2016 (7) TMI 319 - AT - Income Tax

Rectification of mistake - CIT(A) confirming the action of the AO in cancelling the registration of firm under provision of section 186(2) - application to Settlement Commission - Held that - In the present case, there is no dispute that the ld.Settlement Commission has taken cognizance under section 245D in both these cases, and the applications of the assessees were proceed with. Clause 2(A) has been inserted with section 245D by Finance Act, 2007. This clause contemplates that where the application was made under section 245C before the first day of June, 2007, but an order under sub-section (1) of section 245D was not passed, i.e. the application was not proceed with, then, such application will be deemed to have been allowed to proceed with, but, the condition is that the additional taxes on the income-tax disclosed in such application ought to have been paid before 31st day of July, 2007 In the present case since no order has been passed by the Settlement Commission, therefore, it is to be construed that the applications of the assessee have abated on 31.3.2008, i.e. the time limit provided in sub-section-4(A). In our opinion, this is the erroneous construction of provision at the end of the ld.CIT(A). Sub-clause 4(A) is applicable on those applications, where the taxes were paid by an assessee before 31.7.2007. In all these applications, the order ought to be passed by 31.3.2008. A perusal of the provisions extracted (supra), it is clear that in case where taxes were not paid by 31.7.2007, then, the application will be deemed to have been abated on this date. In order to find out whether the assessees have paid taxes before 31st July, 2007 or not, we have directed the ld.counsel to demonstrate this fact. The ld.counsel for the assessee for the applicants before the Settlement Commissioner try to demonstrate the tax liability and the amounts paid by both these assessees. However, we find that both the orders are totally silent on this issue. If we arrive at a conclusion that the taxes were not paid by the assessee before 31.7.2007, then, the application before the Settlement Commissioner would abate on 31st July. But if it is established that tax liability was discharged in spite of that no specific order has been passed by the Settlement Commission, the application would be considered as abated on 31.3.2008. This situation would goad us to record a different finding on the limitation. If the applications are abated on 31st July, then, the assessment orders are time barred. But if the applications are abated on 31.3.2008, then, the assessment orders are within the time limit. Therefore, for limited purpose, we restore the dispute to the file of the ld.CIT(A). The ld.CIT(A) shall determine the tax liability on the basis of disclosure made by both the assessees in the settlement application. After determination of the tax liability, he would find out how much amounts have been paid by both the assessees before 31st July, 2007. After conclusively arriving on the figures of both these aspects, she would decide whether the assessment orders should be termed as time barred or not. - Decided in favour of assessee for statistical purpose.

Summary

Issues Involved:
1. Whether the assessment orders were passed after the expiry of the limitation period.
2. The validity of the proceedings initiated under sections 154 and 186(2) of the Income Tax Act.
3. The implications of non-payment of taxes within the stipulated period under section 245D(2D) and its effect on the abatement of proceedings before the Settlement Commission.

Issue-wise Detailed Analysis:

1. Limitation Period for Assessment Orders:
The primary issue raised by the assessees in ITA No. 937/Ahd/2010 and ITA No. 938/Ahd/2010 was that the assessment orders were passed after the expiry of the limitation period and should therefore be quashed. The Tribunal noted the sequence of events and relevant dates, particularly focusing on the provisions of section 245D(2D) and section 245HA of the Income Tax Act. The Tribunal observed that the Settlement Commission had not passed any order on the applications of the assessees post the amendment by the Finance Act, 2007. The crux of the dispute was whether the applications were deemed abated on 31.7.2007 due to non-payment of taxes or on 31.3.2008 as per the Revenue's interpretation. The Tribunal concluded that if the taxes were not paid by 31.7.2007, the applications would be deemed abated on that date, making the assessment orders time-barred. However, if taxes were paid, the applications would abate on 31.3.2008, making the assessment orders within the time limit. The Tribunal remanded the matter to the CIT(A) to determine the tax liability and payments made by the assessees before 31.7.2007 to conclusively decide on the limitation issue.

2. Validity of Proceedings under Sections 154 and 186(2):
The appeals also involved the validity of proceedings under sections 154 and 186(2) of the Income Tax Act. The Tribunal noted that if the assessment orders were found to be time-barred, the proceedings under these sections would become redundant. Consequently, the Tribunal decided to first address the limitation issue. Depending on the outcome, the validity of the proceedings under sections 154 and 186(2) would be revisited. The Tribunal set aside the orders in these appeals and remanded the issues to the CIT(A) for re-adjudication based on the determination of the assessment orders' status.

3. Implications of Non-payment of Taxes under Section 245D(2D):
The Tribunal examined the provisions of section 245D(2D) and section 245HA, which were crucial in determining the abatement of proceedings before the Settlement Commission. The Tribunal highlighted that under section 245D(2D), if the additional tax on the income disclosed in the application and the interest thereon were not paid by 31.7.2007, the application would be deemed abated. The Tribunal emphasized that this provision was applicable to applications where the Settlement Commission had already taken cognizance under section 245D(1). The Tribunal referred to the ITAT (Amristar) Bench decision in the case of Gurmeet Singh Vs. DCIT, which supported the interpretation that non-payment of taxes by 31.7.2007 would result in the application's abatement on that date. The Tribunal remanded the matter to the CIT(A) to determine whether the taxes were paid before 31.7.2007 and decide the limitation issue accordingly.

Conclusion:
The Tribunal allowed the appeals for statistical purposes and remanded the matters to the CIT(A) for a detailed examination of the tax payments and determination of the limitation period. The Tribunal's observations would not prejudice the AO or the assessees' defense. The outcome of the limitation issue would determine the validity of the proceedings under sections 154 and 186(2). The Tribunal's decision was pronounced on 1st June 2016 at Ahmedabad.