1996 (12) TMI 3 - SC - Income Tax

Jurisdiction of Court - Commission was not justified in holding that Income-tax Officer had no power to proceed with or collect any material after the date of submission of the application under section 245C - Where the assessee filed an application for settlement in respect of three assessment years giving a combined computation of income - held that Commission should have rejected application for all the years when no such distinction was suggested even by the assessee

Issues Involved:
1. Admission of the application for settlement for the assessment year 1977-78.
2. Admission of the application for settlement for the assessment years 1978-79 and 1979-80.
3. Fraud and concealment of income by the assessee.
4. Powers and jurisdiction of the Income-tax Officer post filing of the application under section 245C.
5. Validity of the objections raised by the Commissioner of Income-tax.

Detailed Analysis:

1. Admission of the application for settlement for the assessment year 1977-78:

The Settlement Commission unanimously rejected the application for the assessment year 1977-78. The Commission found that there was clear fabrication of accounts, fudging of balances, and cooked-up sale vouchers and goods receipts. The Commission stated, "It strains our sense of credulity too far to accept the applicant's claim that all this was being done only to save its skin from some other departments and its intentions vis-a-vis the Revenue were nothing but honourable." The Commission emphasized that the Department had a strong case of fraud and concealment of income against the assessee.

2. Admission of the application for settlement for the assessment years 1978-79 and 1979-80:

There was a difference of opinion among the members of the Commission regarding the assessment years 1978-79 and 1979-80. The majority admitted the case for settlement, reasoning that no inquiries had been made by the Income-tax Officer for these years and no bogus sales were conclusively established. They noted, "The inspection of the factory premises by the Income-tax Officer on February 8, 1980, too is not of much relevance, since the inspection is long after the expiry of the relevant previous years."

The dissenting member, however, argued that the facts clearly showed no manufacturing activity was carried on during these years, and the account books were fabricated. He emphasized, "The applicant should not be allowed to take advantage of his own deliberate default before the Income-tax Officer and he should not be heard to plead before us that the Income-tax Officer has not examined the books or pointed out any defects or deficiencies therein so as to be able to establish any concealment for these years."

3. Fraud and concealment of income by the assessee:

The Commissioner of Income-tax objected to the application under section 245C, stating that the assessee had fabricated account books and tried to evade tax on a massive scale. The Commissioner highlighted, "The story of manufacturing and the sale of manufactured products to certain named concerns is all fictitious." The Commission found that the assessee had sold its stainless steel quota to brokers in Bombay, Delhi, and Madras, without transporting the goods to Chandigarh, and had fabricated account books to show false transactions.

4. Powers and jurisdiction of the Income-tax Officer post filing of the application under section 245C:

The Supreme Court clarified that the Income-tax Officer is not bound to stop all further proceedings upon the filing of an application under section 245C. The Court noted, "The Income-tax Officer is not bound to do so and that he can continue with the proceedings before him till the date of submitting the report by the Commissioner under sub-section (1A) of section 245D--and may be, even beyond."

5. Validity of the objections raised by the Commissioner of Income-tax:

The Supreme Court found that the objections raised by the Commissioner were valid and based on substantial evidence of fraud and concealment. The Court noted, "The draft assessment order states all these facts. Mr. Salve could not point out any particular fact or facts which have been taken from the assessee's application and used as a basis for making the draft assessment order."

Conclusion:

The Supreme Court allowed the Civil Appeals Nos. 238 and 239 of 1982 filed by the Revenue and dismissed the Civil Appeals Nos. 233-235 of 1982 (and Civil Appeals Nos. 236-237 of 1982) filed by the assessee. The Court concluded that the Commission made an error in admitting the application for the assessment years 1978-79 and 1979-80, given the clear evidence of fraud and concealment. The costs payable by the assessee in all the appeals were assessed at Rs. 50,000 consolidated.

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