Case Note & Summary
The dispute arose from an application filed by the assessee under Section 245C of the Income Tax Act, 1961 for settlement of its tax assessments for assessment years 2008-09 to 2013-14. The assessee did not disclose any additional income for some of those assessment years. The Income Tax Settlement Commission, by an order dated 29 January 2015 under Section 245D(2C), allowed the settlement application to proceed, holding that the assessee had made a true and full disclosure and noting that the department had raised no technical objection. Despite this, the department subsequently urged the Commission to declare the application invalid to the extent it covered assessment years without additional income disclosure. The Commission, by the impugned order dated 31 May 2016 passed under Section 245D(4), did declare the application invalid for those assessment years and, importantly, directed that the invalidation would take effect from the date of the earlier order, i.e., 29 January 2015. This retrospective effect meant that the period during which the settlement application remained pending could not be excluded for the purpose of computing limitation for the Assessing Officer to complete the assessments afresh. As a result, the Assessing Officer had only six days to pass assessment orders after the Commission’s order, making the orders passed in July 2016 time-barred. The Pr. Commissioner of Income Tax filed writ petitions challenging the retrospective operation, contending that it rendered the assessments an impossibility. The assessee argued that an order invalidating a settlement application under Section 245D(2C) could only be passed at that stage and not later and that retrospective effect was not contemplated by the statutory scheme. The Bombay High Court dismissed the writ petitions, holding that the Settlement Commission could not have given retrospective effect to its invalidation order after it had already allowed the proceeding under Section 245D(2C). The court observed that the statutory provisions provide a clear formula for exclusion of time in cases where a settlement application is declared invalid, and retrospective effect would defeat that legislative mandate. However, the court also found that the department had itself urged the Commission to invalidate the application and therefore could not now complain of the consequences of such invalidation. The department’s conduct was held to be unfair and disentitled it to relief under Article 226. Consequently, the assessments for the disputed years remained time-barred, and the petitions were dismissed.
Headnote
A) Income Tax - Settlement Commission - Additional Income Disclosure Requirement - Income Tax Act, 1961, Section 245C(1) - The Settlement Commission held that an application containing an assessment year with nil or no disclosure of additional income fails the fundamental test of Section 245C(1) and such assessment year must be excluded from the purview of settlement. The Commission emphasized that the statutory scheme requires disclosure of additional income for each assessment year included in the application. (Paras 3.1, 5.8 of the Commission Order) B) Income Tax - Settlement Commission - Stage of Invoking Invalidity - Income Tax Act, 1961, Sections 245D(2C) and 245D(4) - The Commission declared the settlement application invalid at the stage of final hearing under Section 245D(4) but gave retrospective effect to the invalidation from the date of its earlier order under Section 245D(2C). The High Court held that once an application has been allowed to proceed under Section 245D(2C), the Commission cannot later invalidate it retrospectively. The power to invalidate must be exercised at the stage provided under Section 245D(2C). (Paras 6-9) C) Income Tax - Limitation for Assessment - Effect of Retrospective Invalidation - Income Tax Act, 1961, Sections 245D(2D) and 153 Explanation (i) - The retrospective invalidation left the Assessing Officer with only six days to complete the assessments, rendering them time-barred under the limitation provisions. The High Court observed that such retrospective operation would defeat the carefully crafted legislative scheme for recommencement of assessments after a settlement application is declared invalid, which allows exclusion of the settlement period for limitation computation. (Paras 4, 10-11) D) Writ Jurisdiction - Conduct of Department - Approbate and Reprobate - Constitution of India, Article 226 - The department itself urged the Commission to invalidate the application, and later challenged the retrospective effect it caused. The High Court held that the department cannot approbate and reprobate its own conduct; its unfairness disentitled it to discretionary relief under writ jurisdiction. (Paras 9, 12) E) Income Tax - Settlement Commission - True and Full Disclosure - Income Tax Act, 1961, Section 245C(1) - The Commission initially found that the assessee had made a true and full disclosure and allowed the application to proceed under Section 245D(2C), recording that no technical objection was raised by the department at that stage. This finding became final as the department did not challenge that order. (Paras 3, 3.1)
Issue of Consideration
Whether the Income Tax Settlement Commission was justified in giving retrospective effect to its order invalidating the settlement application of the assessees in relation to certain assessment years.
Final Decision
All writ petitions were dismissed. The High Court held that the Settlement Commission could not have given retrospective effect to its invalidation order, but the department’s own conduct in urging invalidation disentitled it to relief. Consequently, the assessments for the disputed years remained time-barred.
Law Points
- Settlement Commission cannot retrospectively invalidate a settlement application after allowing it to proceed under Section 245D(2C)
- retrospective effect frustrates statutory limitation scheme
- department cannot approbate and reprobate its own conduct
- disclosure of additional income required for each assessment year under Section 245C(1)
- order under Section 245D(2C) must be passed at that stage and not later
