By TIOL News Service

AHMEDABAD, FEB 22, 2019: THE issue at hand before the High Court was whether during hearing, the SETCOM is obliged to confine itself to the contents of report filed by the CIT, and to not consider any additional submissions made to supplement an otherwise incomplete report. YES is the answer. The bench also held that the provisions of Section 245D did not empower the jurisdictional CIT or PCIT to raise objections against application filed before the SETCOM, where such application has not been found to be invalid by the Commission.

Facts of the case

THE premises of the assessee-company were subjected to Search proceedings during the relevant AY, upon which certain documents were seized. The premises of the assessee-company's partners were searched too, although no worthwhile cash, jewellery or investment was found. Thereafter, the assessee filed application before the Settlement Commission, instead of entering into long-drawn litigation. Along with application filed u/s 245(C)(1), the assessee also submitted statement making full and true disclosure. Both application and statement were accepted by the Commission u/s 245(D)(1). Thereafter, the jurisdictional PCIT submitted a report u/s 245D(2B) of the Act, which the assessee claimed, had accepted the admission of the assessee's application u/s 245(C)(1). It was also claimed that such report nowhere indicated that the income disclosed by the assessee was not full & true.

The assessee then filed a rejoinder to such report, in response to the objections raised by the PCIT. However, the Commission passed an adverse order u/s 245D(2C), against which the present writ petitions were filed.

In writ, the High Court held that,

++ the Settlement Commission recorded that the CIT(DR) has objected to the admission of the settlement applications for the reason that the assessee have not made full and true disclosure in the petitions. Sub-section (2C) of section 245D of the Act does not contemplate any such objection being raised by the CIT (DR). Section 245D(2C) of the Act 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 assessee. Therefore, when the sub-section which requires an opportunity of being heard to be given to the assessee 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;

++ perusal of the Commission's order reveals that it has first heard the objections raised by CIT (DR) to the admission of the applications based on material other than the report, and thereafter has afforded an opportunity of hearing to the assessee to deal with the objections raised by the CIT (DR) and has thereafter proceeded to declare the application invalid based on the material pointed out by the CIT(DR) from the seized material. On a plain reading of sub-section (2C) of section 245D of the Act 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 assessee 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 assessee to deal with the same. 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 under section 245D(4) of the Act and not at the stage of subsection (2C);

++ 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 assessee 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. Any hearing based upon the material and evidences on record is contemplated at the stage of 245D(4) of the Act and insofar as sub-section (2C) of section 245D of the Act is concerned, the same contemplates a decision solely on the basis of the report of the Commissioner. Hence the order passed by the Settlement Commission being in breach of the provisions of section 245D(2C) of the Act and also being in breach of the principles of natural justice inasmuch as at the stage of section 245D(2C) of the Act, the Settlement Commission has placed reliance upon material other than the report, cannot be sustained.

(See 2019-TIOL-404-HC-AHM-IT)