19 Jan 2121

Settlement Commission has the exclusive jurisdiction to exercise the powers and functions of an Income Tax Authority under Section 245F of the Income Tax Act, 1961 - Delhi High Court

Case : Tahiliani Design Private Limited v. Joint CIT, Central Wing, Central Range-8, Delhi W.P.(C) 285/2020, CM Nos. 857/2020 & 34968/2020

Court : Delhi High Court

Bench : Justice Rajiv Sahai Endlaw and Justice Sanjeev Narula

Decided on : 19 Jan 2121

Relevant Statues

Article 226 of the Constitution of India, 1950

Sections 132, 133A, 154, 245C, 245F, 269ST, 271DA of the Income Tax Act, 1961

Brief Facts & Procedure History

1. The relevant seminal facts are that it is the case of the Petitioner that a search and seizure operation under Section 132 of the Income Tax Act, 1961 as well as survey under Section 133A of the Income Tax Act, 1961 was carried out on 29.5.2018 in the case of the petitioner and thereafter it was referred to the concerned Assessing Officer. The Respondent, Range Head of the Assessing Officer of the Petitioner presumed that the Petitioner had violated the provisions of Section 269ST of the Income Tax Act, 1961 and issued a notice dated 30.9.2019 for assessment years 2018-19 and 2019-20 to show cause why penalty under Section 271DA of the Income Tax Act, 1961, for violating the provisions of Section 269ST of the Income Tax Act, 1961, be not imposed on the Petitioner. Subsequently, notices under Section 153A of the Income Tax Act, 1961 were issued to the Petitioner for the assessment years 2013-14 to 2018-19.

2. The Petitioner vide letter dated 18.10.2019 requested the Respondent to supply the relevant documents based on which show cause notice under Section 271DA of the Income Tax Act, 1961 had been issued. On 21.10.2019, the Petitioner contended that it had not received the document sought and sought for the proceedings to be kept in abeyance and on a letter dated 30.10.2019, again reminded the respondent to supply the relevant documents so that the petitioner could prepare a reply to the show cause notice dated 30.9.2019.

3. The Petitioner approached the Income Tax Settlement Commission for assessment years 2012-13 and 2013-14 to 2019-20 on 1.11.2019. The Petitioner also informed the Assessing Officer about the filing of the application before the Settlement Commission. The Petitioner, though not required to, by way of abundant caution, vide e-mail dated 4.11.2019, also informed the Respondent of having approached the Settlement Commission. The Respondent however proceeded to thereafter pass the impugned penalty order dated 4.11.2019 and communicated the same to the petitioner from the same e-mail ID i.e. immediately on receipt of petitioner’s e-mail;

4. Subsequently, vide the impugned penalty order, penalty under Section 271DA of the Income Tax Act, 1961 for the assessment years 2018-19 and 2019-20 has been imposed on the Petitioner, ignoring the fact that the Petitioner had already preferred an application before the Settlement Commission. The respondent vide e-mail dated 7.11.2019 informed the Petitioner that the Settlement Commission assumes jurisdiction only after it allows the application to be proceeded with, as provided under Section 245F(2) of the Income Tax Act, 1961 and there is no bar on any proceeding till then, in the view of Section 245F(4) of the Income Tax Act, 1961.

5. The Settlement Commission passed an order dated 11.11.2019 allowing the application of the Petitioner under Section 245C(1) of the Income Tax Act, 1961 to proceed and as the impugned penalty order is in contravention of the provisions of the said Act, the Petitioner moved an application dated 22.11.2019 under Section 154 of the Income Tax Act, 1961 but the same has been rejected by the Respondent vide e-mail dated 26.11.2019 merely observing that the application for rectification is untenable.

6. Contending that order imposing penalty could not have been passed after the Petitioner had approached the Settlement Commission, this petition has been filed. Hence, this petition impugns the order dated 4.11.2019 for the assessment year 2018-19, under Section 271DA of the Income Tax Act, 1961 imposing a penalty on the Petitioner for the sum of Rs.14,27,96,270/-.

The Issue(s) of the Case

Whether the Petitioner is entitled to set aside the impugned order dated 4.11.2019 for the assessment year 2018-19 imposing penalty under Section 271DA of the Income Tax Act, 1961?

The Observations of the Court

The Honourable Delhi High Court observed the following:

1. Critically analysed Section 245F of the Income Tax Act, 1961 regarding the Powers and Procedures of the Settlement Commission.

2. Opined that the powers of the Settlement Commission under Section 245D(4) of the Income Tax Act, 1961 to pass an order as it thinks fit extends to “any other matter relating to the case not covered by the application but referred to in the report of the Principal Commissioner or Commissioner” presented to the Settlement Commission under Section 245D(3) of the Income Tax Act, 1961.

3. Witnessed that neither counsel has any instructions regarding submission of any report to the Settlement Commission by the Principal Commissioner / Commissioner in the present case in response to the application of the petitioner.

4. Noticed the notices under Section 153A of the Income Tax Act, 1961 as well as under Section 271DA of the Income Tax Act, 1961 of violation of Section 269ST of the Income Tax Act, 1961, having their origin from the search, seizure and survey conducted qua the Petitioner.

5. Further opined that in case of violation of 269ST of the Income Tax Act, 1961 is detected as a result of a search and seizure operation then it is open to an applicant before the Settlement Commission to also include the violation of Section 269ST of the Income Tax Act, 1961 and to seek their settlement.

6. Observed that the penalty proceedings initiated against the Petitioner from the notice dated 30.9.2019 had a nexus with the search, seizure and survey carried out by the petitioner and subsequently, notices were also issued under Section 153A of the Income Tax Act, 1961 to the Petitioner.

7. Examined the words “of an Income Tax Authority under this Act in relation to the case” and “immunity from; imposition of any penalty under this Act with respect to the case covered by the settlement” under Sections 245F, 245H of the Income Tax Act, 1961 respectively to be used without any limitation of imposition of penalty and immunity.

8. Further opined that the Settlement Commission under Section 245F(2) of the Income Tax Act, 1961, when the Petitioner made the application under Section 245C of the Income Tax Act, 1961 before it had the exclusive jurisdiction to deal with the matter relating to violation of Section 269ST of the Income Tax Act, 1961 also and the Respondent, on 4.11.2019 did not have the jurisdiction to impose a penalty for violation of Section 269ST of the Income Tax Act, 1961 on the Petitioner.

9. Relied upon several precedents such as Agson Global Pvt. Ltd. v. Income Tax Settlement Commission, (2016) 380 ITR 343; Doypack Systems Pvt. Ltd. v. Union of India, (1988) 2 SCC 299; Thyssen Stahlunion Gmbh v. Steel Authority of India Ltd., (1999) 9 SCC 334; Tamil Nadu Kalyana Mandapam Association v. Union of India (2004), 5 SCC 632; National Textile Corporation (MN) Ltd. v. Durga Trading Company, (2015) 12 SCC 558 and Maxopp Investment Ltd. v. Commissioner of Income Tax, (2018) 15 SCC 523.

The Decision held by the Court

The Honourable Delhi High Court set aside the impugned order dated 4.11.2019 imposing penalty for the violation of Section 269ST of the Income Tax Act, 1961 on the Petitioner and opined that the proceedings initiated by the Respondent against the Petitioner for the same should await the decision of the Settlement Commission.

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