Madras HC Quashes Order rejecting Settlement Application for not Disclosing Refund granted due to failure of Chartered Accountant [Read Judgment]

Returns Settlement Application - Madras High Court - Taxscan

The Madras High Court in Dr Prathap Chandra Reddy v. Income Tax Settlement Commission has set aside an order rejecting Settlement Application for not disclosing refund granted due to failure of Chartered Accountant.

In the instant case, the Settlement Commission rejected an application filed by the petitioner on the grounds that there is the shortfall in payment of tax and interest for the assessment years concerned due to the issue of refund prior to the date of making an application. It was said that the petitioner has made a false claim on the refund.

The Petitioner contended that his Charted Accountants failed to inform the petitioner with regard to the depositing of the amount in one of their Bank Accounts towards refund of tax for the assessment year 2016-17. The petitioner was under the bona fide belief that the refund due to them would not be processed in such an expeditious manner, i.e., within a span of two months from the date of filing of returns for the assessment year 2016-17 on 05.08.2016 and that too, in a case where search action was taken under section 132 of the Act.

Allowing the petitioners contentions and considering the facts of the case, Justice T S Sivagnanam said that the Settlement Commission was introduced to provide an avenue for settlement i.e., expeditious settlement of cases and to avoid long-term litigation.

The Court observed that the purpose of insertion of Chapter XIX A of the Act should be borne in mind while an application is presented before the Commission for settlement.

The Court also noticed that the Settlement Commission has not conducted an enquiry to satisfy itself that the stand taken by the PCIT by way of a supplementary report could be a valid ground to come to a conclusion that the assessee had made a false claim on the refund due.

“The Settlement Commission did not endeavour to go into the aspect as to why this information was not placed by the PCIT while filing the report dated 05.02.2018 under Section 245D(2B) of the Act. Thus, to hold that the assessee had misrepresented facts without an enquiry into the matter more so, in the light of the stand taken by the assessee pleading inadvertence and bona fide mistake, I have no hesitation to hold that there is a flaw in the decision-making process,” the Court said.

“It is to be borne in mind that the Settlement Commission was constituted for settling complicated claims of tax evaders as an extraordinary measure for giving an opportunity to such persons to make a confession and have the matters settled once for all and purchase peace. Thus, the Settlement Commission is a forum before which the assessee surrenders himself and it is not a forum for challenging the legality of assessment order or other orders passed in any proceedings under the Act. The Scheme of the Act clearly shows that the power conferred on the Settlement Commission is wide, as it has the power to give immunity against prosecution or imposition of penalty,” the Court added.

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