Suo Motu Rectification of order passed u/s 245D(4) on debatable issue by Settlement Commission not valid

CIT Vs. Income Tax Settlement Commission & Another (Bombay High Court)

Once an order has been passed under Section 245D(4) of the Act, it is a final order settling the dispute between the parties. The provisions of the rectification of the order passed under Section 245D(4) of the Act is permissible under Section 245D(6B) of the Act, only to rectify mistakes apparent from the record. Therefore, any issue which is debatable or which would requires re-consideration of an issue which has already been decided, would fall out side the scope of a rectification application under Section 245D(6B) of the Act.

FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT

This Petition under Article 226 of the Constitution of India, challenges an order dated 2^nd December, 2016 passed by the Settlement Commission (Commission) under Section 245 D(6B) of the Income Tax Act, 1961 (the Act). The impugned order dated 2^nd December, 2016 of the Commission, allowed the application of the Respondent No.2­Assessee, seeking partial re-call the earlier order dated 25^th July, 2016 passed under Section 245 D(6B) of the Act. This on the ground that the order dated 25^th July, 2016 on the principal issue (not a typographical error) amounted to a Review of the order dated 27^th June, 2016 passed under Section 245D(4) of the Act. The impugned order dated 2^nd December, 2016 of the Commission is a split verdict and the application was allowed by a majority of 2:1 of the members of the Commission.

2 Briefly, the facts leading to this Petition, are that the Petitioner, had for Assessment Year 2013-14 along with other Assessment Years had filed an application for settlement under Section 245C(1) of the Act before the Commission. In its application for settlement, Respondent­- Assessee had proceeded to declare its additional income for settlement for Assessment Year 2013-14 on the basis of income declared in its revised return of income under Section 139(5) of the Act i.e. Rs. 12.23 Crores. During the Settlement Proceedings at 245D (2C) stage, before the Commission, Revenue had raised an issue about the validity of the revised return of income under Section 139(5) of the Act. However, by an order dated 6^th February, 2015, the Commission upheld the validity of the revised return of income under Section 139(5) of the Act, for Assessment Year 2013-14. This was accepted by the Revenue. Thereafter, a final order dated 27^th June, 2016 under Section 245D(4) of the Act, settling the dispute, was passed.

3 However, the order dated 27^th June, 2016 passed under Section 245D(4) of the Act, settling the dispute for Assessment Years 2007-08 to 2013-14 contained some typographical errors. Therefore, on 18^th July, 2016, the Respondent No. 2 filed an application for rectification of the typographical errors under Section 245D(6B) of the Act to the Commission. On 25^th July, 2016, the Commission without granting personal hearing to the parties while correcting the typographical errors, also suo motu, for the subject Assessment Year 2013-14, corrected the disclosed/declared income to Rs. 21.90 Crores as returned in the original return filed under Section 139(1) of the Act in place of Rs. 12.23 Crores as returned in the revised return of income under Section 139(5) of the Act.

4 This led the Respondent­- Assessee to file another application on 24^th August, 2016 under Section 245D(6B) of the Act, seeking to correct the figures of returned income as modified in the final order dated 27^th June, 2016 in view of suo motu rectification by order dated 25^th July, 2016. Thus, seeking the restoration of the earlier figures at Rs. 12.23 Crores as filed under Section 139(5) of the Act instead of Rs. 21.90 Crores as filed under Section 139(1) of the Act in the final order dated 27^th June, 2016 under Section 245D(4) of the Act.

5 The Commission after hearing the parties, allowed the application dated 24^th August, 2016. This, by a majority of the members i.e. two out of three members of the Commission taking a view that the order passed on 25^th July, 2016 under Section 245D (6B) of the Act, was a mistake. This essentially for the reason that the issue of the income to be taken as disclosed to the Assessing Officer for settlement is to be as found in the revised return or original return was settled during the settlement proceedings. Besides, the difference between the income of Rs. 21.90 Crores declared in the Return under Section 139(1) of the Act and Rs. 12.23 Crores declared in Return under Section 139(5) of the Act arose on account of claim for deduction under Section 80­IA of the Act being made in the revised return. This was as a result of a Tribunal’s order in its favor in the interregnum on the issue of Section 80­IA of the Act. Thus, it was a debatable issue as the revised return arose out of the claim for deduction under Section 80IB of the Act. Consequently, holding that the same could not be a subject matter of rectification under Section 245D(6B) of the Act as a part of order dated 25^th July, 2016. Thereafter, on merits, it held that the claim of deduction under Section 80IA(4) of the Act, in favor of the Respondent as this was not a issue raised/disputed by the Petitioner during settlement proceedings. So far as the minority view was concerned, it did not deal with and/or consider the jurisdictional aspect referred to and considered in the majority view, but only considered the claim on merits.

6 We note that the basic issue arising before the Tribunal was essentially of jurisdiction i.e. the scope and ambit of an rectification application under Section 245D(6B) of the Act. The majority view addressed the issue and found that the earlier order dated 25^th July, 2016 to the extent it suo motu rectified the order dated 27^th June, 2016 by substituting the disclosed income as mentioned in the original return filed under Section 139(1) of the Act instead of the income mentioned in the revised return filed under Section 139(5) of the Act, was bad. Moreover, it was also passed without hearing the parties in breach of the second proviso to Section 245D(6B) of the Act. Therefore, to do justice between the parties, it withdraw/rectified in earlier order dated 25^th July, 2016 to the above extent. For the above purpose, the Commission relied upon M/s. Distributors (Baroda) (P) Ltd., v/s. UOI 155 ITR 120 to justify correcting an error and/or mistake on its part. The minority view does not even deal with the above jurisdictional issue. We are of the view that once an order has been passed under Section 245D(4) of the Act, it is a final order settling the dispute between the parties. The provisions of the rectification of the order passed under Section 245D(4) of the Act is permissible under Section 245D(6B) of the Act, only to rectify mistakes apparent from the record. Therefore, any issue which is debatable or which would requires re-consideration of an issue which has already been decided, would fall out side the scope of a rectification application under Section 245D(6B) of the Act.

7 In the present case, the minority view, in fact, has upheld the review of order dated 27^th June, 2016 passed under Section 245 D(4) of the Act by the order dated 27^th July, 2016. This even without considering the scope of an application filed under Section 245D(6B) of the Act. If the view taken by the minority member of the Commission is accepted, we fear, that then there would be no finality reached to an order passed by the Commission under Section 245D(4) of the Act. This for the reason that application for rectification would be made under Section 245D(6B) of the Act to correct a final order passed under Section 245D(4) of the Act even though it is outside the scope of rectification. This would defeat the entire object and purpose of Chapter XIX­A of the Act viz: expeditious settlement of dispute between the assessee and State so as to reduce litigation and collect taxes at the earliest.

8 However, we must make it clear that in case, any party is aggrieved by an order passed under Section 245D(4) of the Act, and the same is bad because it is contrary to the Act or in breach of principal of natural justice or suffer from a flaw in the decision making process, only then it is open to the party concerned to challenge the same before the High Court under Article 226 of the Constitution of India (see Jyotendrasinhji v/s. S. I. Tripathi 201 ITR 611). However, rectification application under Section 245D(6B) of the Act is not a remedy to correct a final order by reviewing it. The jurisdiction under Section 245D(6B) of the Act can only be exercised if the order contains an error which is apparent from the record. In these facts, we see no merit in the Petition.

9 Accordingly, Writ Petition dismissed. No order as to costs.