HC should not scrutinize an order of ITSC as an appellate court: Bombay HC

CIT Vs Income Tax Settlement Commission Additional Bench (Bombay High Court)

The recent judgment by the Bombay High Court highlights the judiciary’s role concerning the orders of the Income Tax Settlement Commission (ITSC). Specifically, it discusses the limitations of the High Court in scrutinizing ITSC orders as if it were an appellate court.

ITSC is empowered to pass, after hearing the applicant and the Commissioner, and after examining such further evidence as may be placed before it or obtained by it, 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 under Sub Section (1) or (3) of Section 245C of the Act. The ITSC also has power to grant immunity from penalty and prosecution, with or without conditions. The ITSC need not give any reasons and even if it gives any reason the scope of enquiry cannot go beyond – whether, it is contrary to any of the provisions of the Act and whether such contravention has prejudiced the appellant. Further the court should be concerned with the legality of procedure followed and not with the validity of the order. The judicial review is concerned not with the decision but with the decision making process. Further, even if the interpretation placed by the ITSC on documents is not correct, it would not be a ground for interference since a wrong interpretation of documents cannot be said to be a violation of the provisions of the Act. There are no allegation of bias or fraud or malice alleged in the petition against the Commission.

The Hon’ble Apex Court in Kotak Mahindra Bank Ltd. vs. Commissioner of Income Tax & Anr.⁶ held that the High Court cannot sit in appeal as to the sufficiency of the material and particulars placed before the Commission, based on which the Commission proceeded to pass its orders. The court also held, relying on Jyotendrasinhji (supra), that while exercising powers under Article 226 of the Constitution of India the High Court may not interfere with an order of the Commission passed in exercise of its discretionary powers and the scope for judicial review is very narrow. The court held that sufficiency of the material and particulars placed before the Commission, based on which the Commission proceeded to pass its orders are particularly beyond the scope of judicial review, except under the circumstances set out in Jyotendrasinhji (supra).

While discussing the legislative intent on the provisions of Chapter XIX-A, the Hon’ble Apex Court in Kotak Mahindra Bank Ltd. (supra) held that frequent interference with the orders or pro-ceedings of the ITSC should be avoided and the High Court should not scrutinize an order or proceeding of the ITSC as an appellate court. The court further held that unsettling reasoned orders of the Settle-ment Commission may erode the confidence of the bonafide assessees, thereby leading to multiplicity of litigation where settlement is possible and this larger picture has to be borne in mind.

Please become a Premium member. If you are already a Premium member, login here to access the full content.