Facts of the Case

The present writ petition was filed by the Revenue challenging the order dated 17 March 2016 passed by the Income Tax Settlement Commission (ITSC), whereby the Commission dismissed the Revenue’s miscellaneous application seeking rectification of an earlier rectification order.

The respondent-assessee had originally approached the Settlement Commission under Section 245C of the Income Tax Act for settlement of tax disputes. The Settlement Commission disposed of the settlement application under Section 245D(4), enhancing the undisclosed income and directing payment of interest under Section 234B up to the date of the final settlement order.

Subsequently, the assessee filed a rectification application contending that interest under Section 234B should have been levied only up to the date of the order under Section 245D(1), and not up to the final order under Section 245D(4). The Settlement Commission accepted this plea and rectified its earlier order.

The Revenue thereafter sought another rectification of this rectification order, which was rejected by the Commission, leading to the present writ petition.

 Issues Involved

  1. Whether the Income Tax Settlement Commission has jurisdiction to rectify a rectification order already passed under Section 245D(6B)?
  2. Whether amended Section 234B(2A)(b) applies retrospectively to pending settlement applications?
  3. Whether interest under Section 234B is chargeable up to the order under Section 245D(1) or up to the final order under Section 245D(4)?

 Petitioner’s Arguments (Revenue)

  • The Revenue argued that the Settlement Commission committed an error while rectifying the earlier settlement order regarding the levy of interest under Section 234B.
  • It contended that in light of the amendment to Section 234B(2A), interest should be computed up to the final settlement order under Section 245D(4).
  • The Revenue sought rectification of the rectification order passed by the ITSC.

 Respondent’s Arguments (Assessee)

  • The assessee contended that interest under Section 234B was legally chargeable only up to the date of admission/order under Section 245D(1).
  • It was argued that the amendment introducing Section 234B(2A)(b) was prospective in nature and applicable only to settlement applications filed on or after 1 June 2015.
  • Since the application was already pending, the amended provision could not be retrospectively applied.

 Court Findings / Observations

The Delhi High Court observed that:

  • The Settlement Commission had consciously examined the rectification issue while passing its earlier rectification order.
  • There cannot be a rectification of a rectification order, as the statute does not contemplate repeated rectification or review.
  • The Commission lacks power to review or re-examine its rectification order once passed.
  • The amended provision under Section 234B(2A)(b) was held by the Settlement Commission to be prospective and not applicable to pending applications.
  • Since the Revenue had not challenged the original rectification order dated 31 December 2015, the present challenge against the subsequent rejection order was not maintainable in substance.

 Court Order / Final Decision

The Delhi High Court disposed of the writ petition and upheld the order of the Settlement Commission rejecting the Revenue’s miscellaneous application.

The Court clarified that if the Revenue intends to challenge the original rectification order, it must file an independent and appropriate writ petition, where the issue may be examined on merits.

No opinion on merits was expressed by the Court in the present proceedings.

 Important Clarification

This judgment clarifies that:

  • Rectification power under Section 245D(6B) is limited and cannot be exercised repeatedly.
  • The Settlement Commission cannot undertake review under the guise of rectification.
  • A challenge must be directed against the substantive rectification order itself, not merely subsequent procedural orders.
  • Amendments affecting tax liability and interest computation are generally prospective unless expressly made retrospective.

Sections Involved

  • Section 245C – Application for Settlement of Cases
  • Section 245D(1) – Procedure on Settlement Application
  • Section 245D(4) – Final Order by Settlement Commission
  • Section 245D(6B) – Rectification of Mistakes in Settlement Order
  • Section 234B – Interest for Default in Payment of Advance Tax
  • Section 234B(2A)(b) – Interest in Settlement Cases (Amendment effective from 01.06.2015) 

Link to download the order -

https://delhihighcourt.nic.in/app/case_number_pdf/2017:DHC:6362-DB/SKN26102017CW30302017.pdf 

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