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TMI Blog2010 (1) TMI 897X X X X Extracts X X X X X X X X Extracts X X X X ..... , the assessee has challenged the order of learned CIT(A) confirming the order of the Assessing Officer imposing penalty on the assessee under section 271(1)(c) of the Act. 3. Facts and circumstances under which penalty was imposed on the assessee by the Assessing Officer are as follows:- The assessee is a company. It is engaged in the business of share broking, trading in shares and securities. A search under section 132 of the Act was conducted on 3-3-2005 in the case of the Dolat Group. The assessee who is a part of the Dolat group was also searched. Consequent to the search action, notice under section 153A was issued on the assessee for 6 assessment years, i.e., from assessment years 1999-2000 to 2005-06. On 31-10-2005, the assessee filed return of income for assessment year 2005-06 in which he declared total loss of Rs. 3,92,54,327. 4. On 23-10-2006, the entire Dolat group consisting of 46 applicants, being 27 companies (including the assessee, 5 HUFs, 1 firm and 13 individuals) filed application before the Income-tax Settlement Commission under section 245C(1) of the Act. In the application among other incomes offered to tax, the group offered a sum of Rs. 5 crores ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of Annexure to an application, such as the disclosure of income by the assessee is not made available to the Assessing Officer before admission of an application under section 245D(1). After admission the material, viz., Annexure to the application becomes available to the Assessing Officer/learned CIT(A). The same is, however, for effecting settlement under section 245D(4) only. In the present case, since it was a common disclosure made in the case of 46 entities for common disclosure made in the case of 46 entities for 6 assessment years, and since some applications were admitted under section 245D(1); and the some applications for some assessment years were not admitted or settled under section 245D(1) and (4), the information regarding disclosure by the assessee for assessment year 2005-06 of a sum of Rs. 2,27,273 became available to the Assessing Officer. 6. Based on the information obtained as above, the Assessing Officer completed the assessment for assessment year 2005-06, whereby he reduced the loss declared by the assessee by Rs. 2,27,273 which was the income declared by the assessee for assessment year 2005-06 before the Settlement Commission. The assessee ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the limited purpose of settlement of tax dispute and passing an order under section 245D(4) of the Act and for no other purpose. Our attention was drawn to the Income-tax Rules, 1962 and other relevant rules and provisions of the Income-tax Act, 1961 to which we will make a reference later. It was argued by him that since the disclosure by the entire group of Dolat Group was made before the Settlement Commission and since many of such disclosure ultimately ended in a Settlement order under section 245 D(4) of the Act, the disclosure came to the possession of the Assessing Officer. The fact that the assessee's disclosure for assessment year 2005-06 was not admitted under section 245D(1) of the Act or even if construed as if no order under section 245D(4) has been passed, will not give a license to the Assessing Officer to use the confidential information disclosed in an Annexure to the application for settlement. His further submission was that in a penalty proceedings, the assessee was entitled to point out that the very assessment of income by way of addition in an assessment proceedings in respect of which penalty is sought to imposed under section 271(1)(c) was bad in law, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admitted under section 245D(1) then provisions of section 245HA(1)(iv) would apply. 11. Learned DR relied on the order of learned CIT(A). 12. To appreciate the alternative contention of the assessee, it is necessary to examine the manner in which the process of settlement of case is done under Chapter XIX-A of the Act and the amendment made to those provisions by the Finance Act, 2007. 13. Whenever the forum of Settlement Commission is chosen to settle the disputes with the department, a taxpayer has to file an application under section 245C(1) in a prescribed Form No. 34B. He has to meet few conditions, which are laid down in section 245C(1) and section 245D(1) These conditions, precedent for successful admission of the case before the Settlement Commission are enumerated below:- "(i) Pendency of proceedings before an income-tax authority:- As per section 245C(1):- 'An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed....' The word 'case' has been defined in section 245A(b) which states that:- 'case' means any proceeding under this Act for the assessment or reassessment of any person in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th 'complexities of investigation involved'. This phrase, 'nature and circumstances of the case' is not defined. Its concept has to be understood in the context in which these words are used in the section. This provides a wide discretion to the commission to admit a case, or reject it. Even, where a case may not be complex, the Commission may admit it, or even where a case is complex the commission may not admit it. (vii) Other:- The applicant should make disclosure of his income only as mentioned in section 245C(1). It means that the applicant is not entitled to disclose income of others as his. However, where he clearly asserts that others are his benami and for that reasons income in the name of others really belongs to him, he is entitled to make such disclosure." [Emphasis supplied] 14. Rule 44C and rule 44CA of the Income-tax Rules, 1962 prescribes the form of application (under section 245C of the Act) for settlement of cases. The application is required to be submitted in Form 34B in Appendix II to the Income-tax Rules. The annexure to Form 34B is of some importance and this requires the assessee to state the following:- (1) Amount of income which has not been disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith or admitted by the Settlement Commission, only then would the CIT be entitled to receipt of the annexure to Form 34B in Appendix II to the Income-tax Rules furnished by the petitioner. This is in consonance with rule 44CA of the Income-tax Rules. 18. Rules 6 and 9 of the Procedure Rules read as follows:- "6. CIT's report, etc., under section 245D(1):- On receipt of a settlement application, a copy of the said application (excluding the annexure) shall be forwarded by the Commission to the CIT with the direction to furnish his report under sub-section (1) of section 245D within 45 days of the receipt of the said copy of the application by him. 9. CIT's further report - where an order is passed by the Commission under sub-section (1) of section 245D allowing the settlement application to be proceeded with a copy of annexure to the said application together with a copy of each of the statements and other documents accompanying such annexure, shall be forwarded to the CIT along with a copy of the said order with the direction that the CIT shall furnish a further report within ninety days of the receipt of the said annexure (including the statements and other documents accom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or period specified under sub-section (4A) of section 245D, the proceedings before the Settlement Commission shall abate on the specified date. Specified date would be (i) in respect of an application referred to in sub-section (2A) or sub-section (2D), on or before the 31st day of March, 2008; (a) in respect of an application made on or after 1st day of June, 2007 within nine months from the end of the month in which the application was made. (2) Where a proceeding before the Settlement Commission abates, the Assessing Officer or as the case may be any other income-tax authority before whom the proceeding at the time of making the application was pending, shall dispose of the case in accordance with the provisions of this Act as if no application under section 245C had been made. (3) For the purposes of sub-section (2), the Assessing Officer or as the case may be, other income-tax authority, shall be entitled to use all the material and other information produced by the assessee before the Settlement Commission or the results of the inquiry held or evidence recorded by the Settlement Commission in the course of the proceedings before it, as if such material, information in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d use of confidential information disclosed by the assessee in such proceedings by the Assessing Officer in making assessment. 23. Apart from the above, we are also of the view that even on merits the cancellation of penalty would be appropriate. The addition has been made by the Assessing Officer only on the basis of the disclosure by the assessee. There is no other material or basis for the income declared by the assessee and it was an ad hoc declaration. Imposition of penalty in the given facts and circumstances of the case is bad in law. Learned CIT(A) has distinguished the case of Hon'ble Supreme Court in the case of Sudarshan Silk and Sarees (supra) as a case where disclosure of income was made by the assessee on the strength of inducement by the revenue authority to save assessee from penalty proceedings. The case of the assessee before the Tribunal in our view stands on the same footings. The scheme of settlement provides a means by which an assessee can give all confidential information to the department and the department in turn promises immunity against penalty and prosecution. The Government in the process gets expeditious tax collection without having to go into com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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