all properties of the assessee, but only the receivables from Public Works Department were attached to cover the tax liability and subsequently the attachment was lifted. It is also stated that the contents of Rule 9 Report have been admitted apart from the point regarding undisclosed income. However, it is stated that during the search proceedings, 40 undisclosed bank accounts were detected, through which unaccounted cash was routed for investment in immovable properties in Mangalore.

(b)It is stated that some of the undisclosed contract receipts and investments in properties were routed through a large number of undisclosed bank accounts and on that basis, the assessee’s balance sheets as on 31st March of financial years 1995-96 to 2000-01 were recast and therefore, the undisclosed income of Rs. 39.31 crores was based on the above evidence as stated in the report filed under Rule 9.

(c)It is stated that the value of work-in-progress for the years ended 31-3-1994 and 31-3-1995 was taken as per the certificates produced by the Executive Engineer with his letters dated 24-3-2003 and 9-1-2009 as Rs. 1,53,08,199 and Rs. 1,49,13,635 as against the assessee’s claim of Rs. 11,95,00,000 and Rs. 7,15,00,000 which was based on false/forged certificates dated 15-4-1994 and 18-4-1995.

(d)It was informed by the Executive Engineer in the letter dated 9-1-2009 that the certificates of work-in-progress showing amounts of Rs. 11,95,00,000 and Rs. 7,15,00,000 for the years ended 31-3-1994 and 31-3-1995, which were produced by the assessee were not produced by the Office of the Executive Engineer, Karapuzha Project Division, Kalpetta and the correct work-in-progress was informed to be Rs. 1,53,08,199 and Rs. 1,49,13,635 as per the measurement books.

(e)It is also stated that the seized materials show that 22,550.50 sq.ft. of Vintage Hotel land was purchased at Bangalore at the rate of Rs. 4000 per sq.ft. which works out to Rs. 9,09,20,200 as per the entries in the seized document and at the bottom of the said document a sum of Rs. 1,16,60,929 was stated to be the outstanding loan amount. It is stated that the law provides that in case settlement has been obtained by fraud and misrepresentation, the same can be declared as void under section 245D(6) of the Income-tax Act. It is stated that the impugned notice is only a show-cause notice by producing prima facie materials to substantiate the claim of the second respondent and the Commission is yet to pass any final order and before that, the petitioner has approached this Court.

(f)It is stated that the petitioner has got an opportunity of giving his objections and before the final order being passed, the writ petition so filed is not maintainable. It is reiterated that the settlement earlier obtained by the petitioner from the first respondent dated 4-3-2008 was obtained by fraud and misrepresentation by producing bogus records and therefore, the second respondent is entitled to approach the first respondent to declare the earlier settlement as null and void.

(g)It is also stated that the certificates were found to be fraud and obtained by misrepresentation and the same was identified afterwards and thereafter, the application was filed by the second respondent. It is also stated that copy of the application filed by the second respondent would be made available to the petitioner only after compliance of section 245D(6) of the Income-tax Act. It is also stated that the law provides for assessment for 10 years period prior to the date of search and it also provides for assessment, appeal and settlement and the petitioner is under obligation to keep the records till the finality is reached.

(h)It is also stated that notice has been given only after the settlement was obtained by fraud which is well within the jurisdiction. It is also stated that another reason for reopening the settlement was that the search made in auditor’s office which revealed two sets of accounts for the financial years 1998-99 and 1999-2000 and the profit was shown at Rs. 87.29 lakhs and Rs. 116.77 lakhs in one set and in the other set, it was shown as Rs. 350.14 lakhs and Rs. 391.24 lakhs and a complaint was made to the Institute of Chartered Accountants of India and charges were proved against the auditor and the matter was referred to the Kerala High Court for removal of the name of the auditor from the register of members of Chartered Accountants.

5. The main contention of Mr. R. Krishnamoorthy, learned senior counsel for the petitioner against the impugned show-cause notice is that the show-cause notice is without jurisdiction and has been passed/issued with total non-application of mind.

(a)It is his submission that there is no jurisdiction on the part of the first respondent to reopen the settlement award effected on 4-3-2008 for the reasons that all the materials were available before the respondents, especially the Executive Engineer’s report dated 24-3-2003 and that the assessment order dated 31-3-2003 for the year 1995-96 became final and hence there is no reason for reopening the settlement.

(b)It is his submission that even otherwise such reasons would not tilt the conclusion of the Commission dated 4-3-2008. It is his submission that the petitioner had given the details of assets as on 31-3-2001 and work-in-progress (WIP) at Rs. 16,15,91,014 which is higher than the value arrived by the Department at Rs. 14,32,35,454.

(c)It is his submission that the second respondent has deliberately suppressed the report filed under Rule 9 dated 17-5-2005, which is exhaustive and therefore, there is no bona fide on the part of the second respondent to claim for a declaration that the settlement is void on the ground of fraud. By relying upon the judgment in Kusheshwar Prasad Singh v. State of Bihar [2007] 11 SCC 447, he submitted that no one can be permitted to take advantage of his own defects and even if the respondent on earlier occasion had committed any mistake that cannot be put against the petitioner.

(d)It is also submitted that the action taken against the auditor cannot be a ground for reopening and therefore, the Settlement Commission has failed to apply its mind as to the genuineness of the reasons to declare the settlement as null and void, by relying upon sections 245D(6) and 245(I) of the Income-tax Act.

(e)It is his submission that in the absence of any valid material, the allegation of fraud and misrepresentation cannot be a ground for the purpose of unsettling the settlement. It is his submission that the statutory presumption on the conclusiveness of the Settlement Commission’s order dated 4-3-2008 has not been refuted and the notice itself is simply based on the allegations made by the second respondent, which according to the learned senior counsel would constitute an error of law and arbitrary exercise of power.

(f)It is also his submission that the first respondent while issuing show-cause notice has not applied its mind and the accountancy adopted was not net-wealth aggression method through cash flow system which tallied with net assets as on 31-3-2001 and therefore, there is no reason to find fault with the earlier decision taken.

(g)The learned senior counsel has also taken me to various documents filed as exhibits in the previous settlement order passed by the first respondent to substantiate his contention that the settlement earlier arrived at is final and there is no valid reason to reopen the same. He would rely upon the judgment in Union of India v. Vicco Laboratories 2008 (3) CTC 511 (SC) apart from Siemens Ltd. v. State of Maharashtra 2007 (1) CTC 844 (SC) to show that there must be acceptable materials for the purpose of reopening the settlement proceedings before the Settlement Commission.

6. On the other hand, it is the contention of the learned counsel for the respondents that the writ petition as such is not maintainable since it is only a show-cause notice which is challenged and the petitioner has got every right to submit its explanation and unless and until the first respondent passes a final order, the writ petition should be declared as premature.

7. I have considered the rival submissions made by the learned senior counsel for the petitioner and the learned counsel appearing for the Department and given my anxious thoughts to the issue involved in this case.

8. Section 245D of the Income-tax Act (in short, ‘the Act’) which provides for the procedure to be followed by the Settlement Commission on application filed under section 245C with full and true disclosure which were not disclosed before the Assessing Officer in the case to be settled, enables the Settlement Commission, after giving an opportunity to the applicant and the Commissioner of Income-tax and after examining the further evidence as may be placed, to pass orders. For better appreciation, it is appropriate to extract the relevant portion of the said provision as follows:

“245D. Procedure on receipt of an application under section 245C.—(1) to (3)

(4) After examination of the records and the report of the Commissioner, if any, received under—

(i)sub-section (2B) or sub-section (3), or

(ii)the provisions of sub-section (1) as they stood immediately before their amendment by the Finance Act, 2007,

and after giving an opportunity to the applicant and to the Commissioner to be heard, either in person or through a representative duly authorized in his behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner.”

9. Before passing such orders, the Settlement Commission shall call for a report from the Commissioner of Income-tax, which shall be furnished within 30 days from the date of receipt of communication from the Settlement Commission as contemplated under section 245D(2B) of the Act. After receipt of the report of the Commissioner, it is open to the Commission to declare the application filed under section 245C of the Act as invalid, of course, after giving opportunity to the parties or ultimately after examination of records, final order can be passed by the Commission under section 245D(4) of the Act.

10. Section 245D(5) which is as follows :

“245D. Procedure on receipt of an application under section 245C.—(1) to (4)

(5) Subject to the provisions of section 245BA, the materials brought on record before the Settlement Commission shall be considered by the Members of the concerned Bench before passing any order under sub-section (4) and, in relation to the passing of such order, the provisions of section 245BD shall apply.”

mandates the Settlement Commission that before passing orders under section 245D(4), it has to consider the materials brought on record.

11. It is in accordance with the said powers conferred under the said provision at the instance of the application filed by the group of firms of the petitioner under section 245C of the Act on 2-6-2003, the Settlement Commission passed the final order on 4-3-2008. The first and major issue relates to the undisclosed income in the computation of the amount of Rs. 39.31 crores, as indicated in the report filed by the second respondent under Rule 9. The next issue relates to understatement of value of work-in-progress (WIP). While the value given in the report filed under Rule 9 of the Income-tax Settlement Commission (Procedure) Rules, 1997 (in short, ‘the Rules’) by the second respondent as on 31-3-1994 and 31-3-1995 was Rs. 1,53,08,199 and Rs. 1,49,13,635, the petitioner claimed that the same would be Rs. 11,95,00,000 and Rs. 7,15,00,000 respectively. The other issue is relating to the purchase of Vintage Hotel land at Bangalore and as per the report under Rule 9, it was stated to have been purchased for Rs. 9,09,20,200 while the claim of the petitioner was that the same was purchased for Rs. 1,20,22,970.

12. It is no doubt true that in respect of these issues, the second respondent filed an elaborate report under Rule 9, considering each and every one of the points/issues raised in the impugned order of the Settlement Commission. In respect of understatement of value of work-in-progress, the bills, receivables, security deposits, etc., after considering the report of the second respondent, the Commission has given a specific finding refusing to make adjustment as called for by the second respondent, which is as follows :

“According to the applicant the investment in contract business in the form of WIP/BR at the end of the Block period as admitted by it before the Settlement Commission is much more than the figure worked out by the CIT. As per applicant, WIP as on 31-3-2001 is at Rs. 16,15,91,014 (APB-78). Whereas as per CIT, WIP as on 31-3-2001 is only Rs. 14,32,35,454 (APB-44). As on 31-3-2001 other investments such as Bills Receivable, Security Deposit, Retention Money etc. as admitted by the applicant and that worked out by the CIT are the same (APB-78&44). Under the circumstances no adjustment is called for on this account.”

13. Regarding the investment in the land and purchase of Vintage Hotel property in the block period from 1-4-1995 to 21-6-2001, the issue raised by the Commissioner of Income-tax in the report filed under Rule 9 was considered in detail by the Settlement Commission and order was passed, the operative portion of which is as follows :

“Investment in Land and Cost of Construction of the Hotel Building.

The CIT stated that as per the seized records together with departmental value report, the total investment made by Chandragiri Construction Group in the land construction of Hotel Building is Rs. 12,52,20,200 (Land 9,09,20,200 + Cost of construction Rs. 3,43,00,000). The applicant explained that the seized the matter referred by the CIT (a piece of paper HVPL-A 40) found in the premises of Vintage Hotels Private Limited does not depict the recording of any financial transaction and notings in the paper might have done by the former management before the transaction management and ownership of the hotel to Chandragiri Construction Group in the A/R also pointed out that the value of building is mentioned at Rs. 7,18,200 in the seized paper and even as per the Balance Sheet of the applicant company as on 31-3-1997 the value of building is shown as Rs. 2.55 crores (APB 46) and thus the piece of paper has no evidenciary value at all. The A/R also submitted that the cost of construction of the hotel building as accounted by the applicant company as per the audited Balance Sheet as on 31-3-2001 is Rs. 5.17 crores (APB 70) as against Rs. 3.43 crores (APB 94) as per the departmental valuation report. The department has brought forward any corroborative material to support their contention regarding the value of land. Considering the submissions of the applicant, we do not see any reason to make adjustment on this account.”

14. The Settlement Commission has also given further direction for payment of tax for undisclosed income as arrived at by the Commission however, stating at the end of the order that the settlement would be declared void if it is subsequently found that the same has been obtained by fraud or misrepresentation of facts and the relevant portion of the order is as follows :

“20. This Settlement shall be declared void, if it is subsequently found by Settlement Commission that it has been obtained by fraud or misrepresentation of facts.”

15. The second respondent filed the application before the Settlement Commission under section 245D(6) of the Act to declare the order passed by the Settlement Commission dated 4-3-2008 as null and void. That application was filed on 19-5-2009. It is relevant to extract section 245D(6) as follows :

“245D. Procedure on receipt of an application under section 245C.—(1) to (5)

(6) Every order passed under sub-section (4) shall provide for the terms of settlement including any demand by way of tax, penalty or interest, the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts.”

While the second respondent computed the total undisclosed income of group of firms of the petitioner as Rs. 39.37 crores, the Settlement Commission accepted the assessee’s declaration of Rs. 1,56,55,628 as undisclosed income and passed the orders.

16. The said application was filed mainly on the following three grounds:

(i)the petitioner has made a fraudulent claim in respect of work-in-progress as on 31-3-1994 and 31-3-1995 at Rs. 11,95,00,000 and Rs. 7,15,00,000 respectively based on two certificates of work-in-progress stated to have been issued on 15-4-1994 and 18-4-1995 by the Executive Engineer (Irrigation), Karapuzha Project Division, Kalpetta. However, the second respondent chose to justify the application for revocation of settlement on the basis that the work-in-progress as on 31-3-1995 was determined as Rs. 1,73,73,770 on the basis of information gathered from various sources as found in the assessment order dated 31-3-2003 passed in the case of M/s. Chandragiri Construction Company. That was stated to have been confirmed as per the letter dated 24-3-2003 filed before the Deputy Commissioner of Income-tax (Central Circle), Kozhikode by the Executive Engineer in respect to summons issued under section 131 of the Act. The reason given for the inability of the second respondent to produce the same before the Settlement Commission earlier was that the Commission had given time to the second respondent only between 6-2-2008 and 20-2-2008 and therefore there was no sufficient time to go into the correctness or otherwise of the case. However, the second respondent has chosen to specifically state that after the Commission passed the order on 12-3-2008, summons were issued by the Department to the Executive Engineer, Kalpetta on 3-10-2008 and based on that, the Executive Engineer in his letter dated 9-1-2009 disclosed certain facts which are elicited as follows :

“8. In response to summons dated 3-10-2008 issued by the ADIT, the Executive Engineer, Irrigation, Karapuzha Project Division, Kalpetta vide his letter dated 9-1-2009 (copy enclosed), based on measurement books, has submitted that the amount of WIP as on 31-3-1994 and 31-3-1995 was Rs. 1,53,08,199 and Rs. 1,49,13,635 respectively as against the figures of Rs. 11,95,00,000 and Rs. 7,15,00,000 as on 31-3-1994 and 31-3-1995 mentioned in the certificates filed by the assessee.”

It is, on the basis of subsequent revelation, the certificates produced by the petitioner dated 15-4-1994 and 18-4-1995, should have been forged ones, the said application has been filed to revoke the settlement order.

(ii)In respect of investment in Vintage Hotel land, the Department assessed the same at Rs. 9,09,20,200 but the assessee’s claim of Rs. 1,20,22,970 came to be accepted by the Commission and hence, it is sought to be reopened on the ground that in the seized document there is a reference that the land was purchased at the rate of Rs. 4,000 per sq.ft. Apart from that, in respect of the Savings Bank Account standing in the name of Thiru T.B. Kunhimahin Haji, it is alleged that the earlier settlement was obtained by the petitioner by misrepresentation of facts.

(iii)The seizure of duplicate audited accounts from the auditor, by which it was found that two sets of audit reports were found. While in one set of report, the profits in the financial years 1998-99 and 1999-2000 shown for income-tax purpose are Rs. 87.29 lakhs and Rs. 116.77 lakhs, in the other set of report the same are shown as Rs. 350.14 lakhs and Rs. 391.24 lakhs respectively. Therefore, there is much discrepancy in the disclosure made by the petitioner, which has prompted the second respondent to file the application under section 245D(6) of the Act.

17. It is in the above said factual context, the first respondent issued the impugned notice. On reference to the application filed by the second respondent before the Settlement Commission under section 245D(6) of the Act, it is no doubt clear that the second respondent has not disclosed anything about the report filed under Rule 9 which was considered in detail while passing the order by the Settlement Commission on 4-3-2008. Therefore, the main contention of the learned senior counsel for the petitioner is that the application of the second respondent lacks bona fide and the very attempt is to thwart the concept of settlement proceedings introduced under the Income-tax Act. It is no doubt true that the earlier decision was taken by the Commission after referring to the report filed under Rule 9 by the second respondent dated 17-5-2005, and the Executive Engineers report dated 24-3-2003 was very much available with the Department and the assessment order had already been passed on 30-3-2003, which became final for the year 1995-96. But the question is as to whether at this stage, when what is given is only a show-cause notice, this Court can decide about the nature of documents relied upon by the second respondent Department, whether they are forged or not. That is well within the realm of the authorities under the Income-tax Act and not for this Court. Therefore, the efforts taken by the learned senior counsel appearing for the petitioner to show that there is no basis to arrive at a conclusion that the certificates issued by the Executive Engineer dated 15-4-1994 and 18-4-1995, regarding work-in-progress should be construed to be not genuine, cannot be appreciated at this stage. The question of relevancy or otherwise of those documents for the purpose of adjudication or necessity of such documents for running the affairs of the group of firms to offer as security also cannot be gone into by this Court at this stage.

18. The Supreme Court in Kusheshwar Prasad Singh’s case (supra) dealt with the Bihar Land Reforms (Fixation of Ceiling Area and Acquisition of Surplus Land) Act, 1961, which contemplates a duty to issue final statement within a reasonable time after issuance of the order of the Deputy Collector, Land Reforms. In that case, while the Deputy Collector, Land Reforms issued orders in 1976, the final order under section 11(1) of the Act was not passed/issued till 1993. While considering the mandatory duty on the part of the authority in performing its function as per the provisions of the Act, the Supreme Court held as follows :

“12. The appellant is right in contending that final statement ought to have been issued immediately or in any case within ‘reasonable time’. The authority cannot neglect to do that which the law mandates and requires doing. By not issuing consequential final statement under section 11(1) of the Act, the authority had failed to discharge its statutory duty. Obviously, therefore, the appellant is justified in urging that such default in discharge of statutory duty by the respondents under the Act cannot prejudice him. To that extent, therefore, the grievance of the appellant is well founded.”

The Supreme Court further observed as follows :

“14. In this connection, our attention has been invited by the learned counsel for the appellant to a decision of this Court in Mrutunjay Pani v. Narmada Bala Sasmall wherein it was held by this Court that where an obligation is cast on a party and he commits a breach of such obligation, he cannot be permitted to take advantage of such situation. This is based on the Latin maxim commodum ex injuria sua nemo habere debet (no party can take undue advantage of his own wrong).

15. ** 

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16. It is settled principle of law that a man cannot be permitted to take undue and unfair advantage of his own wrong to gain favourable interpretation of law. It is sound principle that he who prevents a thing from being done shall not avail himself of the non-performance he has occasioned. To put it differently, a wrong doer ought not to be permitted to make a profit out of his own wrong.”

19. As extracted above, under section 245D, the Commission has to call for a report from the Commissioner of Income-tax and the Commissioner shall furnish the report which means that the Commissioner is expected to furnish the full report with all materials. The contention raised on behalf of the petitioner is that the documents which are now suspected to be forged were available with the department at the time when the original settlement proceedings were going on and no whisper was made about the genuineness of those documents, especially about the certificates issued by the Executive Engineer dated 15-4-1994 and 18-4-1995, including a slip which is stated to have been seized containing the price of Vintage Hotel land. According to the learned senior counsel, the second respondent having not raised such objection at the earliest point of time, cannot now raise such point after the settlement was concluded and therefore, the impugned notice is affected for want of jurisdiction. I am unable to agree with the said contention of the learned senior counsel for the reason that it is not the case of second respondent in the application filed before the Commission for revoking the earlier settlement that the certificates of Executive Engineer dated 15-4-1994 and 18-4-1995 were not available with them, but it is the case of the second respondent that the department believed their contents to be true and it was only after summons were sent and after the Settlement Commission passed orders, the Department entertained a doubt about the genuineness of those certificates and therefore, it is the subsequent knowledge about the genuineness of the documents which seems to have prompted the second respondent to file the application under section 245D(6) of the Income-tax Act to declare the settlement dated 4-3-2008 as void.

20. In Vicco Laboratories’ case (supra), it was held that the normal rule in respect of show-cause notice is that the writ petition challenging the same is not maintainable, but exceptions are there in rarest of rare cases where notice has been issued without jurisdiction or the notice amounts to abuse of process of law. It was further held that the mere assertion of the party is not sufficient for interference at the show-cause notice stage and there must be prima facie material. The Supreme Court observed as follows :

“30. Normally, the Writ Court should not interfere at the stage of issuance of show-cause notice by the authorities. In such a case, the parties get ample opportunity to put forth their contentions before the concerned authorities and to satisfy the concerned authorities about the absence of case for proceeding against the person against whom the show-cause notices have been issued. Abstinence from interference at the stage of issuance of show-cause notice in order to relegate the parties to the proceedings before the concerned authorities is the normal rule. However, the said rule is not without exceptions. Where a show-cause notice is issued either without jurisdiction or in an abuse of process of law, certainly in that case, the Writ Court would not hesitate to interfere even at the stage of issuance of show-cause notice. The interference at the show-cause notice stage should be rare and not in a routine manner. Mere assertion by the writ petitioner that notice was without jurisdiction and/or abuse of process of law would not suffice. It should be prima facie established to be so. Where factual adjudication would be necessary, interference is ruled out.”

21. In Siemens Ltd.’s case (supra) when a show-cause notice was issued with premeditation, it was held that that in such case no useful purpose would be served in directing the statutory authority to hear the matter afresh. That was a case where along with the show-cause notice issued by the authority by applying the provisions of Bombay Provincial Municipal Corporation Act, 1949, there was a direction to make payment of cess immediately in respect of supply made to the party. Inasmuch as it was found that the department had already made up its mind in respect of quantum of amount payable, nothing remains for an enquiry to quantify the amount. The law on the said aspect has been elicited by the Supreme Court in the following paragraphs :

“10. Although ordinarily a writ court may not exercise its discretionary jurisdiction in entertaining a writ petition questioning a notice to show cause unless the same inter alia appears to have been without jurisdiction as has been held by this Court in some decisions including State of U.P. v. Brahm Datt Sharma (AIR 1987 SC 943), Special Director v. Mohd. Ghulam Ghouse (2004 (3) SCC 440) and Union of India v. Kunisetty Satyanarayana 2006 (12) SCALE 262), but the question herein has to be considered from a different angle viz. when a notice is issued with premeditation, a writ petition would be maintainable. In such an event, even if the court directs the statutory authority to hear the matter afresh, ordinarily such hearing would not yield any fruitful purpose. (See K.I. Shephard v. Union of India 1987 (4) SCC 431). It is evident in the instant case that the respondent has clearly made up its mind. It explicitly said so both in the counter-affidavit as also in its purported show-cause notice.

11. The said principle has been followed by this Court in V.C., Banaras Hindu University v. Shrikant 2006 (6) SCALE 66, stating: (SCC p. 60, paras 48-49)

“48. The Vice-Chancellor appears to have made up his mind to impose the punishment of dismissal on the respondent herein. A post-decisional hearing given by the High Court was illusory in this case.

49. In K.I. Shephard v. Union of India AIR 1988 SC 686 this Court held: (SCC p. 449, para 16)

‘It is common experience that once a decision has been taken, there is a tendency to uphold it and a representation may not really yield any fruitful purpose.’

12. See also Shekhar Ghosh v. Union of India 2007 (1) SCC 331 and Rajesh Kumar v. Dy. CIT 2006 (11) SCALE 409.

13. A bare perusal of the order impugned before the High Court as also the statements made before us in the counter-affidavit filed by the respondents, we are satisfied that the statutory authority has already applied its mind and has formed an opinion as regards the liability or otherwise of the appellant. If in passing the order the respondent has already determined the liability of the appellant and the only question which remains for its consideration is quantification thereof, the same does not remain in the realm of a show-cause notice. The writ petition, in our opinion, was maintainable.”

22. It is not as if the first respondent, Settlement Commission cannot declare its settlement order as void and such power has been entrusted with the Settlement Commission which is evident from section 245D(6) of the Act. Even the original settlement order passed by the first respondent dated 4-3-2008 contains a clause to the effect that the same would be declared void if subsequently it is found to have been obtained by fraud or misrepresentation. Therefore, by issuing the impugned show-cause notice, it is not as if the first respondent has already predetermined the issue. A reference to the impugned notice makes it abundantly clear that in every paragraph the first respondent has only narrated as to what has been pointed out by the second respondent/assessing authority in the application filed under section 245D(6) of the Act and it is certainly open to the petitioner to raise all its objections to the allegations raised by the second respondent before the Settlement Commission. Therefore, it cannot be said that the Settlement Commission has no jurisdiction to declare its order as void in the light of the provision of section 245D(6) of the Act.

23. At the risk of repetition, it is to be reiterated that the statutory authorities are presumed to perform their functions in a fair manner and by issuance of the impugned show-cause notice, there is nothing to come to the conclusion that the first respondent, who is the authority to decide under the provisions of the Income-tax Act has predetermined the issue. Such predetermination on the part of the assessing authority/second respondent is immaterial for, it is the first respondent who is ultimately to perform the quasi-judicial functions as per the provisions of the Act to decide about the correctness or otherwise of the allegations made by the second respondent. Therefore, in my considered view, the petitioner need not presuppose as if the first respondent will accept the allegations made by the second respondent in the application filed to revoke the earlier settlement order.

24. It is also relevant to point out that the first respondent while passing such orders after hearing the petitioner and its objections, can always pass orders relating to the documents sought to be returned, in respect of which W.P.No. 18871 of 2010 has been filed.

25. For the above said reasons, I do not see any reason to interfere with the impugned show-cause notice issued by the first respondent. The writ petitions fail and the same are dismissed. However, it is made clear that the petitioner shall be entitled to submit its objections to the show-cause notice within four weeks from the date of receipt of the order and thereafter, the first respondent is directed to consider the entire aspects of the matter including the points raised by the petitioner in the objections in an impartial manner and decide the issue in accordance with the provisions of the Act and on the basis of the materials. While passing such order, the first respondent shall also pass consequential order regarding the return of documents as requested by the petitioner by way of representation to the second respondent on various dates including 18-11-2008.

The writ petitions stand dismissed accordingly. No costs. Connected miscellaneous petition is closed.

[Citation : 334 ITR 221]

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