CASE ANALYSIS

KAKADIA BUILDERS PVT LTD v. INCOME TAX OFFICER WARD 1(3),

(2019) 4 SCC 543.

Submitted by:

SACHIN RAJ

PRN: 21010224229.

Programme: BBA.LLB.

Division: C

Semester: VI

Year: 3rd Year

Batch: 2021-26

Symbiosis Law School, NOIDA

Submitted to:

Ms. Nikky Jhamtani

Visiting Faculty

Symbiosis Law School, NOIDA

Symbiosis International (Deemed University), Pune

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 INDEX

Sr. No. Page No.

1. Fact of the case 3

2. Issue Under Consideration 4

3. Judgement 5

4. Analysis of the Case 6

5. Conclusion 7

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Hon'ble Judges : Abhay Manohar Sapre, J ; Dinesh Maheshwari, J

Bench : Division Bench

Facts of the case

On the 19.01.1994, a search and seizure operation has been initiated at the premises of the
appellant (assessee) under the provisions of the Income Tax Act, 1961. While the assessment
proceedings were ongoing to determine tax liability arising from the search and seizure
operation, the appellant on the 12.03.1996 and the 3.09.1996 submitted settlement
applications to the Settlement Commission. These applications aimed to resolve their tax
matters in accordance with the procedures outlined in Chapter XIXA of the Act. On the
11.08.2000, the Settlement Commission issued an order under Section 245D(4) 1 of the Act.
This order entailed certain additions and the waiver of interest under Sections 234A 2, 234B3,
and 234C4 of the Act. Expressing dissatisfaction, the appellant (assessee) filed rectification
applications with the Settlement Commission on the 29.12.2000, seeking amendments to its
order dated the 11.08.2000. Simultaneously, the Revenue (Commissioner of Income Tax) also
contested the order dated the 11.08.2000, filing a rectification application under Section 154 5
of the Act on the 26.07. 2002.Through an order dated the 11.10.2002, the Settlement
Commission dismissed the applications filed by the appellant (assessee) and partially allowed
the application filed by the respondent (Revenue). This rectification modified the original
order of the Settlement Commission dated the 11.08.2000, specifically regarding the waiver
of interest granted to the appellant (assessee). Dissatisfied with this order, the appellant
(assessee) lodged two separate petitions (SCA Nos. 15097 and 15101 of 2004) in the High
Court of Gujarat. The High Court, through its order dated 03.03.2014, granted approval to the
petitions SCAs), thereby overturning the Settlement Commission order dated 11.10.2002.
Moreover, the High Court provided the Revenue with the liberty to pursue available remedies
against the order issued by the Settlement Commission on 11.08.2000. Subsequently, the
Revenue feeling dissatisfied, initiated two petitions (SCA Nos. 7814 of 2014 and 7820 of
2014) challenging the legality of the order dated 11.08.2000. While the High Court, in its
concluding paragraph, officially marked the petitions as disposed of its substantive decision
allowed the SCAs, leading to a modification of the Settlement Commission order dated
1
. The Income Tax Act, 1961 (Act No. 43 of 1961), s.245D(4).
2
. The Income Tax Act, 1961 (Act No. 43 of 1961), s.234A.
3
. The Income Tax Act, 1961 (Act No. 43 of 1961), s.234B.
4
. The Income Tax Act, 1961 (Act No. 43 of 1961), s.234C.
5
. The Income Tax Act, 1961 (Act No. 43 of 1961), s.154.

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11.08.2000. In response to this High Court decision, the appellant (assessee) expressed
Aggrieved and subsequently filed the appeal through special leave petition.

Issue Under Consideration

1. Whether the High Court was justified in allowing the petitions filed by the Revenue
and consequently, modifying the order dated 11.08.2000 passed by the Settlement
Commission?
2. Whether the order dated 11.10.2002 of the Settlement Commission was held bad in
law on the ground that it was passed under Section 154 of the Act?

Judgement

The ratio decidendi of the case as the court, deems it appropriate to nullify both the impugned
order and the Settlement Commission order dated 11.08.2000, specifically concerning the
waiver of interest after referring principles established by the Supreme Court in the
Ghaswala6 and Brijlal7 case. The case is remanded to the Settlement Commission for fresh
consideration, adhering to the legal principles outlined in Ghaswala and Brijlal case. The
Supreme Court clarified that it has not expressed any opinion on the merits of the issue and
instructed the Settlement Commission to decide the matter within six months from the date of
its order. The Relevant para of the Judgement are 26, 27 and 28.

Analysis of the case

The case involves an appeal where the High Court had allowed petitions (SCAs) and
modified an order dated 11.08.2000 passed by the Settlement Commission. the Settlement
Commission passed an order under Section 245D(4) of the Act. By the said order, the
Settlement Commission made certain additions and waived interest chargeable under
Sections 234A, 234 B and 234C of the Act. As the 245D (4) states that the Settlement
Commission, after reviewing records and reports from the Principal Commissioner or
Commissioner, and providing an opportunity for the applicant and tax authorities to be heard,
may pass an order on matters covered by the application. Additionally, the Commission has
the authority to address any other issues related to the case, as indicated in the report of the
Principal Commissioner or Commissioner in accordance with the provisions of the Income
Tax Act. In lieu of the section 245D(4), the Settlement commission made certain additions

6
. Commissioner of Income Tax, Mumbai vs. Anjum M.H. Ghaswala & Ors., (2002) 1 SCC 633.
7
. Brij Lal & Ors. vs. Commissioner of Income Tax, Jalandhar, (2011) 1 SCC 1.

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and waived interest chargeable under Sections 234A, 234 B and 234C of the Act. However,
In the case of Commissioner of Income Tax, Mumbai vs. Anjum M.H. Ghaswala & Ors.8, the
Apex court addressed the jurisdiction of the Settlement Commission to reduce or waive
interest under Sections 234A, 234B, and 234C of the Income Tax Act,1961 while passing a
settlement order under Section 245D(4). The court held that the Commission doesn't have the
power to reduce or waive interest, except to the extent of relief granted under circulars issued
by the Board under Section 1199 of the Act. As far as 234B is concerned which stated about
the Interest in defaults in payment of advance tax. The question arises in the order of the
settlement commission is whether the Section 234B applies to the proceeding of the
settlement commission as the order is passed in accordance with the Section 245D(4). In the
case of Brij Lal & Ors. vs. Commissioner of Income Tax, Jalandhar 10, the Apex court has held
that Section 234A, 234B, and 234C are applicable to Settlement Commission proceedings,
and the terminal point for levying interest under Section 234B is up to the date of the order
under Section 245D(1), not the date of the settlement order under Section 245D(4). The
Settlement Commission cannot reopen concluded proceedings for levying interest under
Section 234B in lieu of section 245D(1) by invoking the section 154.As the rectification
application filed under the section 154 by the Revenue (Respondent), The settlement
Commission ordered dated 11.10.2002 allow the application and modified the order of the
11.08.2000 for levying the interest under the section 245D(1) by invoking the section
154.The high court has upheld the decision of the settlement Commission order dated
11.02.2002 which was not justified by referring the above judgement of the apex court has
committed the jurisdictional error i.e., without jurisdiction. The High Court overlooked that
the Settlement Commissions order dated 11.10.2002 had already been invalidated by the
High Court in the initial proceedings, as per its order dated 03.03.2014 in S.C.A. Nos. 15097
& 15101 of 2004.This was done in accordance with the legal principles established by the
Supreme Court in Brij Lal & Ors. vs. Commissioner of Income Tax, Jalandhar11. Since the
order dated 11.02.2002 is considered to be bad in law as per the above case law, the high
court has committed jurisdictional error. In my opinion the Supreme Court has rightfully
considered and allow the appeal and set aside the order of the high court as well as the order
of the Settlement Commission dated 11.08.2000 to the extent it decided the issue in relation

8
. (2002) 1 SCC 633.
9
. The Income Tax Act, 1961 (Act No. 43 of 1961), s.119.
10
. (2011) 1 SCC 1.
11
.(2002) 1 SCC 633.

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to waiver of interest and remand the case to the Settlement Commission to decide the issue
relating to waiver of interest payable by the assessee.

Conclusion

In conclusion, the Supreme Court's judgment in the case of Kakadia Builders Pvt Ltd v.
Income Tax Officer12 reflects a meticulous scrutiny of the Settlement Commission order dated
11.08.2000 and subsequent modifications Settlement Commission which was uphled by the
High Court. The central issue revolved around the Settlement Commission's authority to
waiver of interest under Sections 234A, 234B, and 234C of the Income Tax Act,1961 The
apex court, relying upon precedents Ghaswala and Brij Lal case, asserted that the Settlement
Commission lacks the power to unilaterally reduce or waive interest beyond relief granted
under circulars issued by the Board under Section 119 of the Act. Emphasizing jurisdictional
errors, the court nullified the impugned order of the high court and the Settlement
Commissions order, specifically regarding interest waiver. The case was remanded to the
Settlement Commission with a directive to reconsider the matter within six months, adhering
to legal principles. The judgment underscored that it did not express an opinion on the merits
of the issue, emphasizing a procedural flaw. In essence, the Supreme Court's decision upholds
legal principles, rectifies jurisdictional errors, and ensures a fair and principled
reconsideration by the Settlement Commission.

12
.(2019) 4 SCC 543.