1996 (3) TMI 5 - SC - Income Tax

Jurisdiction/Powers of Settlement Commission - Penalty Proceedings - order of the Settlement Commission is set aside to the extent it has dropped the penalty proceedings relating to the assessment years 1970-71 to 1974-75 and to the extent it has waived the penalties for the said assessment years. The orders and directions made by it shall not affect the said penalty proceedings which can now proceed according to law - commission can reopen completed proceeding u/s 245E

Issues Involved:
1. Jurisdiction of the Settlement Commission to drop penalty proceedings for assessment years 1970-71 to 1974-75 in an application for settlement relating to the assessment year 1975-76.
2. Interpretation of Section 245E of the Income-tax Act, 1961.
3. Impact of reopening completed proceedings on penalty proceedings.
4. Powers of the Settlement Commission under Section 245F(1).

Issue-wise Detailed Analysis:

1. Jurisdiction of the Settlement Commission to Drop Penalty Proceedings:
The primary issue in these appeals was whether the Settlement Commission had the jurisdiction to drop penalty proceedings for assessment years 1970-71 to 1974-75 in an application for settlement that pertained only to the assessment year 1975-76. The majority opinion of the commission held that it did have such power, relying mainly on Section 245E, while the chairman disagreed, stating that the application for settlement was only for the assessment year 1975-76 and the penalty proceedings for earlier years were unrelated to the present settlement application.

2. Interpretation of Section 245E:
Section 245E empowers the Settlement Commission to reopen completed proceedings if it is necessary or expedient for the proper disposal of the case pending before it, and with the concurrence of the applicant. The majority opinion interpreted this section to mean that the commission could reopen and pass orders on the earlier assessment years. However, the judgment clarified that this power is circumscribed and conditional. It can only be exercised for the limited purpose of settling the case before the commission and not for settling matters of other assessment years indirectly.

3. Impact of Reopening Completed Proceedings on Penalty Proceedings:
The judgment emphasized that the reopening of completed proceedings under Section 245E is not for the benefit of the assessee but in the interest of the Revenue. The penalty proceedings for the earlier years were based on different concealments and were not related to the disclosures made in the settlement application for the year 1975-76. Thus, the commission exceeded its jurisdiction by dropping the penalty proceedings for the earlier years as it was not necessary for the proper disposal of the case for the year 1975-76.

4. Powers of the Settlement Commission under Section 245F(1):
Section 245F(1) confers all the powers of an income-tax authority upon the Settlement Commission. However, the judgment clarified that even if the commission had the power under Section 147 to reopen assessments, it must comply with the provisions of Sections 147 to 150, which were not followed in this case. The commission's powers are not unlimited and must be exercised within the framework of the Act.

Conclusion:
The appeals were allowed, and the order of the Settlement Commission was set aside to the extent that it dropped the penalty proceedings for the assessment years 1970-71 to 1974-75. The commission's directions and orders should not affect the said penalty proceedings, which can now proceed according to law. The Settlement Commission was directed to modify its judgment and order in accordance with this judgment. The appellants were awarded costs quantified at a consolidated sum of rupees twenty thousand.

← Previous Next →