Sections 245 and 245D – Settlement Commission – Procedure on application u/s. 245C (Opportunity of hearing) – Section 245D(2C) does not contemplate affording an opportunity of hearing to Commissioner (DR) at time of considering application for settlement for admission and, at best, Commissioner (DR) may be heard to deal with any submissions made by assessee, if called upon by Settlement Commission; however, under no circumstances can Commissioner (DR) be permitted to raise objections against admission of application at threshold and to make submissions other than on basis of report submitted by Principal Commissioner – Since, in instant case, Settlement Commission had first heard objections raised by Commissioner (DR) against admission of application for settlement based on material other than report of Principal Commissioner and thereafter had afforded an opportunity of hearing to assessee to deal with objections raised by Commissioner (DR) and had thereafter proceeded to declare appl

12. Akshar
Developers vs. IT Settlement Commission; [2019] 103 taxmann.com 76 (Guj): Date
of order: 4^th February, 2019

Sections
245 and 245D – Settlement Commission – Procedure on application u/s. 245C
(Opportunity of hearing) – Section 245D(2C) does not contemplate affording an
opportunity of hearing to Commissioner (DR) at time of considering application
for settlement for admission and, at best, Commissioner (DR) may be heard to
deal with any submissions made by assessee, if called upon by Settlement
Commission; however, under no circumstances can Commissioner (DR) be permitted
to raise objections against admission of application at threshold and to make
submissions other than on basis of report submitted by Principal Commissioner –
Since, in instant case, Settlement Commission had first heard objections raised
by Commissioner (DR) against admission of application for settlement based on
material other than report of Principal Commissioner and thereafter had
afforded an opportunity of hearing to assessee to deal with objections raised
by Commissioner (DR) and had thereafter proceeded to declare application
invalid based on material pointed out by Commissioner (DR), Settlement
Commission had clearly violated provisions of section 245D(2C) by providing an
opportunity of hearing to Commissioner (DR) to object to admission of application
instead of rendering a decision on the basis of report of Principal
Commissioner as contemplated under said
sub-section

A raid
came to be carried out in the case of the assessee u/s. 132 of the Income-tax
Act, 1961 and some documents came to be seized. The assessee preferred
application u/s. 245(C)(1). The form was filled by the assessee along with
which the statement of particulars of issues to be settled, as well as the
statement showing full and true disclosure came to be submitted. The matter came
up for the purpose of admission and the Settlement Commission admitted the
application u/s. 245(D)(1). Thereafter, the Principal Commissioner submitted a
report u/s. 245D(2B). The assessee filed a rejoinder to the above report u/s.
245D(2B) meeting with the objections raised by the Principal Commissioner. The
matter was heard for the purposes of decision u/s. 245D(2C). The Commissioner
(DR) had raised objection based on several materials other than the report of
the Principal Commissioner, whereupon the Settlement Commission passed an
adverse order u/s. 245D(2C) rejecting the application of the assessee.

The
assessee filed a writ petition and challenged the order. The assessee contended
that the Settlement Commission, instead of passing the order on the basis of
the report of the Principal Commissioner as clearly laid down in section
245D(2C), had passed the order on the basis of what was not in the report,
which rendered such order bad in law. It was not open for the Commissioner (DR)
to raise objections and the Commissioner had gone beyond what his superior
Principal Commissioner had stated in the report, and if there was any
objection, it was for the Principal Commissioner to take such objection in the
report. There was grave error on the part of the Settlement Commission
permitting the Commissioner (DR) to raise objections to the admission of the
application and more so in permitting him to go beyond the report.

The
Gujarat High Court allowed the writ petition and held as under:

“i)   After amendment, section 245D
contemplates three stages for dealing with an application made u/s. 245C(1).
The scheme of admission of a case has been completely altered with effect from
01.06.2007 and now there are two stages for admission of the application. The
third stage is for deciding the application. In the first stage, on receipt of
an application u/s. 245C, the Settlement Commission is mandated to issue a
notice to the applicant within seven days from the date of receipt of the
application, requiring him to explain as to why the application made by him be
allowed to be proceeded with, and on hearing the applicant, the Settlement
Commission is further mandated to either reject the application or allow the
application to be proceeded with by an order in writing, within a period of
fourteen days from the date of the application. The proviso thereto provides
that where no order has been passed within the aforesaid period by the
Settlement Commission, the application shall be deemed to have been allowed to
be proceeded with. Thus, at the first stage, no report or communication from
the department is required for the Settlement Commission to decide whether or
not to allow an application to be proceeded with.

ii)   Thus, the Principal Commissioner has not
stated in the report that there is no full and true disclosure by the assessee,
but has raised certain doubts about the adequacy of the disclosure and has
reserved the right to comment at a later stage of the application on the basis
of the material seized.

iii)   The Settlement Commission in the impugned
order has recorded that the Commissioner (DR) has objected to the admission of
the settlement applications for the reason that the applicants have not made
full and true disclosure in the petitions. In the opinion of this court,
section 245D(2C) does not contemplate any such objection being raised by the
Commissioner (DR). Section 245D(2C) contemplates hearing to the applicant only
in case the Settlement Commission is inclined to declare the application
invalid. In case the report does not say that there is no full and true
disclosure and the Settlement Commission is inclined to accept such report, it
is not even required to hear the applicant. Therefore, when the sub-section
which requires an opportunity of being heard to be given to the applicant only
if the application is to be declared invalid, the question of Principal
Commissioner or Commissioner raising any objection to the application at this
stage, does not arise.

iv)  A perusal of the impugned order reveals that
the Settlement Commission has first heard the objections raised by the
Commissioner (DR) to the admission of the applications based on material other
than the report, and thereafter has afforded an opportunity of hearing to the
applicants to deal with the objections raised by the Commissioner (DR) and has
thereafter proceeded to declare the application invalid based on the material
pointed out by the Commissioner (DR) from the seized material. On a plain
reading of section 245D(2C) it is evident that it contemplates passing of order
by the Settlement Commission on the basis of the report of the Principal
Commissioner or Commissioner. Therefore, the scope of hearing would be limited
to the contents of the report. The applicant would, therefore, at this stage be
prepared to deal with the contents of the report and if any submission is made
outside the report, it may not be possible for the applicant to deal with the
same. On behalf of the respondents it has been contended that the Commissioner
(DR) has not relied upon any extraneous material and that the arguments are
made on the basis of the seized material and the evidence on record. In the
opinion of this Court, insofar as the record of the case and other material on
record is concerned, consideration of the same is contemplated at the third
stage of the proceedings u/s. 245D(4) and not at the stage of s/s. (2C).

v)   Sub-section (2C) of section 245D contemplates
a report by the Principal Commissioner/Commissioner and consideration of such
report by the Settlement Commission and affording an opportunity of hearing to
the applicant before declaring the application to be invalid. The sub-section
does not contemplate an incomplete report which can be supplemented at the time
of hearing. While the sub-section does not contemplate hearing the Principal
Commissioner or Commissioner at the stage of section 245D (2C), at best,
requirement of such hearing can be read into the said sub-section for the purpose
of giving an opportunity to the Commissioner (DR) to deal with the submissions
of the applicant in case the Settlement Commission hears the applicant. But the
sub-section does not contemplate giving an opportunity to the Commissioner (DR)
to raise any objection to the admission of the application and hearing him to
supplement the contents of the report. The report has to be considered as it is
and it is on the basis of the report that the Settlement Commission is required
to pass an order one way or the other at the stage of section 245D(2C). Going
beyond the report at a stage when the order is to be passed on the basis of the
report, would also amount to a breach of the principles of natural justice.
Moreover, no grave prejudice is caused to the Revenue if the application is
admitted and permitted to be proceeded with inasmuch as in the third stage, the
entire record and all material including any additional report of investigation
or inquiry if called for by the Settlement Commission would be considered and
the Principal Commissioner or Commissioner would be granted an opportunity of
hearing.

vi)  The Settlement Commission was, therefore, not
justified in permitting the Principal Commissioner to supplement the report
submitted by the Commissioner by way of oral submissions which were beyond the
contents of the report. At best, if the applicant had made submissions in
respect of the report, the Commissioner may have been permitted to deal with
the same, but under no circumstances could the Commissioner be permitted to
raise objection to the admission of the application and be heard before the
assessee and that, too, to supplement an incomplete report on the basis of the
material and evidences on record. As already discussed hereinabove, any hearing
based upon the material and evidences on record is contemplated at the stage of
section 245D(4), and insofar as sub-section (2C) of section 245D is concerned,
the same contemplates a decision solely on the basis of the report of the
Commissioner.

vii)  Section 245D(2C) does not contemplate
affording an opportunity of hearing to the Commissioner (DR), and at best, the
Commissioner (DR) may be heard to deal with any submissions made by the
assessee, if called upon by the Settlement Commission. However, under no circumstances
can the Commissioner (DR) be permitted to raise objections against the
admission of the application at the threshold and to make submissions on the
basis of material on record to supplement the report submitted by the Principal
Commissioner in the manner as had been done in this case.

viii) In the light of the above discussion, the
impugned order passed by the Settlement Commission being in breach of the
provisions of section 245D(2C) and also being in breach of the principles of
natural justice inasmuch as at the stage of section 245D(2C), the Settlement
Commission has placed reliance upon material other than the report, cannot be
sustained. The impugned order passed by the Settlement Commission is hereby
quashed and set aside.”