SETTLEMENT COMMISSION
By CA A. K. Jain & Sashi Kanta Panda
Introduction:
Income
Tax Settlement Commission is a premier Alternative Dispute Resolution (ADR)
body in India. Its mandate is to resolve tax disputes in respect of Indian
Income Tax & Wealth Tax Laws between the two disputing parties, Income Tax
Department on one side and litigating tax payer on the other.
This
institution was set up in 1976 by the Central Government on the recommendations
of the Direct Taxes Enquiry Committee (1971) set up under the Chairmanship of
Justice K.N. Wanchoo, the retired Chief Justice of the Supreme Court of India.
The Wanchoo Committee had conceived of the Settlement Commission as a mechanism
to allow a one-time tax evader or an unintending defaulter to make clean breast
of his affairs. At present, there are Seven benches of the Commission located
at New Delhi, Mumbai, Kolkata and Chennai.
The
settlement mechanism allows taxpayers to disclose additional Income before it
over and above what has been already disclosed before the Income tax
Department. The applicant has to pay full amount of tax and interest on the
additional income disclosed before the Commission, before filing the
application. The Commission then decides upon the admissibility of the
application and in case of admitted applications, carries out the process of
settlement in a time bound manner by giving opportunity to both parties.
Chapter
XIX A of the Income Tax Act, 1961 (‘Act’ for short) deals with the
establishment of Settlement Commission, its procedure, powers etc., According to Section 245C of the Act an
assessee is entitled to make an application for settlement. The application has to be made in such form
and such manner as may be prescribed.
The
Commission is required to pass the Settlement order within 18 months of filling
of the application. It has wide power of granting immunity from Penalty and
prosecution, which are major sources of litigation. The orders passed by the
Commission are final and conclusive.
Composition:
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.
Procedure for Filing Settlement Application:
Settlement
application is to be filed only in the prescribed Form No.34-B notified under
the Income Tax Rules, 1962.
(a) The
form has to be signed by the applicant himself.
(b) The
Form has to be properly filled up. An incomplete Form is liable to be rejected.
(c) In
order to be admitted by the Commission, full amount of tax is to be paid
alongwith interest payable till the date of admission.
(d) The
application can be made personally or by post. The applicant or his authorized
representative can make application in person. Application can also be sent by
registered post addressed to the Secretary. However in case of a postal
application, the date of receipt in the Commission shall be treated as date of
application.
(e) The
application can be made either to the Secretary at the headquarters of the
Commission at New Delhi or to the Secretary of the Additional Bench within
whose jurisdiction his case falls or to an authorized officer of the
Commission.
(f) In
order to be admitted by the Commission, an application should be accompanied by
the proof of payment of additional Tax (including interest under section 234A,
234B and 234C on it till the date of filing of application).
(g) The
application is to be accompanied by a copy of self (-) attested challans and
other documents as evidence in support of payment of tax and interest by the
applicant.
(h) The
application must contain-
1. A
full and true disclosure of the assessee’s income which has not been disclosed
before the Assessing Officer;
2. The
manner in which such income has been derived;
3. The
additional amount of income tax payable on such income; and
4. Such
other particulars as may be prescribed.
The
settlement application shall be presented in person or by registered post to
the Secretary or an authorised officer of the Bench within whose jurisdiction
the case falls. A settlement application sent by post shall be deemed to have
been presented on the day on which it is received in the office of the
Commission.
(i) An
authorized representative can also make application in person. An “authorised
representative” means a person authorised by the applicant in writing to appear
on his behalf, being:
1. A
person related to the applicant in any manner, or a person regularly employed
by the applicant; or
2. Any
officer of a Scheduled Bank with which the applicant maintains a current
account or have other regular dealings; or
3. any
legal practitioner who is entitled to practice in any civil court in India; or
4. an
accountant within the meaning of the Chartered Accountants Act, 1949 (38 of
1949), and includes, in relation to any State, any person who by virtue of the
provisions of sub-section (2) of section 226 of the Companies Act, 1956 (1 of
1956), is entitled to be appointed to act as an auditor of companies registered
in that State.
5. Any
person who has passed any accountancy examination recognised in this behalf by
the Board, or
6. any
person who has acquired such educational qualifications as prescribed by the
Board.
(j) In
case there is any defect of the above nature, the application is returned to
the applicant pointing out the defects, for re-submission after removing the
same. If the application does not suffer from any of the defects mentioned
above, the same is entered in the register and a distinctive file number (also
called a registration No.) is allotted and the applicant is informed about it
through letter. It is then closely scrutinised in accordance with the
check-list devised for the purpose.
If
the application does not suffer from any of the defects mentioned above, the
same is entered in the register and a distinctive file number (also called a
registration No.) is allotted by the technical section of the concerned Bench
of the Commission. The applicant is informed about it through letter.
Admission of the Application:
An
application can be rejected by the Commission during the course of proceedings
under section 245D (1) within 14 days of filling of the Settlement application.
If the application is not rejected by the Commission within 14 days, it is
deemed to have been admitted by it.
· The
Commission can reject the application, if the applicant does not satisfy the 3
essential conditions namely:
1. to
disclose an additional amount of income tax before the Commission, which is at
least Rupees ten lakhs (Rs. 50 Lakhs for specific person on the case of Search
and Seizure cases);
2. the
applicant should not have made another settlement application, after 1st June
2007, which has been allowed to be proceeded with; and
3. no
assessment order should have been passed by the concerned income tax authority
for the assessment year for which you are approaching the Commission and the
statutory time-limit for passing of assessment order for that year has not
lapsed.
· Further,
an application not accompanied by the proof of payment of full amount of
additional tax and interest and the prescribed fee of Rs. 500/- is also liable
to be rejected. A copy of the application is to be sent to the concerned income
tax Authority on the date of application in the prescribed form no. 34 BA,
failing which also it may be rejected.
· The
Commissioner shall furnish 7 copies of the Report to the Commission and one
copy to the applicant;
· After
the application has been admitted, the Commission calls for the report of the
Commissioner of Income Tax under section 245D (2B). The Commission may treat an
application as valid by passing an order under Section 245D (2C), If the report
of the Commissioner is not received within the period of 30 days from the day
the letter from the Commission is received by the Commissioner, or on the basis
of satisfaction of the Commission, on the basis of the report of the
Commissioner. The order of the Commission is to be passed within 15 days of the
expiry of the period of 30 days given to the Commissioner for submitting the
report.
· The
Commission is required to give an opportunity before rejecting the application
under section 245D (1).
Validation:
After
the application has been admitted, the Commission calls for the report of the
Commissioner of Income Tax under section 245D (2B). The Commission may treat an
application as valid by passing an order under Section 245D (2C), If the report
of the Commissioner is not received within the period of 30 days from the day
the letter from the Commission is received by the Commissioner, or on the basis
of satisfaction of the Commission, on the basis of the report of the
Commissioner. The order of the Commission is to be passed within 15 days of the
expiry of the period of 30 days given to the Commissioner for submitting the
report.
The
Commission is required to give an opportunity to the applicant before treating
the application as invalid under Section 245D (2C).
How to calculate
additional income Tax:
a.
In case the applicant has not furnished return, tax shall be calculated on the
income disclosed in the application as if it is the total income and such tax
shall be the additional amount of income tax payable.
b.
In case applicant has furnished a return, additional income shall be calculated
as under.
Total
income returned: A
Add:
income disclosed in settlement commission: B
Total: C
Additional amount of income tax = tax on C-tax on A
c.
If the income so disclosed relates to more than one previous year:
The
applicant shall aggregate income by using above methods.
While
in a case where assessment proceeding is pending u/s 153A, for all the seven
years (1 year relevant to p.y when search is conducted and 6 a.y. immediately
preceding the assessment year) putting together , the limit of 50 lakhs in
aggregate should be fulfilled. If the applicant is filling application for
lesser number of years the additional tax in aggregate should be 50 lakhs.
Aggregation should be income and not offering of loss. CIT vs Express
Newspapers Ltd.
An
application can be made by an assessee for settlement before the Commission
only once in a lifetime.
Procedure For Settlement
Of Case:
Once
an application has been held as valid, the Commission forwards the application
along with annexures to the Commissioner calling for his report under Rule 9.
This report is to be submitted by the Commissioner within 45 days. The
Commission can allow further time, if needed by the Commissioner depending upon
the facts of the case. Upon receipt of the Rule 9 Report, a copy of the same is
sent to the applicant by post for submitting rejoinder on such report. A copy
of rejoinder sent by the applicant is shared with the Commissioner.
The
officers of the Commission then issue notice and fix hearing on a particular
day and at a specified time. On the day of hearing, the applicant or his
authorised representative and the Commissioner of Income Tax (or Assessing
Officer) or his representative, namely Commissioner of Income Tax (Departmental
Representative) appear before the Bench of the Settlement Commission. The
Commission may ask the parties to further produce documents and submission. It
may also ask the Commissioner to carry out further inquiry.
After
considering both sides, the Commission then passes the final settlement order
under Section 245D (4), in writing. The settlement order provides for the terms
of settlement which includes determining the amount of additional tax and
interest thereon and the manner of payment. It also provides for levy of
penalty, or waiver from penalty under the Income Tax Act or the Wealth Tax Act.
The Settlement order under Section 245D (4) can be rectified by the Commission
to correct mistakes apparent from records within 6 months of the order.
However, where the effect of the rectification is to alter the tax liability of
the applicant, due opportunity has to be given to the applicant as also the
Commissioner.
The
terms of settlement are to indicate that the settlement would be void if it was
subsequently found by the Commission that it had been obtained by fraud or
misrepresentation of the facts;
Where
a settlement becomes void the proceedings shall be deemed to have been revived
from the stage at which the application was allowed to be proceeded with by the
Commission and the Income Tax Authority concerned may complete such proceedings
at any time before the expiry of two years from the end of the financial year
in which the settlement becomes void.
Hearing of Parties:
One
of the views can be that in objection cases also the Settlement Commission has
to give a hearing and after hearing both the sides decide whether the objection
has been validly taken by the Commissioner and then pass an order either overruling
the Commissioner’s objection and allowing the application to be proceed with or
upholding the Commissioner’s order objection and rejecting the application. This
view is based mainly on the argument, that Commissioner cannot have veto power
and application cannot be rejected unless hearing is given.
The
Settlement Commission is a high-powered body with wide powers and the
interpretation of the second proviso to sub- section (1) to mean that the
moment the Commissioner object to the case being proceeded with, the Settlement
Commission cannot proceed with the application at all, would be giving the Commissioner
veto power over such a high body, which could not have been the intention of
the legislature. The Commissioner can thwart the attempt of an applicant who
genuinely and honestly wants to get his case settled by the Settlement
Commission.
The
Commission’s refusal to consider an application in such a case tantamount to
rejection of his application and an application cannot be rejected unless a
hearing is given to the applicant as provided in the first proviso to
sub-section (1).
Since
the second proviso is a part of sub-section (1), an order under that section
has to be passed. If the legislature wanted some type of cases to be totally
excluded from the purview of the Settlement Commission a provision should and
would have been in section 245C itself.
If
the Settlement Commission decides not to proceed with an application on the
basis of objection raised by the Commissioner under this proviso without giving
a hearing to the applicant, the order is not a judicial order and is a nullity
as it would be against the principle of natural justice. In support of this
contention the following passage in Venkataramaiya’s law Lexicon may be quoted:
(a)
That every person whose civil rights are affected must have a notice of a case
he has to meet.
(b)
That he must have reasonable opportunity of being heard in his defence.
(c)
That the hearing must not be, by an impartial tribunal, i.e. by a person who is
neither directly nor indirectly a party to the case or who has an interest in
the litigation or is already biased against the party concerned.
(d)
That the authority must act in good faith and not arbitrarily but reasonably.
It
can be argued on the basis of the above that section 245D (1) firstly does not
even require the Commissioner to grant a hearing before raising the objection
and even if such a hearing is given by the Commissioner it will not meet the
principles of natural justice as such a hearing will be by a party to the
litigation. On the other hand, the Settlement Commission is a judicial body and
has to give a hearing to the applicant and the Commissioner in cases where the
latter objects to the application to be proceeded with on the grounds mentioned
in sub-section (1). A taxpayer chooses second machinery for settling his case.
The order of the Settlement Commission allowing the application to be proceeded
with is an order creating a right in favour of the applicant. If an order was
to be passed rejecting an application and the applicant is denied the right, an
order denying that right of being given a hearing, would be against the
principles of natural justice and would be bad in law.
Not
allowing any particular type of applicant or applicants to come before the Settlement
Commission amounts to discrimination and any law which provides for such
discrimination is ultra virus.
It can also be argued that the second proviso
to sub-section (1) does not contemplate the Commissioner to object to an application
for settlement being allowed to be proceeded with in all cases where a
concealment or fraud is suspected because there is a distinction between the
language used in section 271 (1)(c) and the second proviso. The second proviso
contemplates that the concealment or fraud has to be established before the
ultimate authority in accordance with the law on the subject and the evidence
available with the department and its past experience in other cases. This view
is not acceptable. What is the ultimate authority in these matters? The ultimate
authority would appear to be the Supreme Court or any lower court or the
Appellate Tribunal up to which the applicant goes in appeal.
In
the argument, that the fraud or concealment is to be proved, before the “Final
authority”, it would mean that the commissioner will have to wait till the time
such as the “Final authority”, gives a decision. This fallacious argument
immediately raises at least two practical difficulties. One is that if the
appeal goes to the Appellate Tribunal and above, the matter cannot be raised
before the Settlement Commission and secondly if one have to wait for the
outcome before the “Final authority”, whatever that term may mean, the
commissioner will have to wait for a long time and most of the cases will be
held up for the decision of the “Final authority”.
What
the second proviso contemplates is the judgement of the Commissioner as to the
concealment which has either been established or is likely to be established on
the basis of the facts. It does not depend upon a decision of any other
authority. Of course, in coming to the decision the Commissioner may and
perhaps invariably call for a report from the officers working under him (Income-Tax
officer, inspecting assistant Commissioner, etc) dealing with case but the
decision whether or not concealment has been established or likely to be established
has to be his and his alone and similarly whether or not to object to the case
being proceeded with by the Settlement Commission has also to be the Commissioner
and of nobody else.
It
may be mentioned that no provision for giving a hearing has been made after
this proviso. This is very significant because first proviso to sub-section (1)
specifically mentions that an application shall not be rejected under sub-section
(1) unless an opportunity had been given to the applicant of being heard. The second
proviso is not followed by any such condition which very clearly indicates that
no hearing in the type of a case mentioned in the second proviso was contemplated.
Even otherwise, a hearing would be necessary where the authority giving the
hearing has any power either to accept or reject a particular prayer. When it
has not been given any jurisdiction over a particular case, there is no question
of there being a hearing or a decision or an order.
The
choice of words at different places in sub-section (1) makes the intention of
the legislature very clear. The latter part of section 245D (1) reads:
“The
Settlement Commission may, by order, allow the application to be proceeded with
or reject the application”
Immediately
thereafter is the first proviso lays down that no application shall be rejected
unless an opportunity had been given to the applicant of being heard. Since up
to this point the Settlement Commission has the power and authority either to
allow the application to be heard or to reject it, a provision for hearing has been
made.
However,
in the second proviso, the mandate is “an application shall not be proceeded
with”. The words very clearly indicate that the Settlement Commission does not
have any power to take any decision except to say that it cannot proceed with
the case and that is why the third set of words “application shall not be proceeded
with” have been used. Thus there is no question of rejection of any application
here.
Evidence:
On
receipt of an application under section 245C, the Settlement Committee may call
for a report from the income tax authority concerned and on the basis of the
materials contained in such report and having regard to the interests of the
revenue and having regard to the nature and circumstances off the case or the complexity
of the investigation involved therein, the Settlement Committee may, by order,
allow all the matters covered by the application or any part thereof to be
proceeded with or reject the application.
Provided
that the matter covered by the application shall not be proceeded with if the
Settlement Committee is of the opinion that concealment of particulars of the
income on the part of the applicant or perpetration of fraud by him on any
income-tax authority for evading any tax or other sum payable under this Act has
been established by any income-tax authority.
As
regards the veto power being given to the Commissioner, it appears that the
legislature has deliberately given him this power. In fact, it is not only a
power but duty as well. In the case of CIT v B.N. Bhattacharjee [1979], the
Supreme Court has observed:
“We
must realise that the Commissioner has a duty to the public revenue and more
importantly, a duty to object to any assessee who is prime facia guilty of
grave criminal conduct in the shape of concealment of income or perpetration of
fraud getting away with it by invoking chapter XIXA”.
It
would appear from a plain reading of the section concerned that once the application
has been filed before the Settlement Commission, the commissioner cannot make
any independent enquiry before deciding whether a concealment or fraud has been
established or is likely to be established. Therefore, the date of filing of
the application under section 245C is very important for the simple reason that
once the Settlement Commission decides to allow a case to be proceeded with, it
acquires an exclusive jurisdiction over the case with retrospective effect from
the date of receipt of application. Thus it would appear that Commissioner’s
objection has to be based on the information or material in the possession on
the date of receipt of application. But is the Commissioner completely barred
from considering any material which establishes concealment or which is likely
to establish a concealment or fraud which the applicant disclose from the first
time in the application which comes to the department possession after the
filing of the settlement application by the applicant even though he has not
caused any enquiry to be made after the date of receipt of the application?
The
following situations discussed by way of illustrations will show the difficulty
in expressing a precise and clear-cut opinion in the matter.
(1)
The applicant does not have any history of concealment with the income-tax
department. His returns have been more or less accepted even though in reality
he has been concealing income on a large scale. He has a change of heart and files
a settlement application giving with the application detail of concealed income
and also mode of concealment. According to rule 6 of Income-Tax Settlement
Commission (procedure) Rules, 1997, a copy of the application is sent to the
Commissioner calling for his report under sub-section (1). So the Commissioner
comes to know of the concealment for the first time only from the assessee application.
(2)
The Income-tax Officer finds cash credits in the assessee books and ask the
assessee to prove them. The assessee instead of giving reply to the Income-tax
Officer applies to the Settlement Commission for settlement of his case. He
merely files an application without furnishing any particular of his concealed income
and how it has been earned.
(3)
The applicant in the application says that the cash credits may be added to his
income because he cannot prove the source of the same. He does not admit that
those cash credits were his income. In this case again, in our view, the
Commissioner does not have any material in his possession on the date of
application to object to the case being proceeded with by the Settlement Commission.
(4)
The applicant not only says that the cash represent his own suppressed income
but also gives the manner of earning such an income. In this case also on the
date of application, the Commissioner does not have any material in his
possession. Though at the time when he is sending his report under sub-section (1A)
he may have a ground to hold that there was concealment of income. The wording
of the section would appears to imply that the material on the basis of which
the Commissioner may raise objection must be in his possession as a result of
efforts on the part of the Income-tax Department and not on the basis of what
the applicant disclosed to the Settlement Commission for the first time.
(5)
The Income-tax Officer finds cash credits in the name of the persons who are
known as “Hawala” dealers and who have at one time or the other admitted before
the Income-tax Department that they deal only in “Hawala” or that they have
“Hawala” business along with the some genuine business. The income-tax Officer
asks the assessee to prove the cash credits in the name of such persons. The
assessee instead of giving reply to the Income-tax Officer’s letter, come
before the Settlement Commission.
(6)
The Income-tax Officer writes letters of enquiry to an assessee, his bankers,
purchasers, and sellers for a copy of his account in their books. Before the
reply is received by him the assessee file an application before the Settlement
Commission for settlement. Before the Settlement Commission asks the Commissioner
under sub-section 245D (1) for his report or before the Commissioner sends his
report to the Settlement Commission, the Income-tax Officer receives copies of
assessee accounts from the bank, the purchasers and the sellers which
definitely shows that the bank transactions and trading transactions have been
concealed or suppressed by the applicant from the department.
In
such a case though on the date of application the Commissioner did not have any
material in his possession which could have established or which was likely to
establish that there was concealment of income, the Commissioner cannot close
his eyes to the information which has come to his possession as a result of enquiries
started by the department.
(7)
An assessee premises are raided by the Income-tax Department and large
quantities of books of accounts seized. The applicant files an application for
settlement before the Settlement Commission and the latter calls for a report
from the Commissioner under sub-section (1).
A
question in this case arises whether the Commissioner can get the seized
material examined after the receipt of the Settlement Commission’s letter and
base his objection on the finding of such an examination of the seized books.
(8)
The Income-tax Officer finds cash credits in the books of the applicant and
asks him to prove the same. The assessee agrees to the addition of cash credits
to his income. The assessment is made but the assessee goes in appeal before
the Appellate Assistant Commissioner and while the appeal is pending, comes before
the Settlement Commission for settlement.
It
has been held by the Madras High Court in the case of CIT v. Krishna & Co. 20
that in a case where the assessee himself has admitted that the amount (of cash
credits) represented in his own income no further evidence would be necessary
to show that it was the amount which represented his income, it represented his
concealed income.
(9)
The assessee files a return which is accepted by the Income-tax Officer. Later
proceeding under section 147(a) are started against the assessee and he files a
return of income showing much higher income than that in the original return.
In this case also the Commissioner can object on the ground that concealment has
been established or is likely to be established.
(10)
The position will be same even in a case where during the course of assessment
proceedings the assessee files a revised return suo motu showing a much higher
income than was shown by him in the original return. The Commissioner can
object to the case being proceeded on the ground that concealment has been
established or is likely to be established. The view is supported by the
judgement of the Gauhati High Court in the case of F.C. Aggarwal v CIT.
Issuing of the Commission:
Section
245D (2) provides that a copy of every order passed by the Commission under
sub-section (1) shall be sent to the applicant and the Commissioner.
Sub-section (3) provides that where an application is allowed to be proceeded
with under sub- section (1), the Settlement Commission may call for the
relevant records from the Commissioner and after examination of such records.
If
the Settlement Commission is of the opinion that any further enquiry or
investigation in the matter is necessary it may ask the Commissioner to make or
cause to be made such enquiry or investigation and furnish a report on the
matters covered by the application and any other matter relating to the case.
According to this section, it is for the Settlement Commission to decide
whether or not any further enquiry or investigation is necessary before disposing
of the application.
It
appears that the duty of making further enquiry or investigation has been given
to the Commissioner because the Settlement Commission is not properly equipped
or staffed to conduct such investigations, particularly in complex cases. It
may be that the Settlement Commission exercise this power only in rare cases
where the Commissioner’s report indicates or the Settlement Commission itself
is satisfied that the assessee has not made a full and true disclosure of his
state of affairs.
It
is significant to not that the section enables the Commissioner to make or
cause to be made enquiry and investigation and furnish a report not merely on
the matters covered by the application but also any other matter relating to
the case. One example of such other matter relating to a case can be the Commissioner’s
finding after making such enquiry or investigation, that the income offered by
the assessee is not taxable in that year alone but has to be spread over a
number of earlier years by reopening such assessments under section 245E or
245F.
This
procedure, it is feared, may cause unnecessary delay in the settlement of the
case which will defeat the purpose of setting up the Settlement Commission to
provide cheap and quick justice. The delay may be caused by the reluctance of
the concerned income tax authority to give to such reports the urgency and
priority they deserve because he is generally over-worked or because credit for
such a work may not be available to him as the final disposal of the case is
not in his hands.
To
remedy this situation two suggestions may be offered. Firstly, a time-limit may
be statutorily provided for submission by the Commissioner reports under this
sub-section. Secondly, the Settlement Commission may be suitably strengthened
with man- power and the officers working in the Settlement Commission statutorily
given power to make enquiries. It may be noted that the Directors, Deputy
Directors and enquiry officer working on the Settlement Commission are not even
mentioned, much less defined, in the Settlement Commission (Procedure) Rules
1997. Therefore they cannot perform any statutory functions under the
Income-Tax Act, 1961. The officer of the Settlement Commission may therefore, be
vested with the powers of making enquiries and investigations under the
income-tax Act as the authorised officers of the incometax Investigation
Commission were vested under the Taxation on Income (Investigation Commission)
Act, 1947.
Scrutiny Of Case Papers:
On
receipt of the CIT's further report, the case papers including the application
for settlement, its annexure, the CIT's report etc., are given to the
Additional Director of Investigation/Joint Director of Investigation for
preparation of a report. Following guidelines have been issued to the ADI/JDI
or processing the cases and submission of their reports to the Commission:-
(1)
Investigation and enquiry should be generally confined to matters raised in the
statement of facts or by the Commissioner of Income-tax in his report, but such
other legal or factual issues which comes to the notice of the ADI/JDI in the course
of verification of facts, should also be dealt with and brought out in his
report.
(2) In cases where original computation of
income is to be made by the Settlement Commission, draft computation of income
must be insisted upon from the applicants in respect of each year admitted by
the Commission. If the ADI/JDI finds any deficiencies in their Statement of Facts
as required by the Rules he should promptly bring it to the notice of the Commission
through the Director of Investigation.
(3)
The ADI/JDI should be selective in recommending cases for reference under
section 245D (3) to the Commissioner of Income-tax. It is only in cases where
there is no cooperation from the applicants or where there are large
differences in valuation of assets or a disclosure has been made before the CIT
under section 273A or the CIT himself wants to make some enquiries before giving
his report, that a recommendation in this regard may be made. It is not in all
cases of search and seizure that a reference under section 245D (3) is required
since with the help of appraisal report of the ADI and the order u/s 132(5),
the ADI/JDI would be able to examine the issues and formulate his reports. It
may be borne in mind that the machinery of section 245D (3) is not an alternative
to the hearing by the Commission;
(4)
While there should be a full and frank discussion with the applicant by the
ADI/JDI and all the evidence gathered has to be made known to the applicant and
his reaction obtained, the ADI/JDI should desist from persuading or coercing
the applicant with the object of obtaining a settlement proposal ;
(5)
The Performa for report by the ADI/JDI approved by the Commission is intended
to be a framework in which the reports are to be made without affecting narrative
form of the report. In Part-III of the Performa where the issues raised in the
Statement of Facts and CIT's report are to be discussed, the intention is that
all the issues are focused in brief before the ADI/JDI takes up discussion of
the same so that at the time of hearing not much time is wasted in knowing what
are the issues to be settled.
Similarly,
in Part-IV of the Performa while dealing with the issues, the ADI/JDI will
highlight the areas of agreements and disagreements. It may be clarified that
the ADI/JDI need not close the issue in case of agreement between the
applicant's version and the Department's view in case he feels that the matter
should be dealt with in some other manner. In Part V of the Performa, the ADI/JDI
should give tentative computation of income based on his recommendations.
Similarly, calculations of penalty and interest should be based on the taxes
and income as computed by the ADI/JDI.
(6)
In the course of hearing the ADI/JDI should not give any commitment to the applicant
or give an impression that his recommendations are final or represent the views
of the Commission. The ADI/JDI will of course examine the entire case but based
on concrete evidence and not on surmises and conjectures.
(7)
After the DI has approved and submitted the report prepared by the ADI/JDI, the
case is considered by the Commission for passing final orders under section
245D (4). Before such an order is passed, an opportunity of being heard is
given both to the applicant and the CIT. The DI and the ADI/JDI are also
present in the court to assist the Commission. The DI will orally brief the Commission
about the ramifications of the cases before the hearing.
Order of the Commission:
Sub-section
(4) of section 245D, provides that the Settlement Commission should examine the
records and the report of the Commissioner received under sub-section (1) and
report under sub- section (3), if any, and there after give opportunity to the
applicant and the Commissioner to be heard either in person or through a representative
duly authorised in this behalf. This section further provide that the
Settlement Commission should examine such further evidence as may be placed before
it or obtained by it and then may, in accordance with the provision of the Act,
pass such order as it thinks fit on the matters covered by the application or other
matter relating to the case not covered by the application but referred to in
the report of the Commissioner under sub-section (1) or sub-section (3).
It
is clear from the wording of sub-section (4) that the Settlement Commission
need not confine itself to what is contained in the statement of facts filed by
the applicant under rule 7 of the Settlement Commission (Procedure) Rules 1997.
The words “after examining such further evidence as may be placed before it or obtained
by it” indicates that it is open to the Settlement Commission to go beyond the
statement of facts and collect whatever it thinks will be necessary to settle
the case properly.
Sub-section
(4) clearly indicates that the Settlement Commission should act in accordance
with the provision of the Act while passing an order under this section.
Therefore, it cannot pass any order which will be in violation of the specific
provisions of the Income-Tax Act but otherwise it can pass any order it deems
fit to settle the case.
For
example, in computing the income of an applicant under the various heads, it
cannot allow more expenses than are allowable under the various provisions of
the Act but after having computed the income if it feels that the income could
not have been earned in one years, it can allow it to be spread over, over a
number of years, even though it cannot be said exactly how much income relates
to any particular year. In such circumstances the income tax officer or the
Commissioner cannot allow such spread over, because they are bound by section
69 whereas section 245E gives to the Settlement Commission such power of spread
over.
Provisional Attachment:
Section
245DD gives powers to the Commission to attach property. The said section provides that where, during
the pendency of any proceeding before it, the Settlement Commission is of the
opinion that for the purpose of protecting the interests of the revenue it is necessary
so to do, it may, by order, attach provisionally any property belonging to the
applicant. Such provisional attachment
is only for six months. The Commission
may extend the attachment by such further period or periods as it thinks fit
for the reasons recorded in writing.
Re-Opening Of Completed Assessments (section 245E):
In
view of section 245A (b), an application for settlement can be made only in
respect of the assessment years for which proceedings are pending. However, if
the Settlement Commission is of the opinion (reasons for such opinion to be
recorded by it in writing) that, for proper disposal of the case pending before
it, it is necessary or expedient to reopen any proceeding connected with the
case but which had been completed by an Income-tax Act, 1922 (11 of 1922) or
under this Act by any Income-Tax authority before the application under section
245C was made, it may with the concurrence of the applicant, reopen such
proceedings and pass such order thereon as it thinks fit, as if the case in
relation to which the application for settlement had been made by the applicant
under that section covered such years also. No proceedings, however, shall be
re-opened by the Commission if the period between the end of assessment year to
which such a proceeding relates and the date of application for settlement
under section 245C exceeds nine years. No proceedings are to be reopened if it
only serves the interest of the applicant.
Additional Powers:
Section
245F provides that in addition to the powers conferred on the Commission, it shall
have the powers which are vested in an Income Tax Authority under this
Act. The Commission is having power to
regulate its own procedure and the procedure of Benches thereof in all matters
arising out of the exercise of its powers or of the discharge of its functions,
including the places at which the Benches shall hold their sittings.
Immunity From Prosecution And Penalty:
Section
245H provides that the Commission may, if it is satisfied that any person who
made the application for settlement
under section 245C has co-operated with the Settlement Commission in the
proceedings before it and has made a full and true disclosure of his income and
the manner in which such income has been derived, grant to such person, subject
to such conditions as it may think fit to impose, for the reasons to be
recorded in writing immunity from prosecution for any offence under this Act or
under the Indian Penal Code (45 of 1860) or under any other Central Act for the
time being in force and also (either wholly or in part) from the imposition of
any penalty under this Act, with respect to the case covered by the settlement.
Abatement Of Proceedings:
Section
245HA provides that where-
· an
application made under section 245C on or after the 1st day of June, 2007 has
been rejected under section 245D(1); or
· an
application made under section 245C has not been allowed to be proceeded with
under sub-section (2A) or further proceeded with under sub-section (2D) of
section 245D; or
· an
application made under section 245C has been declared as invalid under
sub-section (2C) of section 245D; or
· in
respect of any application made under section 245C, an order under sub-section
(4) of section 245D has been passed not providing for the terms of settlement;
or
· in
respect of any other application made under section 245C, an order under
sub-section (4) of section 245D has not been passed within the time or period
specified under sub-section (4A) of section 245D, the
proceedings before the Settlement Commission shall abate on the specified date.
Order Of Settlement To Be Conclusive (Section 245I):
Every
order of Settlement passed under sub-section (4) of section 245D shall be
conclusive as to the matters stated there in and no matter covered by such
order shall, save as otherwise provided in this chapter, be reopened in any
proceeding under this Act or under any other law for the time being in force.
According
to this section, every order of the Settlement Commission passed under section
245D (4) is final. The exception is provided by the words “save as otherwise
provided in this chapter”. Such provision is to be found in sub-sections (6)
and (7) of section 245D. As mentioned earlier, according to section 245D (6), a
Settlement shall be void if it is subsequently found by the Settlement
Commission that it has been obtained by fraud or misrepresentation of facts.
Sub-section (7) of section 245D, provides that if settlement becomes void under
Sub-Section (4) of Section 245D, the case goes out of the jurisdiction of the
Settlement Commission and the Income tax Department has to take up the case afresh
from the stage at which the case was allowed to be proceeded with by the
Settlement Commission. However, the main question is whether the order of Settlement
passed by the Settlement Commission is really final, i.e, it cannot be
questioned at all before any authority. The answer to this question is in
negative for the reason stated in the succeeding paragraphs.
How Final Is The Settlement Commission’s Order- Order
Rectifiable:
Any
clerical or arithmetical mistake which is apparent from the records, can be
rectified under section 35 of the 1922 Act or under section 154 of the 1961 Act,
as the case may be, by the Settlement Commission on its own initiative or on an
application made by the applicant or the Commissioner in this regard.
Similarly,
any glaring and obvious mistake of law which is apparent from record can also
be corrected by the Settlement Commission. In the case of Venkatachalam v.
Bombay Dyeing & Mfg. Co. Ltd., the Supreme Court has held at page 150 that:
“…..
If a mistake of fact apparent from the record of the assessment order can be
rectified under section 35 of the 1922 Act (corresponding to section 154 of the
1961 Act], we see no reason why a mistake of law which is glaring and obvious
cannot be similarly rectified.”
Ex Parte Order Cannot Be Cancelled:
It
may be noted here that an order passed by the Settlement Commission ex parte
cannot be cancelled by it under section 27 of the 1922 Act or under section 146
of the 1961 Act, as the case may be, because the order passed by the Settlement
Commission is under section 245D(4) and section 27 of the 1922 Act applies to
an assessment order passed under section 23(4) of that Act and section 14629 of
the 1961 Act, applies to ex parte order passed under section 144 of the latter
Act.
Recovery Of Sum Due Under Order:
Section
245 J provides that any sum specified in an order of settlement passed under
sub-section (4) of section 245D may, subject to such conditions, if any, as may
be specified therein, be recovered, and any penalty for default in making
payment of such sum may be imposed and recovered in accordance with the
provisions of Chapter XVII, by the Assessing Officer having jurisdiction over
the person who made the application for settlement under section 245C.
Power Of Review Own Order:
In
certain circumstances, the Settlement Commission has power to review its own
order. For example, in the case of CIT v. B.N. Bhattacharjee , it was held by
the Supreme Court that having regard to the rulings of this Court in the case
of Mohinder Singh Gill v. Chief Election Commission31 and Maneka Gandhi v.
Union of India, the Settlement Commission’s decided to rehear and pass a de novo
order cannot be said to be illegal.
The
facts of this case are that the premises of Bhattachatjee were searched by the
income-tax department and about Rs. 30 lakh in cash seized from him. His
assessments in respect of the assessment years 1962-63 to 1972-73 were reopened
and the total tax burden fixed came to over Rs. 60lakhs plus about Rs. 35 lakh assessed
for assessment year 1973-74. Prosecution under section 277 was also launched.
Appeals to the appellate Assistant Commissioner brought only marginal relief.
The assessee filed 12 appeals and the Income-tax Department filed 10 appeals
before the Appellate Tribunal against the Appellate Assistant Commissioner’s decision.
At this stage the applicant decided to go before the Settlement Commission for
settlement of his case. To be able to do this he addressed a letter to the
Appellate Tribune seeking to withdraw his appeals as required under section
245M.
Since
departmental appeals were also pending before the Appellate Tribunal,
Bhattacharyajee simultaneously approached the Central Board of Direct Taxes
requesting it to instruct the concerned officer of the Income-tax Department to
withdraw all the pending appeals filed by the Department before the Tribunal.
The department appeals before the Appellate Tribunal were also withdrawn and
the Appellate Tribunal passed orders dismissing the appeals filed by the
applicant as well as the Department as withdrawn. The applicant then applied to
the Settlement Commission under section 245C for settlement of his case. The Settlement
Commission called for report under section 245D (1) from the Commissioner who
objected under the second proviso to section 245D (1), as it was then, to the
Settlement Commission allowing the case to be proceeded with on the ground that
prosecution proceedings for concealment of Income and also false verification
in the return were already pending before the Chief Metropolitan Magistrate and
that he did not see this as a fit case to be proceeded with by the Settlement
Commission.
After
corresponding with the applicant and without giving a hearing, the Settlement
Commission by their order, dated February 3, 1978, informed the applicant that
as the Commissioner had objected under the second proviso to section 245D(1),
the Settlement Commission would not allow the applicant to be proceeded with.
The applicant urged the Settlement Commission to review its order dated
February 3, 1978 on the ground that the principle of natural justice had not
been complied with as no hearing to the applicant as well as the Commissioner,
the Settlement Commission reversed their original order and decided that the
application for the settlement shall be considered on merits.
The
Union of India, through the Commissioner concerned, challenged the Settlement
Commission’s decision on jurisdictional and other legal grounds. One of the
main arguments of the revenue was that there was no power of review available
to the Settlement Commission, once it had declined to proceed with the
application for settlement. Therefore, the reopening of the settlement proceeding
was invalid. As mentioned earlier, the Supreme Court did not accept the arguments
and held that the Settlement Commission had the power to review its own order.
In
this connection reference may able be made to the Punjab High Court’s decision
in the case of Mangat Ram Kuthiala v. CIT34. The learned judges have observed
at page 10:
“….
The learned Advocate-General has pressed that through there is inherent power
in a judicial tribunal like a court to recall and quash its order in certain
exceptional and rare circumstances, there is no such inherent power in a quasi-judicial
tribunal. Now, it is a settled rule that a judicial Tribunal can recall and
quash its own order in exceptional and rare cases when it is shown that it was obtained
by fraud or by palpable mistake or was made in utter ignorance of a statutory
provision and the like. The learned Advocate-General does not admit that the
same rule applies in the case of quasi-judicial tribunals. It appears to me
that his emphasis is on the class of tribunal ignoring the nature of
proceedings. The rule has bearing upon the nature of proceeding and not
necessarily on the class of the tribunal. It is the judicial proceeding in
which such a rule is made applicable. If the judicial proceedings are before a tribunal
like a court it is a judicial tribunal and if they are before an administrative
tribunal it is a quasi-judicial tribunal. It appears to me that for the
application of the rule the class of the tribunal is not a material matter but
what is of substance and material is the nature of the proceedings before the
tribunal. If the proceedings are in the nature of judicial proceedings, then, irrespective
of the class of the tribunal, the rule will apply, and if an order has been
obtained from or has been made by a judicial, and if an order has been obtained
from or has been made by a judicial or a quasi-judicial tribunal because of
practice of fraud, or because of palpable mistake, or because of ignorance of
clear statutory provision and the like, it has inherent power to recall such an
order, quash it, and make an order on merit and according to law in the end of
justice.”
The
honourable judges had derived support for their judgment from the decision in
the case of Bhagwan Radha Kishen v. CIT.
Appeal / Writ against Settlement Commission’s Order:
A
writ against the Settlement Commission’s order can be filed before the High
Court under article 226 or before the Supreme Court under article 32of the
Constitution of India. Appeal against the Settlement Commission’s order can
also be filed before the Supreme Court under article 13638 of the Constitution
of India.
Articles
32, 136(1) and 226 of the Constitution are reproduced below:
“
32. Remedies for enforcement of right conferred by this part.—
(1)
The right to move the Supreme Court by appropriate proceedings for the
enforcement of the rights conferred by this Part is guaranteed.
(2)
The Supreme Court shall have power to issue directions or orders or writs,
including write in the nature of habeas corpus, mandamus, prohibition, quo
warrantor and certiorari, whichever may be appropriate, for the enforcement of
any of the rights conferred by this Part.
(3)
Without prejudice to the powers conferred on the Supreme Court by clauses (1)
and (2), Parliament may by law empower any other court to exercise within the
local limits of its jurisdiction all or any of the powers exercisable by the
Supreme Court under clause(2).
(4)
The right guaranteed by this article shall not be suspended except as otherwise
provided for by this Constitution.”
“136.
Special leave to appeal by the Supreme Court—
(1)
Notwithstanding anywhere in this Chapter, the Supreme Court may, in its
discretion grant special leave to appeal from any judgment, decree
determination, sentence or order in any cause or matter passed or made by any
court or tribunal in the territory of India.”
“226.
Power of High Courts to issue certain writs—
(1)
Notwithstanding anything in article 32, every High Court shall have power,
throughout the territories in relation to which it exercises jurisdiction, to
issue to any person or authority, including in appropriate cases, any
Government, within those territories, directions, order or writs, including
writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and
certiorari, or any of them, for the enforcement of any of the rights conferred
by Part III and for any other purpose.
(2)
The power conferred by clause (1) to issue directions, orders or writs to any
Government, authority or person may also be exercised by any High Court
exercising jurisdiction in relation to the territories within which the cause
of action, wholly or in part, arises for the exercise of such power,
notwithstanding that the seat of such Government or authority or the residence
of such person in not within those territories.
(3)
Where any party against whom an interim order, whether by way of injunction or
stay or in any other manner, is made on, or in any proceedings relating to, a
petition under clause (1), without—
(a)
furnishing to such party an opportunity of being heard, makes an application to
the High Court for the vacation of such order and furnishes a copy of such
application to the party in whose favour such order has been made or the
counsel of such party,
(b) the High
Court shall dispose of the application within a period of two weeks from the
date on which it is received or from the date on which the copy of such
application is so furnished, whichever is later, or where the High Court is
closed on the last day of that period, before the expiry of the next cat
afterwards on which the High Court is open; and if the application is not so
disposed of, the interim order shall, on the expiry of that period, or, as the
case may be, the expiry of the said next day, stand vacated.
(4)
The power conferred on a High Court by this article shall not be in derogation
of the power conferred on the Supreme Court by clause (2) of article 32.”
Whether Settlement Commission Is A Tribunal:
The question whether the Settlement Commission
is a “tribunal” has been answered in the affirmative by the Supreme Court in
the case of CIT v. B.N. Bhattacharjee (supra) in the following words at page
480:
“The
preliminary objection raised by Shri A.K. Sen need not detain us because we are
satisfied that the amplitude of article 136 is wide enough to bring within its
jurisdiction orders passed by the Settlement Commission. Any judgment, decree,
determination, sentence or order in any case or matter passed or made by any
court or tribunal, comes within the correctional cognizance and review power of
articles 136. The short question, then, is whether the Settlement Commission
cannot come within category of “Tribunals”. To clinch the issue, section 245L
declares all proceedings before the Settlement Commission to be judicial
proceeding. We have hardly any doubt that it is a tribunal. Its powers are
considerable; its determination affects the right of parties; its obligations
are quasi-judicial; the order it makes at every stage have tremendous impact on
the rights and liabilities of parties. When a body is created by statute and
clothed with authority to determine rights and duties of parties and to impose pains
and penalties on them it satisfies the test laid down in Associated Cement
Co.’s case. A constitutional Bench of this court in that case has indicated the
quintessential test in this regard and we need only extract a portion of the
head note relevant to this aspect:
‘In
considering the question about the status of any body or authority as a
tribunal under the article, the consideration about the presence of all or some
of the trapping of a court is really not decisive. The presence of some of the
trappings may assist the determination of the question as to whether the power
exercising by the authority which processed the said trappings, is the judicial
power of the State or not. The main and basic test however is whether the
adjudicating power which a particular authority is empowered to exercise, has
been conferred on it by a statute and can be described as a part of the State’s
inherent power exercised in discharging its judicial function.’
The
expending jurisprudence of administrative tribunals to which some eminent
judges, cradled in Dicean concepts, in the early days of English law, has come
to stay whether we call it the new despotism or the pragmatic instrumentality
of dispensing justice untrammelled by the complexities and mystiques which are
part of the processual heredity of courts. The Franks Committee rightly said:
‘Reflection
on the general, social and economic change of recent decades convinces us that
tribunal as a system for adjudication has come to stay.’
‘The
advantage which tribunals had over courts’, states Seervai in his classic work
on the Constitution of India, ‘lay in cheapness, accessibility, freedom from
technicality, expedition and expert knowledge of their particular subject’. A
casual perusal of Chapter XIXA convinces the discerning eye that the Settlement
Commission exercise many powers which affect for good or otherwise, the rights
of the parties before it and vests in it powers to grant immunity from
prosecution and penalty, to investigate into many matters and to enjoy
conclusiveness regarding its orders or settlement. In short, Settlement
Commissions are Tribunals…..’
In
this connection, it will be useful to mention the views of that eminent English
Jurist Lord Denning on the subject as to the finality of the order of a
tribunal which here means the Commission. In his book, A Discipline of Law, he
says:
“I
threw out a suggestion by way of an obiter dictum in Taylor v. National
Assistance Board. ‘The remedy is not excluded by the fact that the determination
of the Board is by Statute made ‘finally’ : parliament gives the impress of
finality to the decisions of the Board on the condition that they are rigid in
accordance with the law and the queens court can issue a declaration to see
that, that condition is fulfilled.’
‘That
dictum was destined to have important consequences. Expanded a little it meant
that Parliament only conferred jurisdiction on a Tribunal or Board on condition
that it made its determination in accordance with the law. If it went wrong in
law, it went outside the jurisdiction conferred on it. Its decision was therefore
void. It had jurisdiction to decide rightly but no jurisdiction to decide
wrongly.”
Lord
Denning says further at page 71:
“So
we ourselves dug up the new ground. I applied my dictum in Taylor’s case and
said:
‘The
Act of 1946 provides that ‘any decision of a claim or question …….. Shall be
final’. Do these words preclude the Court of Queen’s Bench from issuing
certiorari to bring up the decision?
This
is a question which we did not discuss in R. v. Northumberland Compensation
Appeal Tribunal46, ex parte Shaw, because it did not these arise. It does arise
here, and on looking again into the old books I find it very well settled that
the remedy by certiorari is never to be taken away by any statute except by the
most clear and explicit words. The word ‘final’ is not enough. That only means
‘without appeal’. It does not mean ‘without recourse to certiorari’. It makes
the decision final on the facts but not final on the law. Notwithstanding that
the decision is by a statute made ‘final’, certiorari can still issue for
excess of jurisdiction or for error of law on the face of the record’.”
Thus
it would be seen that as far as legal points are concerned, the Settlement
Commission’s order though said to be conclusive under this section, can be
questioned and a genuine hardship got relieved.
Ex
parte order - A question may arise as to whether in the case of
non-co-operation by an applicant, the Settlement Commission can pass ex parte
orders. It will be seen that section 245C nowhere provides for filing of a
statement of facts by the applicant. This provision is contained in the rules.
Obviously the intention was that obtaining such a statement of facts would facilitate
the disposal of the case by the Settlement Commission.
Therefore,
there is no legal obligation on the Settlement Commission to wait indefinitely
for the applicant to file the statement of facts. The rules do not provide any
time limit for filing the statement of facts.
However,
the Settlement Commission may call for it within a reasonable period.
Therefore, if an applicant does not file the statement of facts, verified in
the prescribed manner, within that time or extended time, if any, allowed by
the Settlement Commission, it will be open to the Settlement Commission to pass
ex-parte orders in the absence of co-operation from an applicant. Such power is
inherent or implied in the body which has power to call for some documents/
papers/ returns/ report/ statements. Otherwise it would be easy for an
applicant to completely stall the income-tax proceeding for the relevant years
by having his case admitted and then not caring to file the statement of facts.
Once the case is admitted, the income-tax authorities cease to have jurisdiction
over the case. However, it should be mentioned that the Settlement Commission
can dispose of the matter only on the merits.
The
various rulings given by the courts in respect of best judgement, assessment
made by the Income-Tax Officer’s apply with equal force to an ex-parte
settlement made by the Settlement Commission.
In
this connection, the decision in the cases of Abdul Baree Chowdhury v. CIT 47 ,
CIT v. Laxminnarain Badridas 48 and State of Orissa v. Singh Deo49 may be seen.
Judicial Proceeding
Section
245L provides that any proceeding under this Chapter before the Settlement
Commission shall be deemed to be a judicial proceeding within the meaning of
sections 193 and 228, and for the purposes of section 196, of the Indian Penal
Code (45 of 1860).
Immunity From
Prosecution And Imposition Of Penalty (245H):
Under section 245H(1), the Commission, may if
it is satisfied that the applicant has cooperated with it in the proceedings
before it and has made a full and true disclosure of his income and the manner
in which such income has been derived, grant to such person, subject to such
conditions as it may think fit to impose, immunity from prosecution for any
offence under the Income-tax Act or under the Indian Penal Code or under any
other Central Acts and also either wholly or in part, from the imposition of
penalty under the Income-tax Act, 1961 with respect to the case covered by the
settlement. However, w.e.f. 01.06.1987 no such immunity can be granted by the
Commission in cases where the proceedings for prosecution for any such offence
have been instituted before the date of receipt of the application under
section 245C.
Settlement
applications invariably contain a prayer for waiver of penalty and interest and
for granting immunity from prosecution. Request of the applicant in this regard
is examined by the Commission on the facts and circumstances of each case and a
specific finding is given on these points.
Power Of The Commission To Send A Case Back To The
Income Tax Officer (U/S 245HA):
If
the Commission is of the opinion that the applicant has not cooperated with the
Commission it may send the case back to the ITO who shall there upon dispose of
the case in accordance with the provisions of the Income-tax Act as if no
application u/s 245C was made. In such a situation the A.O. shall also be
entitled to use all the materials and other information produced by the
applicant before the Commission or the results of the enquiry or the evidence recorded
by it in course of its proceedings. For the purpose of time limits prescribed
under various sections mentioned in section 245HA (3), the period commencing
with the date of application u/s 245C to the date of sending the case back to
the ITO shall be excluded.
Bar On
Subsequent Application For Settlement In Certain Cases (u/s 245K):
Where
an order passed by the Commission u/s 245D (4) provides for the imposition of
penalty for concealment of income or the applicant is convicted of any offence
under Chapter XXII of the Income-tax Act in relation to that case or the case
is sent back to the A.O. by the Commission u/s 245HA, the applicant shall not
be entitled to apply for settlement under section 245C in relation to any other
matter.
Rectification / Review of the Orders of the Settlement
Commission by the High Courts
1.Patel
Desai and Co. & Meera Industries v ACIT & Others
In exercise of writ jurisdiction u/s 226 it is
not opened to the High Court to decide whether the conclusion recorded by the Settlement
Commission on a question of fact and even law is correct or not. The
conclusions reached by a Settlement Commission cannot be nullified except under
very limited circumstances such as violation of mandatory procedural
requirements, violation of rules of natural justice or lack of nexus between
reasons given and the decision taken by the Settlement Commission. In the above
case, it was decided that the deduction of development expenditure disallowed
as Capital Expenditure by the Income-tax Settlement Commission could not be
altered by writ of certiorari. The judicial review power of High Court cannot
be extended to review of administrative actions or findings of quasi-judicial
Tribunal.
2. C.A. Abraham v ACIT
The
High Court’s powers of judicial review on decision of the Settlement Commission
are very restrictive. In this case, the Assessing Officer and the Settlement
Commission proceeded on the basis that the income dealt with in the orders was
only undisclosed income and the same had been taken into consideration for the purpose
of assessment of block period. So, while exercising jurisdiction under Article
226 of the Constitution, the fact whether that income was undisclosed income or
the income other than undisclosed income would not be gone into. So, it could
not be said that the Settlement Commission had followed an illegal procedure, so
as to enable the High Court to interfere with the orders of the Commission.
3. M/s. Bhanwar Lal
Kanhya Lal, Sarangpur
The
Commission has the inherent jurisdiction to rectify a wrong committed by it
when that wrong causes prejudice to a party for which that party is not
responsible. In a case where the Commission had directed the ITO to examine the
old books of account and other documents relied on by the applicant in support of
his claim of HUF and the applicant submitted a lot of material before the ITO
and he made further verifications of the claim of the applicant. But the order
u/s 245D(4) was passed by the Commission without taking into consideration the
material furnished by the applicant to the ITO and the enquiries made by him in
this regard, the Commission recalled its order and reopened the case for fresh hearing
and disposal.
4. Shri Hanooram
Bhagwanlal, Ujjain
The
Commission does not have the power to review its own order if the matter raised
by the applicant has been properly considered and a conscious decision has been
taken thereon. In a case where the assessee filed a miscellaneous application
claiming that during the course of hearing it was stated by the Commission that
the matter was a petty one and they were inclined to allow it, however, the
final order was contrary to this and on verification of the records the
Commission found that after hearing both the sides, a speaking order was passed
giving reasons in support of its decision, there did not appear to be any
mistake apparent from the record and the case could not be reopened or reviewed
by the Commission.
5.
M/s.H.B.
Chemicals, Jallandar City
In
a case where an objection was raised by the applicant for review or
rectification of the order passed by the Commission rejecting the application
on the ground that the sequence of certain dates had gone unnoticed or their
effect had not been properly appreciated as a result of which a mistake had
crept in, it was held that there was no mistake apparent on the record and the
prayer of the applicant merely was for revaluing and re-examining the evidence
and the report of the Commissioner. The application was accordingly rejected.
Legal Pronouncements
1. HIGH COURT OF GUJARAT
Vishnubhai Mafatlal Patel
vs. Assistant Commissioner of Income-tax
AKIL KURESHI AND MS.
SONIA GOKANI, JJ.
SPECIAL CIVIL APPLICATION
NOS. 12060, 12061 & 12063 OF 2012
DECEMBER 4, 2012
Section
245D of the Income-tax Act, 1961 - Settlement Commission - Procedure on
application under section 245C [Jurisdiction of Commission] - Whether it is
well within jurisdiction of Commission at stage of sub-section (1) of section
245D to examine whether application for settlement fulfils statutory
requirements contained in sub-section (1) of section 245C and to reject
application if it comes to conclusion that such application does not fulfil
legal requirements - Held, yes - Whether at that stage, if application is
allowed to be proceeded with, such decision would be tentative in nature and it
would still be open for Commission, if grounds are so available, to declare
such an application invalid after obtaining report from Commissioner and giving
an opportunity of being heard to applicant - Held, yes - Whether unless
decision of Commission is contrary to statutory provisions contained in Act,
interference in exercise of writ jurisdiction under article 226 of Constitution
of India would not be warranted - Held, yes [In favour of revenue].
2. HIGH COURT OF GUJARAT
Unipon (India) Ltd. vs. Income
Tax Settlement Commission
AKIL KURESHI AND MS.
SONIA GOKANI, JJ.
SPECIAL CIVIL APPLICATION
NO. 6382 OF 2008
CIVIL APPLICATION NO.
2273 OF 2009
APRIL 16, 2014
Section
245C of the Income-tax Act, 1961 - Settlement Commission - Application for
settlement of cases (Total income) - Assessment year 2005-06 - Whether for
computing additional tax for settlement application, definition of 'total
income' under section 5 is not applicable in view of deeming fiction contained
in clause (ii) of sub-section (1B) of section 245C whereby total income has to
be considered as if aggregate of total income returned and income disclosed
would be total income - Held, yes - Whether such deeming fiction must be
allowed in its full effect - Held, yes [In favour of revenue].
3. HIGH COURT OF
ALLAHABAD
Rama Nath vs. Special
Chief Judicial Magistrate, Allahabad
A.K. ROOPANWAL, J.
CRIMINAL MISC.
APPLICATION NO. 13193 OF 1987
AUGUST 14, 2008
Section
245H, read with section 245J, of the Income-tax Act, 1961 - Settlement
Commission - Immunity from prosecution/penalty - Assessment years 1968-69 and
1972-73 to 1975-76 - Whether during existence of immunity from prosecution
granted by Settlement Commission under section 245H if an assessee does not
obey directions of Settlement Commission and makes default in payment,
assessing authority may impose penalty upon him and all amount, i.e, sum assessed
as per directions of Settlement Commission and penalty imposed may be recovered
in accordance with provisions of Chapter XVII, but no criminal prosecution can
be launched against assessee - Held, yes - Whether if income-tax authorities
want to prosecute person concerned for his lapse committed after order of
Settlement Commission, they have to get immunity granted by Settlement
Commission cancelled under section 245H(2); they cannot straightaway go for
prosecution - Held, yes.
4. HIGH COURT OF DELHI
Commissioner of
Income-tax vs. Income Tax Settlement Commission
BADAR DURREZ AHMED, ACTG.
CJ. AND R.V. EASWAR, J.
WP (C) NO. 1609 OF 2013, JULY
2, 2013
Section
245D, read with section 245C, of the Income-tax Act, 1961 - Settlement Commission
- Procedure on application under section 245C [True and full disclosure of
income] - Assessment years 2006-07 to 2012-13 - Whether, since settlement
application passes through several stages before final order providing terms of
settlement is passed by Settlement Commission, requirement to record specific
finding that applicant has made full and true disclosure of income need not be
examined and authoritatively determined at threshold of any proceeding
initiated before Settlement Commission, and such question can be kept open to
be examined at a later stage or at stage of disposal of application - Held, yes
- Whether, applicant is not allowed to file subsequent settlement application
only if previous settlement application was rejected after it was allowed to be
proceeded with and not if it was rejected at threshold - Held, yes [In favour of assessee]
5. HIGH COURT OF BOMBAY
Gobind Builders &
Developers vs. Income-tax Settlement Commission
F.I. REBELLO AND R.S.
MOHITE, JJ.
WRIT PETITION NO. 180 OF
2008
MARCH 4, 2008
Section
245C of the Income-tax Act, 1961 - Settlement Commission - Application for
settlement of cases – Assessment years 2003-04 to 2005-06 - Whether any payment
of additional tax made after 31-7-2007 can be considered for purpose of compliance
with requirement of section 245C - Held, no Section 245C, read with sections
245D and 2(45), of the Income-tax Act, 1961 - Settlement Commission -
Application for settlement of cases - Assessment years 2003-04 to 2005-06 -
Whether Settlement Commission, while considering as to whether tax has been
paid as contemplated by section 245D(2A), has to examine whether that tax is on
total income as disclosed - Held, yes - Whether if otherwise assessee is
entitled to benefits of allowance or disallowance, same cannot be denied for
purpose of working out total income under section 245C; therefore, if assessee
is entitled to carry-forward loss of previous year, then total income has to be
calculated in that manner - Held, yes.
6. HIGH COURT OF GUJARAT
Arpan Associates vs. Income-tax
Settlement Commission
AKIL KURESHI AND MS.
SONIA GOKANI, JJ.
SPECIAL CIVIL APPLICATION
NO. 11830 OF 2003
FEBRUARY 28, 2013
Section
245F, read with sections 245C and 245D, of the Income-tax Act, 1961 -
Settlement Commission - Power and procedure [Judicial review] - Assessment
years 1994-95 to 1996-97 - Consequent to search and seizure operations,
assessee-firm, a booking agent for a real estate scheme, made an application
before Settlement Commission, offering additional income on account of on-money
receipts on bookings - Settlement Commission concluded that there was no true
disclosure and made further addition of Rs. 30 lakhs - Whether, order of
Settlement Commission can be interfered with only if it is contrary to
provisions which prejudices applicant - Held, yes - Whether, therefore, where
Settlement Commission made further addition over and above amount offered by
assessee, as on-money collection on individual flats did not tally with one
partner's statement in respect of total rate, on-money received and expenditure
made, Commission's order could not be interfered with - Held, yes [In favour
revenue].
7. SUPREME COURT OF INDIA
Ajmera Housing Corpn. vs.
Commissioner of Income-tax
D.K. JAIN AND H.L. DATTU,
JJ.
CIVIL APPEAL NOS. 6827
AND 6848 OF 2010
AUGUST 20, 2010
Section
245C of the Income-tax Act, 1961 - Settlement Commission - Application for
settlement of cases – Assessment years 1989-90 to 1993-94 - Whether section
245C(1) mandates ‘full and true’ disclosure of particulars of undisclosed income
and ‘manner’ in which such income was derived and, therefore, unless Settlement
Commission records its satisfaction on this aspect, it will not have
jurisdiction to pass any order on matters covered by application - Held, yes - Whether
even when Settlement Commission decides to proceed with application, it will
not be denuded of its power to examine as to whether in his application under
section 245C(1), assessee has made a full and true disclosure of his undisclosed
income - Held, yes - Whether in scheme of Chapter XIX-A, there is no
stipulation for revision of income disclosed in an application filed under
section 245C(1) and, thus, determination of income by Settlement Commission has
necessarily to be with reference to income disclosed in an application filed
under said section in prescribed form - Held, yes
Section
245D of the Income-tax Act, 1961 - Settlement Commission - Procedure on
application under section 245C - Assessment years 1989-90 to 1993-94 -
Assessee-group of firms was engaged in business of land development and building
construction - In January 1989 and December, 1992, searches were conducted at
premises of assessee and on basis of seized documents, assessments for relevant
years were completed at much higher income than that disclosed in returns -
Assessee filed an application under section 245C before Settlement Commission
disclosing additional income of Rs. 1.94 crores for relevant years -
Commissioner, while objecting to entertainment of application for settlement submitted
by assessee as not being a full and true disclosure of its income, suggested
that, at any rate, income of group should not be settled at less than Rs.
223.55 crores - Thereafter, on 19-9-1994, assessee filed revised settlement application
containing ‘confidential annexure and related papers’, declaring therein an
additional income of Rs. 11.41 crores - Thereafter also, assessee made further
disclosures of additional income - On 29-1-1999, Settlement Commission passed
final order under section 245D(4), determining total income of assessee at Rs.
42.58 crores and observing that assessee had cooperated during proceedings
before it, imposed a ‘token’ penalty of Rs. 50 lakhs as against minimum leviable
penalty of Rs. 562.87 lakhs, as per its own assessment - On writ, High Court
observed that (i) since Settlement Commission had not supplied annexure filed
on 19-9-1994, declaring additional income of Rs. 11.41 crores, due opportunity
had not been given to revenue to place its stand properly; (ii) huge amount of
unexplained expenses, unexplained loans and unexplained surplus, total of which
was more than Rs. 14 crores, was not taken into consideration while passing
final order and (iii) Settlement Commission was not justified in imposing a
token penalty of Rs. 50 lakhs taking into consideration multiple disclosures
made by assessee - High Court, therefore, set aside order of Commission and
remitted case back to it for fresh adjudication - Whether on facts, High Court
was correct in making order of remand - Held, yes.
8. HIGH COURT OF
ALLAHABAD
Smt. Neeru Agarwal vs. Union
of India
PRAKASH KRISHNA AND
SUBHASH CHANDRA NIGAM, JJ.
WRIT TAX NOS. 1231 TO
1234 OF 2008
DECEMBER 18, 2009
Section
245-I, read with sections 245D and 245F, of the Income-tax Act, 1961 -
Settlement Commission - Order of, to be conclusive - Assessment years 1999-2000
to 2005-06 - Whether except in case of fraud or misrepresentation of facts, order
passed by Settlement Commission is final and conclusive and binding on all
parties - Held, yes - Whether it is obligatory on Settlement Commission to pass
an appropriate order after taking into consideration entire material brought
before it by parties including department; there is no statutory provision
which empowers Settlement Commission to restore back matter in respect of
certain items to Assessing Officer and also to finally settle income of applicant
- Held, yes - Assessee filed an application before Settlement Commission for
settlement of her case arising out of search operation conducted at her
residential and business premises - Settlement Commission passed an order settling
undisclosed income of assessee - Thereafter, Assessing Officer issued a notice
under section 142, read with sections 153A and 245D(4), to assessee on ground
that on examination of records and seized material, it was found that assessee
had made certain investments, sources of which had not been explained before
Settlement Commission - According to department, said notice was issued on
basis of a portion of order of Settlement Commission, in which it had been
stated that Commissioner/Assessing Officer might take such an action as was
appropriate in respect of matters not placed before Commission by applicant, as
per provisions of section 245F(4) - Whether when facts found and documents
seized in search operation were matters which related to settlement of
undisclosed income of assessee, contention of department that investment in
bonds, etc., was not subject-matter of order of Settlement Commission was not
correct - Held, yes - Whether after passing of order by Settlement Commission,
no power vested in Assessing Officer to issue impugned notice in respect of
relevant period and income covered under order of Settlement Commission and in
case of fraud or misrepresentation of facts, remedy was to approach Settlement
Commission - Held, yes - Whether, on facts, Settlement Commission could have
empowered income-tax authorities to frame another assessment order, while
settling undisclosed income of assessee for period covered by its order, in
respect of investment in bonds, etc. - Held, no.
9. HIGH COURT OF BOMBAY
Commissioner of
Income-tax (Central), Pune vs. Income Tax Settlement Commission (ITSC)
DR. D.Y. CHANDRACHUD AND
A.A. SAYED, JJ.
WRIT PETITION NO. 3900 OF
2013
JUNE 13, 2013
Section
245C, read with section 245D, of the Income-tax Act, 1961 - Settlement
commission - Application for settlement of cases [Scope of provision] -
Assessment years 2006-07 to 2012-13 - Whether in order to constitute a valid
application under section 245C(1), there must be a full and true disclosure of
undisclosed income by assessee and manner in which it has been derived - Held,
yes - Whether it is only upon satisfaction of Commission that application meets
prerequisites of a valid application that Commission shall have jurisdiction to
proceed, and it is bound to determine validity of application in course of its
proceedings under section 245D(2C) - Held, yes - Whether, where Commission had
permitted application to be proceeded without examining fundamental issue as to
whether application was valid, its order was unsustainable - Held, yes [Paras
19 & 20] [In favour of revenue].
10. HIGH COURT OF GUJARAT
Mohanlal S. Doppa vs. Commissioner
of Income-tax
M.S. SHAH AND D.A. MEHTA,
JJ.
IT REFERENCE NOS. 59 AND
60 OF 1988
OCTOBER 3, 2001
Section
245D, read with sections 271(1)(a) and 273(c), of the Income-tax Act, 1961 -
Settlement Commission – Procedure on application under section 245C -
Assessment years 1974-75 and 1975-76 - Whether once any order is passed by Settlement
Commission, Assessing Officer or any other authority has no power to go beyond
or behind that order - Held, yes - Whether if Settlement Commission’s order
under sub-section (4) of section 245D of the Act did not contain any direction
for levy of penalty, any such omission would amount to immunity under section
245H(1) from imposition of penalty under Act with respect to case covered by
settlement and it is not open to Assessing Officer to initiate any proceedings
for imposition of penalty, even if any specific order for exemption from
imposition of penalty, is not contained in order of Settlement Commission under
section 245D(4) - Held, yes.
Jurisdiction
SL. NO.
|
NAME OF BENCH
|
STATES / UNION TERRITORIES
|
1.
|
Principal Bench at New Delhi
|
a) Delhi, Rajasthan and all States,
Union Territories and Cities other than those mentioned in S. No. 2,3,4,5,6
and 7 below.
|
2.
|
Additional Bench-I at New Delhi
|
a) Punjab, Haryana Union Territory of
Chandigarh and
b) Cases within the jurisdiction of
Principal Commissioner/commissioner of Income Tax(Central), Delhi-1.
|
3.
|
Additional Bench-II at New Delhi
|
a) Uttar Pradesh and Uttarakhand,
Himachal Pradesh and Jammu & Kashmir; and
b) Cases within the jurisdiction of
Principal Commissioner/Commissioners of Income Tax Delhi- 1,
2,3,4,5,6,7,8,9,10,11,12,13,14,15,16,17,18,19,20,21,22,23 and 24.
c) Madhya Pradesh except the Assessing
Officers under the jurisdiction of Principal Commissioner/Commissioner of
Income Tax(Central), Bhopal with headquarters in the State of Chhattisgarh.
|
4.
|
Additional Bench-I at Mumbai
|
a) Mumbai other than :-
(i) Principal commissioner/Commissioners
of Income Tax,Mumbai 9,10,11,12,13,14,15,27,28,29,30,31,32,33,34, and 35
(ii) Principal
Commissioners/Commissioners of Income Tax (Central), Mumbai-2, 3 and
Commissioners of Income Tax (International Taxation)-1,2,3, and 4, Mumbai)
b) Pune.
c) Goa, Daman and Diu.
d) Maharashtra (other than Mumbai and
Pune.)
|
5.
|
Additional Bench-II at Mumbai
|
a) Principal Commissioner/Commissioners
of Income Tax, Mumbai- 9,10,11,12,13,14,15,27,28,29,30,31,32,33,34, and 35)
b) Principal Commissioner/Commissioners
of Income Tax (Central)-2 & 3, Mumbai
c) Commissioners of Income Tax
(International Taxation)-1,2,3 and 4, Mumbai
d) Gujarat.
|
6.
|
Additional Bench at Kolkata
|
a) Bihar, Meghalaya, Odisha, West
Bengal, Chattishgarh, Jharkhand, Andaman & Nicobar Islands, Manipur,
Assam, Tripura, Sikkam, Mizoram, Nagaland & Arunachal Pradesh.
b) Assessing Officers under the
jurisdiction of Principal Commissioners/Commissioners of Income Tax
(Central), Bhopal with headquarters in the state of Chattishgarh.
c) Assessing Officers under the
jurisdiction of Principal Commissioners/Commissioners of Income Tax
(Central), Hyderabad with headquarters in the state of Orissa.
d) Principal Commissioner/Commissioners
of Income Tax (Central), Vishakhapatnam where the headquarter of Central
Circle Assessing Officers in the State of Orissa & cases have been
Centralized with Principal Commissioner/Commissioners of Income Tax,
Vishakhapatnam.
|
7.
|
Additional Bench, Chennai
|
a) Tamil Nadu
b) Telangana
c) Karnataka
d) Kerala
e) Pondicherry
f) Lakshadweep & Minicoy Islands
g) Andhra Pradesh (excluding Assessing
of Officers under the jurisdiction of Principal Commission/Commissioner of
Income Tax (Central) Hyderabad and Vishakhapatnam with headquarters in the
state of Orissa)
|
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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.
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