2011 (8) TMI 944 - HC - Income Tax

Maintainability of Settlement applications - Revenue contended that the settlement applications were not maintainable, since there were no pending proceedings on the date on which the settlement applications were filed - further contended that that there could be no question of proceedings, where no return had been filed; there was no direction on the assessee to file a return; and the statutory time limit prescribed by Section 153(1) for making an assessment u/s 143 or 144, had expired - Held that - It is held that irrespective of whether returns were filed or not, a case would be deemed to be pending but only for twenty one months from the end of the assessing year in question, i.e. the period within which an assessment could have been made. Once the aforesaid time period expires, it cannot be said that the proceedings are pending. If the time period to make an assessment had not expired on the date on which the settlement application was made, the commission might entertain and proceed with the same, irrespective of whether income tax returns had been filed or not. However, where the period of twenty one months from the end of the assessment year expired on the date of making of the application, the settlement application cannot be proceeded with.

Issues Involved:
1. Validity of settlement applications under Section 245C of the Income Tax Act, 1961.
2. Interpretation of "case" under Section 245A(b) of the Income Tax Act.
3. Applicability of Section 147 proceedings in settlement applications.
4. Time limits for making assessment under Section 153(1) of the Income Tax Act.

Detailed Analysis:

1. Validity of Settlement Applications under Section 245C of the Income Tax Act, 1961:
The Revenue challenged the orders of the Income Tax Settlement Commission which held that the settlement applications filed by the private respondents were not invalid. The applications were filed under Section 245C for the assessment years 2004-2005 onwards and were allowed to be proceeded with by the Settlement Commission. The Revenue contended that these applications were not maintainable as there were no pending proceedings on the date of filing.

2. Interpretation of "Case" under Section 245A(b) of the Income Tax Act:
The definition of "case" under Section 245A(b) was central to the dispute. Section 245A(b) defines a "case" as any proceeding for assessment pending before an Assessing Officer on the date of application under Section 245C. This definition excludes proceedings under Section 147 and fresh assessments under Sections 254, 263, or 264. Explanation (iv) to Section 245A(b) deems that proceedings commence on the first day of the assessment year and conclude on the date of assessment.

The court noted that the requirement of filing a return of income as a condition precedent for making a settlement application was removed by the Finance Act, 2007. Therefore, the argument that no pending case exists without a filed return was unsustainable.

3. Applicability of Section 147 Proceedings in Settlement Applications:
The court analyzed whether proceedings under Section 147, which deals with reassessment, could be included in the definition of a "case" for settlement applications. It was established that proceedings under Section 147 were explicitly excluded from the definition of a "case" under Section 245A(b). Therefore, no settlement application could be filed once a notice under Section 148 (which initiates reassessment under Section 147) was issued.

4. Time Limits for Making Assessment under Section 153(1) of the Income Tax Act:
The court examined whether a proceeding could be deemed pending even after the statutory time limit for making an assessment under Section 153(1) had expired. It was concluded that proceedings would be deemed pending only for twenty-one months from the end of the assessment year, the period within which an assessment could be made. Once this period expires, proceedings are no longer considered pending.

The court held that if the time period to make an assessment had not expired on the date of the settlement application, the commission could entertain and proceed with the application, irrespective of whether returns were filed. However, if the period had expired, the application could not be proceeded with.

Conclusion:
The writ applications were disposed of with the holding that the settlement applications could not be proceeded with if the statutory time limit for making an assessment had expired. The court rejected the prayer for stay of operation of this order and directed that urgent certified copies be supplied upon compliance with required formalities.

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