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TMI Blog2016 (1) TMI 256X X X X Extracts X X X X X X X X Extracts X X X X ..... he principal bench of the said settlement commission passed an order under section 245D (1) of the said act admitting the application made by petitioner nos. 1 to 7 for settlement before it. Similarly, on 28.12.2011, the principal bench of the income tax settlement commission passed an order under section 245D (1) of the said act admitting the applications made by petitioner nos. 8 to 10 for settlement before it. On 21.06.2012, the Commissioner of income tax, Delhi furnished his consolidated report as required by the income tax settlement commission. The petitioners submitted their reply to the said consolidated report on 10.09.2012. As required by the settlement commission, the petitioners submitted their consolidated profit and loss account and balance sheets for the assessment year's 2004-05 to 2011-12 before the assessing officer (Asst Commissioner of income tax, central circle 23, Jhandewalans, New Delhi). 3. The Commissioner of income tax submitted a supplementary report dated 05.12.2012 in which he noted that after examining the accounts submitted by the petitioners, the assessing officer was of the opinion that the accounts were very complex in nature and that the same oug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction between a settlement and an assessment. The procedure for assessment is provided in chapter XIV of the said act. On the other hand the procedure for settlement of cases is set out in chapter XIX-A of the said act. The requirement of a special audit is spelt out in section 142 (2A) of the said act which falls within the ambit of inquiry before assessment. It was contended that the proceedings under chapter XIX-A are entirely different from assessment proceedings and, therefore, the settlement commission which is concerned with settlement of cases would not have the jurisdiction to direct a special audit. It was also contended that merely because section 245F confers powers on the settlement commission which are vested in an income tax authority, does not mean that all the powers of an income tax authority under the said act vest in the income tax settlement commission. It was submitted that the powers conferred under section 245F ought to be construed keeping in mind the distinction between an assessment and a settlement. Reliance was placed on the following decisions: (1) CIT v. Om Prakash Mittal: (2005) 2 SCC 751; (2) Brij Lal & Ors v. CIT, Jalandhar: (2011) 1 SCC 1; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before assessment.-(1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under Section 115-WD or Section 139 or in whose case the time allowed under sub-section (1) of Section 139 for furnishing the return has expired a notice requiring him, on a date to be therein specified,- (i) where such person has not made a return within the time allowed under sub-section (1) of Section 139 or before the end of the relevant assessment year, to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or: Provided that where any notice has been served under this sub-section for the purposes of this clause after the end of the relevant assessment year commencing on or after the 1st day of April, 1990 to a person who has not made a return within the time allowed under sub-section (1) of Section 139 or before the end of the relevant assessment year, any such notice issued to him shall be deemed to have been served in accordance with the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt or recomputation under Section 147; (ii) [* * *] (iii) [* * *] (iv) a proceeding for making fresh assessment in pursuance of an order under Section 254 or Section 263 or Section 264, setting aside or cancelling an assessment, shall not be a proceeding for assessment for the purposes of this clause. Explanation.-For the purposes of this clause- (i) a proceeding for assessment or reassessment or recomputation referred to in clause (i) of the proviso shall be deemed to have commenced from the date on which a notice under Section 148 is issued; (ii) [* * *]; (iii) a proceeding for making fresh assessment referred to in clause (iv) of the proviso shall be deemed to have commenced from the date on which the order under Section 254 or Section 263 or Section 264, setting aside or cancelling an assessment was passed; (iii-a) a proceeding for assessment or reassessment for any of the assessment years, referred to in clause (b) of sub-section (1) of Section 153-A in case of a person referred to in Section 153-A or Section 153-C, shall be deemed to have commenced on the date of issue of notice initiating such proceedings and concluded on the date on which the assessment is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the date of application, has been paid on or before the date of making the application and the proof of such payment is attached with the application. Explanation.-For the purposes of clause (i-a),- (a) the applicant, in relation to the specified person referred to in clause (i-a), means,- (i) where the specified person is an individual, any relative of the specified person; (ii) where the specified person is a company, firm, association of persons or Hindu undivided family, any director of the company, partner of the firm, or member of the association or family, or any relative of such director, partner or member; (iii) any individual who has a substantial interest in the business or profession of the specified person, or any relative of such individual; (iv) a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the specified person or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member; (v) a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case referred to in clause (i) of that sub-section, the amount of tax calculated under that clause; (b) in a case referred to in clause (ii) of that sub-section, the amount of tax calculated under that clause as reduced by the amount of tax calculated on the total income returned for that year; (c) [* * *] (1-D) Where the income disclosed in the application relates to more than one previous year, the additional amount of income tax payable in respect of the income disclosed for each of the years shall first be calculated in accordance with the provisions of sub-sections (1-B) and (1-C) and the aggregate of the amount so arrived at in respect of each of the years for which the application has been made under sub-section (1) shall be the additional amount of income tax payable in respect of the income disclosed in the application. (2) Every application made under sub-section (1) shall be accompanied by such fees as may be prescribed. (3) An application made under sub-section (1) shall not be allowed to be withdrawn by the applicant. (4) An assessee shall, on the date on which he makes an application under sub-section (1) to the Settlement Commission, also intimate the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied therein, the Settlement Commission may, on the basis of the report and within a period of fifteen days of the receipt of the report, by an order in writing, declare the application in question as invalid, and shall send the copy of such order to the applicant and the Commissioner: Provided that an application shall not be declared invalid unless an opportunity has been given to the applicant of being heard: Provided further that where the Commissioner has not furnished the report within the aforesaid period, the Settlement Commission shall proceed further in the matter without the report of the Commissioner. (2-D) Where an application was made under sub-section (1) of Section 245-C before the 1st day of June, 2007 and an order under the provisions of sub-section (1) of this section, as they stood immediately before their amendment by the Finance Act, 2007, allowing the application to have been proceeded with, has been passed before the 1st day of June, 2007, but an order under the provisions of sub-section (4), as they stood immediately before their amendment by the Finance Act, 2007, was not passed before the 1st day of June, 2007, such application shall not be allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... months from the end of the month in which the application was made. (iii) in respect of an application made on or after the 1st day of June, 2010, within eighteen months from the end of the month in which the application was made. (5) Subject to the provisions of Section 245-BA, the materials brought on record before the Settlement Commission shall be considered by the Members of the Bench concerned before passing any order under sub-section (4) and, in relation to the passing of such order, the provisions of Section 245-BD shall apply. (6) Every order passed under sub-section (4) shall provide for the terms of settlement including any demand by way of tax, penalty or interest the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts. (6-A) Where any tax payable in pursuance of an order under sub-section (4) is not paid by the assessee within thirty-five days of the receipt of a copy of the order by him, then whether or not the Settlem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of that section, exclusive jurisdiction to exercise the powers and perform the functions of an income tax authority under this Act in relation to the case: Provided that where an application has been made under Section 245-C on or after the 1st day of June, 2007, the Settlement Commission shall have such exclusive jurisdiction from the date on which the application was made: Provided further that where- (i) an application made on or after the 1st day of June, 2007, is rejected under sub-section (1) of Section 245-D; or (ii) an application is not allowed to be proceeded with under sub-section (2-A) of Section 245-D, or, as the case may be, is declared invalid under sub-section (2-C) of that section; or (iii) an application is not allowed to be further proceeded with under sub-section (2-D) of Section 245-D, the Settlement Commission, in respect of such application shall have such exclusive jurisdiction up to the date on which the application is rejected, or, not allowed to be proceeded with, or, declared invalid, or, not allowed to be further proceeded with, as the case may be. (3) Notwithstanding anything contained in sub-section (2) and in the absence of any express ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcel of the assessment proceedings with the object and purpose of enabling the assessment to be made under the said act by the assessing officer. 10. We shall now examine the provisions pertaining to settlement of cases. These provisions have been examined in detail in Commissioner of Income Tax v. Income Tax Settlement Commission & Ors.: MANU/DE/1816/2013 [=[2014]360ITR407(Delhi)] and it would be apposite to reproduce the same: - "6. We shall now briefly examine the scheme of the said Act insofar as it is relevant for our purposes. Under section 245C of the said Act, an assessee is entitled to make an application for settlement. The application has to be made in such form and such manner as may be prescribed. The application must contain (i) a full and true disclosure of the assessee's income which has not been disclosed before the assessing officer; (ii) the manner in which such income has been derived; (iii) the additional amount of income tax payable on such income; and (iv) such other particulars as may be prescribed. Furthermore the assessee is also required to pay the additional amount of tax and interest thereon, on or before the date of making the application and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter without the report of the Commissioner. 9. Under Section 245D(3), the Settlement Commission, inter alia, in respect of an application which has not been declared invalid under Section 245D(2C) of the said Act may call for the records from the Commissioner and after examination of such records, if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the Commissioner to make or cause to be made such further enquiry or investigation and to furnish a report on the matters covered by the application and any other matter relating to the case. The Commissioner is required to furnish the report within a period of 90 days of receipt of the communication from the Settlement Commission. It is further provided that where the Commissioner does not furnish a report within the said period of 90 days, the Settlement Commission may proceed to pass an order under sub-section (4) without such report. 10. Under Section 245D(4) of the said Act, the Settlement Commission, after examination of the records and the report of the Commissioner, if any, received under, inter alia, sub-section (2B) or subsection (3) and afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 245C has been allowed to be proceeded with under Section 245D, the Settlement Commission shall, until an order is passed under sub-section (4) of Section 245D, have, subject to the provisions of sub-section (3) of that section, exclusive jurisdiction to exercise the powers and perform the functions of an income tax authority under the said Act in relation to the case. We must also notice the proviso to Section 245F(2) which makes it clear that where an application has been made under Section 245C on or after the first day of June, 2007, the Settlement Commission shall have exclusive jurisdiction from the date on which the application was made............. 14. For the sake of completeness, it would also be appropriate for us to refer to the second proviso to Section 245F(2) of the said Act which, inter alia, makes it clear that where an application which has been made on or after the first day of June, 2007 is rejected under Section 245D(1) or is declared invalid under Section 245D(2C), the Settlement Commission, inspite of such an application, would have exclusive jurisdiction upto the date on which the application is rejected or declared invalid as the case may be. ........... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (4) of section 245D, have, subject to the provisions of sub-section (3) of section 245D, exclusive jurisdiction to exercise the powers and perform the functions of an income tax authority under the said act in relation to the case from the date on which the application was made. In our view, the exclusivity of jurisdiction which is contemplated by the said provision is that once an application for settlement is made before the settlement commission, no income tax authority would have jurisdiction to deal with the case. It does not mean that the settlement commission from that date steps into the shoes of the income tax authority who was hitherto dealing with the case. To be clear, let us take an example. Let us assume that assessment proceedings are underway before an assessing officer. At that point of time, the assessee files a settlement application before the settlement commission. In view of the provisions of Section 245F, from that date onwards the settlement commission would have exclusive jurisdiction to exercise the powers and perform the functions of an income tax authority under the said act in relation to the case. Does it mean that the settlement commission could con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is distinct and different from settlement proceedings, the settlement commission would not, in our view, have jurisdiction to direct a special audit as it does not have any nexus with the settlement proceedings. All that the settlement commission is required to do in the course of the settlement proceedings is to ensure that the assessee who has made the application for settlement of his case has inter-alia made a full and true declaration of his hitherto undisclosed income and the manner in which it was derived. The method of computation of the tax liability of the applicant is set out in section 245C and in particular in sub-sections (1A) to (1D) thereof. If the settlement commission is of the view that an assessee has not made a full and true declaration of the undisclosed income then the application is liable to be rejected. In other words, if the accounts put forth by the assessee before the settlement commission are found by the settlement commission on the basis of the available records and/or the reports of the Commissioner to be neither full nor true then the only option available with the settlement commission is to reject the application for settlement and relegate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in the Income Tax Authority under the Act. In this connection, however, we need to keep in mind the difference between "procedure for assessment" under Chapter XIV and "procedure for settlement" under Chapter XIX-A (see Section 245-D). Under Section 245-F(4), it is clarified that nothing in Chapter XIX-A shall affect the operation of any other provision of the Act requiring the applicant to pay tax on the basis of self-assessment in relation to matters before the Settlement Commission. xxxx xxxxx xxxxx xxxxx 39. Moreover, as stated above, under the Act, there is a difference between assessment in law [regular assessment or assessment under Section 143(1)] and assessment by settlement under Chapter XIX-A. The order under Section 245-D(4) is not an order of regular assessment. It is neither an order under Section 143(1) or Section 143(3) or Section 144. Under Sections 139 to 158, the process of assessment involves the filing of the return under Section 139 or under Section 142; inquiry by the AO under Sections 142 and 143 and making of the order of assessment by the AO under Section 143(3) or under Section 144 and issuing of notice of demand under Section 156 on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 144. What is of importance is that the Supreme Court held that the making of an order of assessment is an integral part of the process of assessment. Meaning thereby that if the proceedings do not culminate in an assessment order the same cannot be regarded as assessment proceedings. In the case of proceedings under Chapter XIX-A there is no provision for an assessment order and the said chapter only contemplates the taxability determined with respect to undisclosed income by the process of settlement/arbitration. Elaborating on this aspect, the Supreme Court held that the Chapter XIX-A provisions contemplate assessment by settlement and not by way of regular assessment or assessment under Section 143(1) or under Section 143(3) or under Section 144 of the Act and that the said Chapter XIX-A is a code by itself. 18. Since the learned counsel for the revenue placed reliance on paragraphs 25 to 27 of the decision in Brij Lal (supra) it would be appropriate to consider the same. The said paragraphs are as under: "25. Our detailed analysis shows that though Chapter XIX-A is a self-contained code, the procedure to be followed by the Settlement Commission under Sections 245-C and 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legitimate. We cannot agree with this contention of the learned counsel for the revenue. Wherever the Supreme Court spoke of assessment in the context of settlement proceedings under Chapter XIX-A, it qualified it by using the expression "computation of income" (which has necessarily to be done by aggregating the disclosed and undisclosed income) and more particularly the expression - "a special type of computation of total income". In any event, as pointed out above, the Supreme Court held that the Chapter XIX-A provisions contemplate assessment by settlement and not by way of regular assessment under section 143(3) or 'assessment' under Section 143(1) or under Section 144 of the Act and that the said Chapter XIX-A is a code by itself. 20. In view of the above analysis, we need not examine the decisions in Picasso Overseas (supra), Ashwani Tobacco (supra), Dharampal (supra) and Murarilal Harishchandra Jaiswal (supra), which, though they support the contentions on behalf of the petitioners, have been rendered either under the Central Excise Act, 1944 or the Customs Act, 1962. We may, however, notice the decision of a division bench of the Madras High Court in Canara Jewellers v. S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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