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TMI Blog2019 (6) TMI 999X X X X Extracts X X X X X X X X Extracts X X X X ..... ch has become conclusive. Such concluded assessment can only be reopened in case of fraud or misrepresentation of facts, as contemplated under subsection (6) of section 245D. The assumption of jurisdiction on the part of the Assessing Officer u/s 147 of the Act by issuing the impugned notice u/s 148 of the Act is, therefore, invalid and without authority of law. Thus, though on the reasons recorded for reopening the assessment, the AO could have formed the belief that income chargeable to tax has escaped assessment, in this case, as discussed earlier, since there is an order of the Settlement Commission u/s 245D(4) in relation to the assessment year in respect of which the assessment is sought to be reopened, the AO has no jurisdiction to reopen the assessment. The impugned notice u/s 148 , therefore, cannot be sustained. For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The impugned notice dated 31.03.2018 issued by the respondent u/s 148 is hereby quashed and set aside. It is, however, open for the respondent/Revenue to move the Settlement Commission for appropriate relief of declaration that the previous order u/s 245D(4) is void, setting out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it should not be based on some suspicious and vague reasons. Whereas, in this case, the reasons are vague and do not reveal any income having escaped assessment and furthermore, the reasons recorded make it clear that this is a case of borrowed satisfaction without any independent application of mind. It was also contended that in this case, the reopening is beyond a period of four years from the end of relevant assessment year and there is not even a whisper in the reasons recorded regarding any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment. 4.1 Elaborating upon the above submissions, it was submitted that there is no escapement of income inasmuch as the petitioner had disclosed all material facts in the books of accounts and, therefore, it is not permissible for the revenue to reopen the assessment. 4.2 It was submitted that there is no independent application of mind on the part of the Assessing Officer while recording the reasons for reopening and that merely placing reliance on the materials provided by the investigation wing for recording the reasons is impermissible. It was s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be allowed to grow with age and ingenuity, by devising new grounds in replies and affidavits, not envisaged when the reasons for reopening an assessment were recorded. The principle of law, therefore, is well settled that the question as to whether there was reason to believe, within the meaning of section 147 of the Act, that income has escaped assessment, must be determined with reference to the reasons recorded by the Assessing Officer and that the reasons which are recorded cannot be supplemented by affidavits. 4.5 Reliance was also placed upon the decision of this court in Gujarat Fluorochemicals Ltd. v. Deputy Commissioner of Income Tax, 2009 (319) ITR 282, wherein the court recorded that if the Assessing Officer has reason to believe that the assessee has not disclosed fully and truly all material facts, then it should have been stated clearly in the reasons recorded, which has not been done. Instead, the court found that the order dated 28.08.2008 rejecting the objections of the petitioner therein, sought to supplement the reasons which had been recorded, so as to fill in the lacunae, attempting to bring it within the ambit and scope of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act. The first part of Section 147 (1) of the Act requires the AO to have reasons to believe that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject matter of examination. The AO being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the precondition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stence of two orders, each of a different incometax authority, determining the total income of an assessee for the same assessment year. The court held that if the contention of the Revenue is accepted, not only will the finality of the order of settlement be disturbed, but it will also result in different orders relating to the same assessment year and relating to the same assessee being allowed to stand. The court expressed grave doubt whether such a result, which is likely to create chaos and confusion in the tax administration, could have been intended. The court held that the order of the Settlement Commission can be reopened only in cases of fraud and misrepresentation and in no other case. It further held that if the order of settlement is an assessment order and under section 245I of the Act, there is a finality attached to it, it is difficult to conceive of a situation where the Assessing Officer would be empowered to reopen the assessment of the income made by the Settlement Commission on any ground. The only ground by which the finality of the order of the Settlement Commission can be disturbed is where it is subsequently found by the Settlement Commission itself that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Commission. Therefore, the reopening of assessment is valid and legal. 5.3 It was further submitted that subsection (5) of section 245D of the Act provides that subject to the provisions of section 245BA of the Act, the materials brought on record before the Settlement Commission shall be considered by the Members of the concerned Bench before passing any order under subsection (4) of section 245D of the Act and in relation to passing of such order, the provisions of section 245BD shall apply. It was submitted that the material, on the basis of which the Assessing Officer seeks to reopen the assessment, was not brought on record before the Settlement Commission and therefore, the Settlement Commission had no opportunity to consider the same before passing the order under section 245D(4) of the Act. 5.4 Reliance was placed upon the decision of Supreme Court in Brij Lal Ors. v. Commissioner of Income Tax, Jalandhar, 2010 (328) ITR 477, reference to which shall be made at a later stage. 5.5 Reliance was also placed upon the decision of the Delhi High Court in Gupta Perfumers (P) Ltd. v. Income Tax Settlement Commission Ors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atute would show that it does not postulate the existence of two orders, each of a different incometax authority, determining the total income of an assessee for the same assessment year. It was held that if the contention of the Revenue is accepted, not only will the finality of the order of settlement be disturbed, but it will also result in different orders relating to the same assessment year and relating to the same assessee being allowed to stand. The court observed that the order of the Settlement Commission can be reopened only in cases of fraud and misrepresentation and in no other case. It further held that if the order of settlement is an assessment order and under section 245I of the Act, there is a finality attached to it, it is difficult to conceive of a situation where the Assessing Officer would be empowered to reopen the assessment of the income made by the Settlement Commission on any ground. The only ground by which the finality of the order of the Settlement Commission can be disturbed is where it is subsequently found by the Settlement Commission itself that its order has been obtained by fraud or misrepresentation of facts. The court placed reliance upon the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but not both. The court further referred to the relevant provisions contained in Chapter XIXA of the Act and came to the conclusion that once an application for settlement of a case is filed before the Settlement Commission and is allowed to pass through various stages under section 245D of the Act, it is only the Settlement Commission which can pass any order concerning such a case. At all stages, the Act refers to a case for which an application for settlement can be filed, a case which the Settlement Commission considers for settlement, a case the Commission either allows to be settled or does not allow to be so settled. The court further held that the Act does not envisage a return of an assessee to be split into two parts, one for consideration before the Settlement Commission by way of settlement and another for normal assessment at the hands of the Assessing Officer or the appellate or the revisional authority. In other words, if an application for settlement is allowed and the case is settled, the entire assessment for the assessment years in question would stand settled. 7.2 In Rajiv Yashwant Bhale v. The Principal Commssioner of Income Tax (supra), on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Chapter XIXA (see Section 245D). Under Section 245F( 4), it is clarified that nothing in Chapter XIXA shall affect the operation of any other provision of the Act requiring the applicant to pay tax on the basis of selfassessment in relation to matters before the Settlement Commission. 25. Our detailed analysis shows that though Chapter XIXA is a selfcontained code, the procedure to be followed by the Settlement Commission under Sections 245C and 245D in the matter of computation of undisclosed income; in the matter of computation of additional income tax payable on such income with interest thereon; the filing of settlement application indicating the amount of income returned in the return of income and the additional income tax payable on the undisclosed income to be aggregated as total income shows that Chapter XIXA indicates aggregation of incomes so as to constitute total income which indicates that the special procedure under Chapter XIXA has an inbuilt mechanism of computing total income which is nothing but assessment (computation of total income). 26. To elaborate, under Section 245C( 1B), if the applicant has fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the settlement application as if such aggregate is the total income. Thus, the scheme of the said sections is based on computation of total income and in that sense we have stated that such application for settlement is akin to a return of income. The said provision deals with total income . Thus, as stated above, Sections 234A, B and C are applicable up to the stage of Section 245D( 1) order passed by the Settlement Commission. However, Parliament has not extended the provisions and the liability to pay interest beyond the date of application for settlement. This is the position even after the Finance Act of 2007. 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 XIXA. The order under Section 245D( 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t; inquiry by the Assessing Officer under sections 142 and 143 and making of the order of assessment by the Assessing Officer under sections 143(3) or 144 and issuing of notice of demand under section 156 on the basis of the assessment order. The making of the order of assessment is an integral part of the process of assessment. No such steps are required to be followed in the case of proceedings under Chapter XIXA. The said Chapter contemplates the taxability determined with respect to undisclosed income only by the process of settlement/arbitration. Thus, the nature of the orders under sections 143(1), 143(3) and 144 is different from the orders of the Settlement Commission under section 245D(4) of the Act. 7.5 Moreover, the Supreme Court, in the above decision has held that the scheme of the said section is based on computation of total income and in that sense it has stated that such application for settlement is akin to a return of income. The said provision deals with total income . Therefore, when section 245C deals with total income, all matters falling within the ambit of total income would stand concluded once the Settlement Commission settles a case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act requires the assessee to make a full and true disclosure of his income for the period in respect of which he has made such application, the order under section 245D(4) of the Act would relate to the determination of the total income of the assessee for that assessment year and such order is conclusive and cannot be reopened except as provided in that Chapter. 7.8 As to how the proceeding can be reopened is provided under section 245D(6) of the Act, which says that every order passed under section 245D(4) of the Act 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. Therefore, the only ground on which an order of settlement made under section 245D of the Act can be reopened is that if it is subsequently found by the Settlement Commission that the order under section 245D(4) of the Act had been obtained by fraud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D, the proceedings in respect of the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission. The remedy, therefore, is not under section 147 of the Act, but under section 245D(6) read with section 245D(7) of the Act. 7.11 In the facts of the present case, since the Settlement Commission has passed an order under section 245D(4) of the Act in respect of the assessment year in relation to which the assessment is sought to be reopened, the Assessing Officer has no jurisdiction to invoke the provisions of section 147 of the Act and reopen an assessment, which has become conclusive. Such concluded assessment can only be reopened in case of fraud or misrepresentation of facts, as contemplated under subsection (6) of section 245D of the Act. The assumption of jurisdiction on the part of the Assessing Officer under section 147 of the Act by issuing the impugned notice under section 148 of the Act is, therefore, invalid and without authority of law. 8. Coming to the second question, namely, whether on the reasons recorded, the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en conducted in case of the main beneficiaries of accommodation entries, one being SCS [Shirish Chandrakant Shah]. The material on record shows that Shri Pradip Birewar had paid ₹ 70 crores in cash to SCS. Such cash payment was made to arrange LTCG/Loss entries in the scrip of (i) Shri Ganesh Spinners Ltd. and (ii) Praneta Industries Ltd. The modus operandi is discussed in detail in the appraisal report. The material on record shows that bogus LTCG entries were made to the beneficiaries to whom shares were allotted through private placement of convertible shares recorded as PHY in the pradeep abad sheet . PHY refers to the transactions where shares of SGSL (Shri Ganesh Spinners Ltd.) have been acquired by the beneficiary clients in physical certificate form. That in this case, the shares are not purchased through exchange. A perusal of the entries recorded shows that the assessee has received payout of ₹ 68,33,460/for 3,62,000 shares in assessment year 201112. On the basis of the evidence found during the course of search and the appraisal report, the Assessing Officer has formed the belief that the amount of ₹ 68,33,460/received by the petitioner towards con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis for forming the opinion that income chargeable to tax has escaped assessment on the material relied upon, such reasons can be elaborated in the affidavitinreply. In the present case, along with the affidavitinreply, the respondent has placed on record the appraisal report, which finds reference in the reasons recorded. The appraisal report is detailed and elaborate and gives a clear picture of the modus operandi by which accommodation entries were provided to convert unaccounted money into white money, however, the reasons recorded are not so elaborate and rightly so, inasmuch as the reasons have to satisfy that there was sufficient material for the Assessing Officer to form the belief that income chargeable to tax has escaped assessment. Evidently, the reasons would not set out the entire modus operandi as recorded in the appraisal report, but would briefly set out the gist of the facts and material which led the Assessing Officer to form the requisite belief that income chargeable to tax has escaped assessment. However, the reasons as they stand should be sufficient to show that on the reasons recorded the Assessing Officer could have formed the belief that income chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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