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TMI Blog2002 (9) TMI 81X X X X Extracts X X X X X X X X Extracts X X X X ..... -All these writ petitions raise a common question of law. They are accordingly disposed of by a common judgment. However, for the sake of convenience the facts of C.W.P. No. 1255 of 1981 are noted. This petition is filed by two petitioners. Petitioner No. 1 is a private limited company of which petitioner No. 2 is the director. On November 29, 1978, the petitioner-company filed an application under section 245C(1) of the Income-tax Act, 1961 (hereinafter to be referred to as "the Act" for short) before the Settlement Commission for settlement of its case under the Act. This application is referred to by the petitioners in the petition as the "main settlement application". At the time of making this application various proceedings under the Act were pending against the petitioner-company in respect of the assessment years 1977-78 and 1978-79. Thus in entry No. 5 of this main settlement application the petitioner mentioned these two assessment years only. On December 15, 1978, the petitioner-company requested the Settlement Commission through a petition for amendment of the main settlement application to substitute against entry at serial No. 5. In place of the two assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nection with the assessment pending before the Income-tax Officer, Company, Circle VI, New Delhi, for the assessment years 1977-78 and 1978-79, settled. A copy of the application was forwarded to the Commissioner of Income-tax, Delhi II, New Delhi, for his report under sub-section (1) of section 245D. In the report received under his letter No. CIT-II/H.O/Q.II/Tech/48/7/78/16046, dated January 6, 1979 and No. CIT/II/Settlement/(1)/79-80/1280, dated February 4, 1980, the Commissioner has raised no objection under sub-section (1A) of section 245D to the application being allowed to be proceeded with. 2. Having due regard to the Commissioner's report and the circumstances of the case, the Settlement Commission allows the application to be proceeded with. 3. The Income-tax Officer may issue tax recovery certificate to the Tax Recovery Officer in respect of arrears demands, if any, to save limitation under section 231 of the Income-tax Act, but any coercive action would be kept in abeyance till order under section 245D(4) is passed by the Commission." On August 5, 1980, the first petitioner-company filed its return of income before the Income-tax Officer for the assessment year 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the applications in respect of the assessment years 1972-73, 197374, 1975-76 and 1976-77 could not be admitted under section 245C(1) of the Act as no proceedings in respect of those years were pending at the time when these applications were made. From the aforesaid factual matrix, it is clear that the case hinges on the interpretation of sections 245C(1), 245D(1) and section 245E of the Act. These sections are reproduced below for the sake of convenience: "245C. Application for settlement of cases. -(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, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided: Provided that no such application shall be made unless,- (a) the assessee has furnished the return of income which he is or was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions have already been considered and lucidly interpreted when they came for consideration before the Supreme Court in the cases of R.B. Shreeram Durga Prasad and Fatechand Nursing Das v. Settlement Commission (IT and WT) [1989] 176 ITR 169 and in the case of CIT v. Paharpur Cooling Towers Pvt. Ltd. [1996] 219 ITR 618. In fact counsel for both the sides referred to the aforesaid judgments in support of their respective contentions. Therefore, it would be better to find out as to what these cases decide. In the first case the appellant had made a composite application to the Settlement Commission for settlement of its income-tax assessments for the assessment years 1948-49 to 1975-76 under section 245C of the Income-tax Act, 1961. On August 12, 1977, the Commissioner agreed to the settlement for the years 1960-61 to 1975-76 but objected to the settlement for the earlier years 1948-49 to 1959-60 on the ground that concealment in relation to those years had been upheld in appeal before the appropriate authorities. Without furnishing to the appellant any opportunity of being heard, the Settlement Commission passed an order on August 24, 1977, rejecting the application for sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e were not adhered to. The exercise of exhaustive interpretation of the aforesaid provisions was undertaken by the apex court in the latter case, namely, Paharpur Cooling Towers Pvt. Ltd. [1996] 219 ITR 618. That was a case where the respondent-assessee filed an application for settlement under section 245C of the Income-tax Act, 1961, in respect of the assessment year 1975-76. In his response/report to the said application, the Commissioner stated that he had no objection to the application for settlement being processed in respect of the assessment year 1975-76. Thereafter the assessee filed a statement, requesting that the enhanced value of the opening stock disclosed by it should not be added in the assessment of the assessment year 1975-76 alone but should be appropriately spread over all the six assessment years, viz., assessment years 1970-71 to 1975-76. For this purpose, the assessee consented to the reopening of the assessments for the assessment years 1970-71 to 1974-75. The Settlement Commission, holding, by a majority, that it had jurisdiction to do so, reopened the assessments for the earlier assessment years and passed order directing that penalty proceedings pendin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e filed in the prescribed form containing prescribed particulars; in this case, the application filed by the assessee pertained only to one assessment year, viz., 1975-76, and to no other assessment year. According to the second proviso to section 245D(1), as in force at the relevant time, no such application can be proceeded with by the Commission if the Commissioner objects to the application being proceeded with on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable has been established or is likely to be established by any income-tax authority in relation to the case; in this case, the Commissioner objected to the Commission passing any orders with respect to the assessment years other than the assessment year 1975-76; so far as the assessment year 1975-76 is concerned, the Commissioner put forward no objection. Sub-section (4) of section 245D says that after examining the entire material, the Commission shall 'pass such order as it thinks fit on the matters covered by the application and any other material relating to the case not covered by the application', 'in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission to do indirectly what can not be done directly." From the aforesaid observations the following points can be culled out: (a) When the application under section 245C(1) is moved before the Settlement Commission its jurisdiction is confined to the matter covered by the application before it, (b) The Commission can take into consideration any other material not covered by the application but it must be relevant to the case before it, (c) An application can be made only in respect of a pending case, (d) Once an application is admitted in respect of a pending case the Commission takes over the proceedings relevant to that case which may be pending before any authority under the Act, (e) Section 245E empowers the Commission to reopen any completed proceedings connected with the case before it but this power is circumscribed by the requirement expressly stated in the section that such reopening of the completed proceedings should be necessary or expedient for the proper disposal of the case pending before it, (f) There are two more limitations on this power, namely, the reopening of the completed proceedings can be done, even for the aforesaid limited purpose, only wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supplementary application was spread over different assessment years, i.e., 1972-73 to 1979-80, and, therefore, for settling the case it was necessary to reopen the assessment in respect of preceding years. However, his request based on such a self-formed opinion would not be of any help. It was for the Settlement Commission to satisfy itself that it was necessary to reopen the assessment in the interest of the Revenue. We have also noticed that the petitioner when it filed the main settlement application in the first instance, the same was confined only to the assessment years 1977-78 and 1978-79. It is only when on November 13, 1979, its premises as well as those of its directors, etc., were raided and search and seizure was undertaken under section 132 of the Act that the petitioner-company filed a second application offering additional income and wanted the Settlement Commission to cover the period from 1972-73 to 1979-80. Obviously, after this search and seizure the petitioner-company knew fully well that the Income-tax Officer may initiate reassessment proceedings. Obviously to avoid the same the petitioner had chosen the aforesaid course of action. Though it had withdrawn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st to spread income over the years, i.e., 1971-72 to 1978-79, that would not lead to the conclusion that there was deliberate concealment of income. He submitted that the Settlement Commission imposed penalty in relation to the assessment years 1975-76 to 1978-79 without an iota of evidence about concealment of income in relation to these years. He further submitted that for the years 1979-80 and 1980-81 no penalty was imposed only on the ground that now income disclosed was not relatable to any year and therefore for the assessment year in question as well no such penalty could be imposed. His further submission was that although the seizure was from the partners of the petitioner firm and therefore the assets did not belong to the petitioner in such a situation there was no question of levying penalty on the petitioner. Mere disclosure of income voluntarily would not attract penalty provisions unless concealment was also proved, learned counsel submitted. He also referred to three orders of the Commission passed in some other cases wherein no penalty was levied and on that basis submitted that on the parity of reasoning the penalty should not have been levied in respect of these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The undisputed fact which is applicable to all these years is that the search which took place on November 30, 1979, did not result in seizure of any incriminating documents pointing directly or indirectly to the assessee-firm having earned income over these years, which income had not been entered in its books of account but concealed. The assets seized were in the name of various persons, some of whom were partners. The admitted position which was advanced during the course of hearing was that no penalty proceedings were initiated in the hands of partners for any of these assessment years. The other undisputed and admitted position is that the assessee had given bifurcation of the income which had arrived at and sought for settlement was based on various assets which were seized from the partners and their relatives and also in respect of certain items like miscellaneous expenses, repairs, investment in factory building and plant and machinery, etc. The total amount of Rs. 1,02,50,000 which was so offered to be settled, the assessee bifurcated the same over the assessment year 1971-72 to the assessment year 1980-81. The amounts so sought to be treated as income for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of place to bring in the ratio laid down by the Supreme Court in Sir Shadilal Sugar and General Mills'case [1987] 168 ITR 705 that mere surrender of an income and agreeing it to be treated as its income did not necessarily follow that the amount so agreed to be added was concealed income merely because the assessee does not dispute the addition or agreeing to that addition does not absolve the Revenue from proving the mens rea of quasi-criminal offence. The Gujarat High Court in Vinay Chand Hari Lal [1979] 120 ITR 752 is also clearly on the point where there was an admission of the assessee before the Appellate Assistant Commissioner that the amount belonged to him did not necessarily mean that the admission was to the effect that it was really the income that was earned in the relevant assessment year and therefore, was not sufficient for levying of penalty. In the earlier paragraphs during the course of bringing any arguments of counsel for the assessee, Mr. Agarwal, the observation made by the Assessing Officer in imposing the penalty has been brought out. The Assessing Officer had observed while imposing penalty that it would have been a mere matter of time before the Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lement Commission did not take into consideration the relevant facts and did not satisfy itself about the necessary ingredients which are to be established before penalty is to be imposed, the order would clearly be perverse and this court in exercise of article 226 of the Constitution of India has the jurisdiction to judicially review the same. This part of the order, imposing the penalty, therefore, is set aside while maintaining the rest of the order and the matter is remitted back to the Settlement Commission for consideration of the matter afresh, after giving opportunity to both the parties. Writ Petition No. 990 of 1981 is, there fore, partly allowed. C.W.P. No. 992 of 1981: In this petition the petitioner has challenged notices issued to it under section 156 of the Act pursuant to the orders passed by the Settlement Commission under section 245D(1) of the Act by serving upon the petitioner notices of demand claiming the tax, penalty, etc., payable by virtue of the order of the Settlement Commission. Since we have set aside the order of the Settlement Commission relating to penalty, the demand in these notices cannot be enforced till the decision by the Settlement Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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