Income Tax Settlement Commission
By CA A. K. Jain

Income-Tax Settlement Commission, a quasi judicial body, was set up under section 245B of Income-tax Act 1961. It has been set up as a result of recommendations made by Direct Taxes Enquiry Committee (Popularly known as Wanchoo Committee). The objective of setting up of this Commission is to settle the tax liabilities in complicated cases avoiding endless and prolonged litigation and consequential strain on investigational resources of Income-tax Department. This commission comprises persons of integrity and outstanding ability, having special knowledge of and experience in, problems relating to direct taxes and business accounts.

Composition of Commission

The Settlement Commission consists of a Chairman, Vice-Chairmen and Members. However, the number of Vice-Chairmen and members in the Settlement Commission is decided by the Central Government. The jurisdiction, powers and authority of the Commission shall vest in the hands of Chairman, in case of Principal Bench, and in the hands of Vice-chairman, in case of Additional Bench. At present, four Benches of the Commission are functioning. The Delhi Bench is known as the Principal Bench and the Benches at Mumbai, Calcutta and Chennai are known as the Additional Benches.

Pre-requisite for Filing Application

1.  An application before the Settlement Commission can be made only if the additional tax payable is at least Rs 3 lakhs.

2.  Application can be made only at the stage of the pendency of the original assessment proceedings before the assessing officer (AO).

3.  No application can be made when proceedings are initiated for assessment or reassessment under Section 148 of the Income-Tax Act, 1961 or in case of search under Section 153A of the Act.

4.  Proceedings for making fresh assessment when original assessment was set aside either by the Commissioner or by the Tribunal will also be outside the purview of the application for settlement.

5.  An application can be made by an assessee for settlement before the Commission only once in a lifetime.

If the Presiding Officer as well as Members of a Bench differs in opinion on any point or case, then that point is decided according to opinion of majority. But if no opinion can be formed from the voting as the members are equally divided, then the case is referred to the Chairman who shall either hear the case himself or further refer the case to the other members of the Settlement Commission. He may also constitute a larger or a Special Bench for this purpose. At last, the case shall be decided according to the opinion of majority of the members of the Settlement Commission who have heard the case, including those who first heard it.

The procedure for filing the settlement applications before the Commission as laid down in the rules are briefed as under:-
1.  The desired applicant can make an application u/s 245C (1) for settlement of case.

2.  However, the application should be duly filled, signed and verified as prescribed therein.

3.  The application should be accompanied by a fee of Rs. 500/- and should be provided in quintuplicate. The fee should be paid in an authorised bank.

4.  The settlement application can be deposited in person or through post to the Secretary or an authorised officer of the concerned Bench within whose jurisdiction the case falls.

5.  In case any defect is noticed in the application it may be returned to the applicant pointing out the defects. The application may be re-submitted after corrections. However, while returning the original application, the commission can retain one copy of application for the future references. Such applications need not be entered in the register maintained for the purpose.

6.  However, if the application is complete in all respect, it will be entered in the register and a distinctive file number / registration no. is allotted.

Procedure in case of defective Applications

A.  The application is prima-facie defective and non-maintainable in the following cases:-

1.  Whether the applicant has furnished the return of income as required under part (a) of proviso to section 245C (1).

2.  Whether the additional amount of tax payable on income disclosed exceeds Rs. 1, 00,000/- as required under part (b) of proviso to section 245C(1).

3.  Whether calculation of additional tax payable as shown against column (2) of Annexure to the application is as given in the manner laid down in sub-sections (1B) to (1D) of section 245C.

4. In a case of search u/s 132, whether the application has been filed after expiry of 120 days from the date of seizure.

5.  Whether there is a case pending before an Income-tax authority with in the meaning of section 245A (b).

If the application contains any of the above mentioned defects, then the commission will inform the applicant inviting his attention to the requirements laid down in section 245C(1) and asking him to show cause as to why his application be not held to be non-maintainable. If the applicant is unable to offer any coherent explanation and there is suspicion that the application suffers from any of the defects mentioned above, then the application is held to be non-maintainable.

B.   Where the application suffers from the following defects:

1.  Whether the information against Column 10 of the application (Form No.34B) is provided separately or it is clubbed with the information given in the Annexure to the application. If it is clubbed, it should be called for separately.

2.  Whether the information relating to Column 11 of the application is given separately or it is incorporated in the application itself? If incorporated, it should be called for separately.

The applicant is required to remove the defects within a specified time and only after the necessary remedial action, the application is sent to the CIT for his report.

C.  In case of other defects mentioned below:

1.  Whether the annexure to the application is accompanied by full and true statement of facts regarding the issues to be settled including terms of the Settlement as required in Col. 3 of the Annexure?

2.  Whether the manner in which the additional income disclosed has been derived is given as required in Col.4 of the Annexure?

3.  Whether computation of total income for the year(s) for which the application is made, is given?

4.  Whether copies of relevant accounts as required in Notes (i), (ii) and (iii) to the Annexure, are attached?

5.  Whether full particulars of proceedings pending before income-tax authorities are given?

The application is sent to the CIT for his report under section 245D (1) and at the same time the applicant is also required to remove the defects by a specified date.

If application is found to be prima facie maintainable, a copy thereof is forwarded to the concerned CIT to furnish his report within 45 days. In this report, apart from other factual information, the CIT is required to comment on the complexity of investigation involved and the suitability of the case for settlement.

After all defects in an application are removed and CIT's report is received or where CIT's report is not received within the period of 45 days and the Commission decides to proceed without report of the CIT, the Secretary prepares a note regarding prima facie admissibility of the case and puts up the matter before the Commission. The note of Secretary mentions the following–

(a) Whether any proceedings are pending,

(b) Whether the return of income has been furnished,

(c) Whether the additional amount of income-tax payable on the income disclosed exceeds Rs. 1 lakh.

(d) Whether any complexity of investigation is involved,

(e) Whether the disclosure is full and true and

(f) Whether the case is otherwise suitable for admission.

After considering the Secretary's note, report of the CIT and the case records, if Commission thinks fit to pass an order without even hearing the applicant or the CIT, an order to that effect is passed forthwith otherwise the application is directed by the Commission to be fixed for hearing. If the applicant requests for a copy of the CIT's report, the same is supplied on payment of prescribed fee.

Procedure for Hearing 

The cases are normally fixed in strict chronological order for the hearing and the Commission is empowered to pass an order after hearing both the applicant and the CIT or their authorized representatives, if there. After hearing the applicant and the CIT, the Commission passes an order either allowing the application to be proceeded with or rejecting the same. Copies of all orders passed are sent to the assessee and the CIT.

Where in an order an application for settlement is rejected, nothing further is required to be done at the Commission's end. The application, the CIT's report and the other case papers are consigned to record. Once an application for settlement is allowed to be proceeded with, a copy of the annexure to the settlement application together with a copy of the statements and other documents accompanying such annexure are sent to the CIT for a further report in quadruplicate within 90 days of receipt of the Commission's letter.

Payment of Additional Amount

In respect of applications filed on or after 1.10.1984, the Commission may direct the applicant, in the order passed by the Commission allowing the application to be proceeded with, to pay the additional amount on the income disclosed in the application within 35 days of receipt of a copy of order and to furnish proof of such payment to the Commission and the A.O. having jurisdiction, within 15 days of such payment. If the applicant is unable to pay the additional amount of Income-tax for good and sufficient reasons, he may apply to the Commission for allowing payment of such income-tax in installments and the Commission may extend the time for payment or grant suitable installments subject to the assessee furnishing adequate security. In any case, if payment of the additional tax is delayed beyond 35 days of the date of receipt by the applicant, the assessee shall be required to pay interest on such delayed payment. In case of default on the part of the applicant, the assessing officer may be directed by the Commission to recover the remaining unpaid amount together with interest payable thereon and with any penalty imposed in accordance with the provisions of the Income-tax Act, 1961.

In a case where the application is partly allowed to be proceeded with, the Commission may direct the applicant to submit a fresh annexure together with the statements and other documents accompanying such annexure, after excluding the information in respect of the assessment years not admitted.

Grant of immunity - The Commission can grant immunity only under the I-T and the Wealth tax Acts. The scope for prosecution under other legislation, such as the Prevention of Corruption Act, the Indian Penal Code and the Narcotics Act, will remain open.
Queries & Discussions Welcome

Tapuriah Jain & Associates
Chartered Accountants
21,. Skipper House, 9, Pusa Road, New Delhi - 110 005
Tele : 91-11-28754012 & 13, Mobile : 91-98-100-46108,
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