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SETTLEMENT COMMISSION

By CA A. K. Jain & Sashi Kanta Panda


Introduction:

Income Tax Settlement Commission is a premier Alternative Dispute Resolution (ADR) body in India. Its mandate is to resolve tax disputes in respect of Indian Income Tax & Wealth Tax Laws between the two disputing parties, Income Tax Department on one side and litigating tax payer on the other.

This institution was set up in 1976 by the Central Government on the recommendations of the Direct Taxes Enquiry Committee (1971) set up under the Chairmanship of Justice K.N. Wanchoo, the retired Chief Justice of the Supreme Court of India. The Wanchoo Committee had conceived of the Settlement Commission as a mechanism to allow a one-time tax evader or an unintending defaulter to make clean breast of his affairs. At present, there are Seven benches of the Commission located at New Delhi, Mumbai, Kolkata and Chennai.

The settlement mechanism allows taxpayers to disclose additional Income before it over and above what has been already disclosed before the Income tax Department. The applicant has to pay full amount of tax and interest on the additional income disclosed before the Commission, before filing the application. The Commission then decides upon the admissibility of the application and in case of admitted applications, carries out the process of settlement in a time bound manner by giving opportunity to both parties.

Chapter XIX A of the Income Tax Act, 1961 (‘Act’ for short) deals with the establishment of Settlement Commission, its procedure, powers etc.,  According to Section 245C of the 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 Commission is required to pass the Settlement order within 18 months of filling of the application. It has wide power of granting immunity from Penalty and prosecution, which are major sources of litigation. The orders passed by the Commission are final and conclusive.

Composition:

The Settlement Commission consists of a Chairman, Vice-Chairmen and Members. However, the number of Vice-Chairmen and members in the Settlement Commission is decided by the Central Government. The jurisdiction, powers and authority of the Commission shall vest in the hands of Chairman, in case of Principal Bench, and in the hands of Vice-chairman, in case of Additional Bench. At present, four Benches of the Commission are functioning. The Delhi Bench is known as the Principal Bench and the Benches at Mumbai, Calcutta and Chennai are known as the Additional Benches.

Procedure for Filing Settlement Application:

·Settlement application is to be filed only in the prescribed Form No.34-B notified under the Income Tax Rules, 1962.

·The form has to be signed by the applicant himself.

·The Form has to be properly filled up. An incomplete Form is liable to be rejected.

·In order to be admitted by the Commission, full amount of tax is to be paid alongwith interest payable till the date of admission.

·The application can be made personally or by post. The applicant or his authorized representative can make application in person. Application can also be sent by registered post addressed to the Secretary. However in case of a postal application, the date of receipt in the Commission shall be treated as date of application.

·The application can be made either to the Secretary at the headquarters of the Commission at New Delhi or to the Secretary of the Additional Bench within whose jurisdiction his case falls or to an authorized officer of the Commission.

·In order to be admitted by the Commission, an application should be accompanied by the proof of payment of additional Tax (including interest under section 234A, 234B and 234C on it till the date of filing of application).

·The application is to be accompanied by a copy of self (-) attested challans and other documents as evidence in support of payment of tax and interest by the applicant.

·The application must contain-

1.A full and true disclosure of the assessee’s income which has not been disclosed before the Assessing Officer;

2.The manner in which such income has been derived;

3.The additional amount of income tax payable on such income; and

4.Such other particulars as may be prescribed.

·The settlement application shall be presented in person or by registered post to the Secretary or an authorised officer of the Bench within whose jurisdiction the case falls. A settlement application sent by post shall be deemed to have been presented on the day on which it is received in the office of the Commission.

·An authorized representative can also make application in person. An “authorised representative” means a person authorised by the applicant in writing to appear on his behalf, being:

1.A person related to the applicant in any manner, or a person regularly employed by the applicant; or

2.Any officer of a Scheduled Bank with which the applicant maintains a current account or have other regular dealings; or

3.any legal practitioner who is entitled to practice in any civil court in India; or

4.an accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949), and includes, in relation to any State, any person who by virtue of the provisions of sub-section (2) of section 226 of the Companies Act, 1956 (1 of 1956), is entitled to be appointed to act as an auditor of companies registered in that State.

5.Any person who has passed any accountancy examination recognised in this behalf by the Board, or

6.any person who has acquired such educational qualifications as prescribed by the Board.

·In case there is any defect of the above nature, the application is returned to the applicant pointing out the defects, for re-submission after removing the same. If the application does not suffer from any of the defects mentioned above, the same is entered in the register and a distinctive file number (also called a registration No.) is allotted and the applicant is informed about it through letter. It is then closely scrutinised in accordance with the check-list devised for the purpose.

If the application does not suffer from any of the defects mentioned above, the same is entered in the register and a distinctive file number (also called a registration No.) is allotted by the technical section of the concerned Bench of the Commission. The applicant is informed about it through letter.

Admission of the Application:

An application can be rejected by the Commission during the course of proceedings under section 245D (1) within 14 days of filling of the Settlement application. If the application is not rejected by the Commission within 14 days, it is deemed to have been admitted by it.

·The Commission can reject the application, if the applicant does not satisfy the 3 essential conditions namely:
       
1.to disclose an additional amount of income tax before the Commission, which is at least Rupees ten lakhs (Rs. 50 Lakhs for specific person on the case of Search and Seizure cases);

2.the applicant should not have made another settlement application, after 1st June 2007, which has been allowed to be proceeded with; and

3.no assessment order should have been passed by the concerned income tax authority for the assessment year for which you are approaching the Commission and the statutory time-limit for passing of assessment order for that year has not lapsed.

·Further, an application not accompanied by the proof of payment of full amount of additional tax and interest and the prescribed fee of Rs. 500/- is also liable to be rejected. A copy of the application is to be sent to the concerned income tax Authority on the date of application in the prescribed form no. 34 BA, failing which also it may be rejected.

·The Commissioner shall furnish 7 copies of the Report to the Commission and one copy to the applicant;

·After the application has been admitted, the Commission calls for the report of the Commissioner of Income Tax under section 245D (2B). The Commission may treat an application as valid by passing an order under Section 245D (2C), If the report of the Commissioner is not received within the period of 30 days from the day the letter from the Commission is received by the Commissioner, or on the basis of satisfaction of the Commission, on the basis of the report of the Commissioner. The order of the Commission is to be passed within 15 days of the expiry of the period of 30 days given to the Commissioner for submitting the report.

·The Commission is required to give an opportunity before rejecting the application under section 245D (1).

Validation:

After the application has been admitted, the Commission calls for the report of the Commissioner of Income Tax under section 245D (2B). The Commission may treat an application as valid by passing an order under Section 245D (2C), If the report of the Commissioner is not received within the period of 30 days from the day the letter from the Commission is received by the Commissioner, or on the basis of satisfaction of the Commission, on the basis of the report of the Commissioner. The order of the Commission is to be passed within 15 days of the expiry of the period of 30 days given to the Commissioner for submitting the report.

The Commission is required to give an opportunity to the applicant before treating the application as invalid under Section 245D (2C).

How to calculate additional income Tax:

a. In case the applicant has not furnished return, tax shall be calculated on the income disclosed in the application as if it is the total income and such tax shall be the additional amount of income tax payable.

b. In case applicant has furnished a return, additional income shall be calculated as under.

Total income returned: A
Add: income disclosed in settlement commission: B
Total: C
Additional amount of income tax = tax on C-tax on A

c. If the income so disclosed relates to more than one previous year:

The applicant shall aggregate income by using above methods.

While in a case where assessment proceeding is pending u/s 153A, for all the seven years (1 year relevant to p.y when search is conducted and 6 a.y. immediately preceding the assessment year) putting together , the limit of 50 lakhs in aggregate should be fulfilled. If the applicant is filling application for lesser number of years the additional tax in aggregate should be 50 lakhs. Aggregation should be income and not offering of loss. CIT vs Express Newspapers Ltd.

An application can be made by an assessee for settlement before the Commission only once in a lifetime.

Procedure For Settlement Of Case:

Once an application has been held as valid, the Commission forwards the application along with annexures to the Commissioner calling for his report under Rule 9. This report is to be submitted by the Commissioner within 45 days. The Commission can allow further time, if needed by the Commissioner depending upon the facts of the case. Upon receipt of the Rule 9 Report, a copy of the same is sent to the applicant by post for submitting rejoinder on such report. A copy of rejoinder sent by the applicant is shared with the Commissioner.

The officers of the Commission then issue notice and fix hearing on a particular day and at a specified time. On the day of hearing, the applicant or his authorised representative and the Commissioner of Income Tax (or Assessing Officer) or his representative, namely Commissioner of Income Tax (Departmental Representative) appear before the Bench of the Settlement Commission. The Commission may ask the parties to further produce documents and submission. It may also ask the Commissioner to carry out further inquiry.

After considering both sides, the Commission then passes the final settlement order under Section 245D (4), in writing. The settlement order provides for the terms of settlement which includes determining the amount of additional tax and interest thereon and the manner of payment. It also provides for levy of penalty, or waiver from penalty under the Income Tax Act or the Wealth Tax Act. The Settlement order under Section 245D (4) can be rectified by the Commission to correct mistakes apparent from records within 6 months of the order. However, where the effect of the rectification is to alter the tax liability of the applicant, due opportunity has to be given to the applicant as also the Commissioner.

The terms of settlement are to indicate that the settlement would be void if it was subsequently found by the Commission that it had been obtained by fraud or misrepresentation of the facts;

Where a settlement becomes void the proceedings shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Commission and the Income Tax Authority concerned may complete such proceedings at any time before the expiry of two years from the end of the financial year in which the settlement becomes void.

Hearing of Parties:

One of the views can be that in objection cases also the Settlement Commission has to give a hearing and after hearing both the sides decide whether the objection has been validly taken by the Commissioner and then pass an order either overruling the Commissioner’s objection and allowing the application to be proceed with or upholding the Commissioner’s order objection and rejecting the application. This view is based mainly on the argument, that Commissioner cannot have veto power and application cannot be rejected unless hearing is given.

The Settlement Commission is a high-powered body with wide powers and the interpretation of the second proviso to sub- section (1) to mean that the moment the Commissioner object to the case being proceeded with, the Settlement Commission cannot proceed with the application at all, would be giving the Commissioner veto power over such a high body, which could not have been the intention of the legislature. The Commissioner can thwart the attempt of an applicant who genuinely and honestly wants to get his case settled by the Settlement Commission.

The Commission’s refusal to consider an application in such a case tantamount to rejection of his application and an application cannot be rejected unless a hearing is given to the applicant as provided in the first proviso to sub-section (1).

Since the second proviso is a part of sub-section (1), an order under that section has to be passed. If the legislature wanted some type of cases to be totally excluded from the purview of the Settlement Commission a provision should and would have been in section 245C itself.

If the Settlement Commission decides not to proceed with an application on the basis of objection raised by the Commissioner under this proviso without giving a hearing to the applicant, the order is not a judicial order and is a nullity as it would be against the principle of natural justice. In support of this contention the following passage in Venkataramaiya’s law Lexicon may be quoted:

(a) That every person whose civil rights are affected must have a notice of a case he has to meet.

(b) That he must have reasonable opportunity of being heard in his defence.

(c) That the hearing must not be, by an impartial tribunal, i.e. by a person who is neither directly nor indirectly a party to the case or who has an interest in the litigation or is already biased against the party concerned.

(d) That the authority must act in good faith and not arbitrarily but reasonably.

It can be argued on the basis of the above that section 245D (1) firstly does not even require the Commissioner to grant a hearing before raising the objection and even if such a hearing is given by the Commissioner it will not meet the principles of natural justice as such a hearing will be by a party to the litigation. On the other hand, the Settlement Commission is a judicial body and has to give a hearing to the applicant and the Commissioner in cases where the latter objects to the application to be proceeded with on the grounds mentioned in sub-section (1). A taxpayer chooses second machinery for settling his case. The order of the Settlement Commission allowing the application to be proceeded with is an order creating a right in favour of the applicant. If an order was to be passed rejecting an application and the applicant is denied the right, an order denying that right of being given a hearing, would be against the principles of natural justice and would be bad in law.

Not allowing any particular type of applicant or applicants to come before the Settlement Commission amounts to discrimination and any law which provides for such discrimination is ultra virus.

It can also be argued that the second proviso to sub-section (1) does not contemplate the Commissioner to object to an application for settlement being allowed to be proceeded with in all cases where a concealment or fraud is suspected because there is a distinction between the language used in section 271 (1)(c) and the second proviso. The second proviso contemplates that the concealment or fraud has to be established before the ultimate authority in accordance with the law on the subject and the evidence available with the department and its past experience in other cases. This view is not acceptable. What is the ultimate authority in these matters? The ultimate authority would appear to be the Supreme Court or any lower court or the Appellate Tribunal up to which the applicant goes in appeal.

In the argument, that the fraud or concealment is to be proved, before the “Final authority”, it would mean that the commissioner will have to wait till the time such as the “Final authority”, gives a decision. This fallacious argument immediately raises at least two practical difficulties. One is that if the appeal goes to the Appellate Tribunal and above, the matter cannot be raised before the Settlement Commission and secondly if one have to wait for the outcome before the “Final authority”, whatever that term may mean, the commissioner will have to wait for a long time and most of the cases will be held up for the decision of the “Final authority”.

What the second proviso contemplates is the judgement of the Commissioner as to the concealment which has either been established or is likely to be established on the basis of the facts. It does not depend upon a decision of any other authority. Of course, in coming to the decision the Commissioner may and perhaps invariably call for a report from the officers working under him (Income-Tax officer, inspecting assistant Commissioner, etc) dealing with case but the decision whether or not concealment has been established or likely to be established has to be his and his alone and similarly whether or not to object to the case being proceeded with by the Settlement Commission has also to be the Commissioner and of nobody else.

It may be mentioned that no provision for giving a hearing has been made after this proviso. This is very significant because first proviso to sub-section (1) specifically mentions that an application shall not be rejected under sub-section (1) unless an opportunity had been given to the applicant of being heard. The second proviso is not followed by any such condition which very clearly indicates that no hearing in the type of a case mentioned in the second proviso was contemplated. Even otherwise, a hearing would be necessary where the authority giving the hearing has any power either to accept or reject a particular prayer. When it has not been given any jurisdiction over a particular case, there is no question of there being a hearing or a decision or an order.

The choice of words at different places in sub-section (1) makes the intention of the legislature very clear. The latter part of section 245D (1) reads:

“The Settlement Commission may, by order, allow the application to be proceeded with or reject the application”

Immediately thereafter is the first proviso lays down that no application shall be rejected unless an opportunity had been given to the applicant of being heard. Since up to this point the Settlement Commission has the power and authority either to allow the application to be heard or to reject it, a provision for hearing has been made.

However, in the second proviso, the mandate is “an application shall not be proceeded with”. The words very clearly indicate that the Settlement Commission does not have any power to take any decision except to say that it cannot proceed with the case and that is why the third set of words “application shall not be proceeded with” have been used. Thus there is no question of rejection of any application here.

Evidence:

On receipt of an application under section 245C, the Settlement Committee may call for a report from the income tax authority concerned and on the basis of the materials contained in such report and having regard to the interests of the revenue and having regard to the nature and circumstances off the case or the complexity of the investigation involved therein, the Settlement Committee may, by order, allow all the matters covered by the application or any part thereof to be proceeded with or reject the application.

Provided that the matter covered by the application shall not be proceeded with if the Settlement Committee is of the opinion that concealment of particulars of the income on the part of the applicant or perpetration of fraud by him on any income-tax authority for evading any tax or other sum payable under this Act has been established by any income-tax authority.

As regards the veto power being given to the Commissioner, it appears that the legislature has deliberately given him this power. In fact, it is not only a power but duty as well. In the case of CIT v B.N. Bhattacharjee [1979], the Supreme Court has observed:

“We must realise that the Commissioner has a duty to the public revenue and more importantly, a duty to object to any assessee who is prime facia guilty of grave criminal conduct in the shape of concealment of income or perpetration of fraud getting away with it by invoking chapter XIXA”.

It would appear from a plain reading of the section concerned that once the application has been filed before the Settlement Commission, the commissioner cannot make any independent enquiry before deciding whether a concealment or fraud has been established or is likely to be established. Therefore, the date of filing of the application under section 245C is very important for the simple reason that once the Settlement Commission decides to allow a case to be proceeded with, it acquires an exclusive jurisdiction over the case with retrospective effect from the date of receipt of application. Thus it would appear that Commissioner’s objection has to be based on the information or material in the possession on the date of receipt of application. But is the Commissioner completely barred from considering any material which establishes concealment or which is likely to establish a concealment or fraud which the applicant disclose from the first time in the application which comes to the department possession after the filing of the settlement application by the applicant even though he has not caused any enquiry to be made after the date of receipt of the application?

The following situations discussed by way of illustrations will show the difficulty in expressing a precise and clear-cut opinion in the matter.

(1) The applicant does not have any history of concealment with the income-tax department. His returns have been more or less accepted even though in reality he has been concealing income on a large scale. He has a change of heart and files a settlement application giving with the application detail of concealed income and also mode of concealment. According to rule 6 of Income-Tax Settlement Commission (procedure) Rules, 1997, a copy of the application is sent to the Commissioner calling for his report under sub-section (1). So the Commissioner comes to know of the concealment for the first time only from the assessee application.

(2) The Income-tax Officer finds cash credits in the assessee books and ask the assessee to prove them. The assessee instead of giving reply to the Income-tax Officer applies to the Settlement Commission for settlement of his case. He merely files an application without furnishing any particular of his concealed income and how it has been earned.

(3) The applicant in the application says that the cash credits may be added to his income because he cannot prove the source of the same. He does not admit that those cash credits were his income. In this case again, in our view, the Commissioner does not have any material in his possession on the date of application to object to the case being proceeded with by the Settlement Commission.

(4) The applicant not only says that the cash represent his own suppressed income but also gives the manner of earning such an income. In this case also on the date of application, the Commissioner does not have any material in his possession. Though at the time when he is sending his report under sub-section (1A) he may have a ground to hold that there was concealment of income. The wording of the section would appears to imply that the material on the basis of which the Commissioner may raise objection must be in his possession as a result of efforts on the part of the Income-tax Department and not on the basis of what the applicant disclosed to the Settlement Commission for the first time.

(5) The Income-tax Officer finds cash credits in the name of the persons who are known as “Hawala” dealers and who have at one time or the other admitted before the Income-tax Department that they deal only in “Hawala” or that they have “Hawala” business along with the some genuine business. The income-tax Officer asks the assessee to prove the cash credits in the name of such persons. The assessee instead of giving reply to the Income-tax Officer’s letter, come before the Settlement Commission.

(6) The Income-tax Officer writes letters of enquiry to an assessee, his bankers, purchasers, and sellers for a copy of his account in their books. Before the reply is received by him the assessee file an application before the Settlement Commission for settlement. Before the Settlement Commission asks the Commissioner under sub-section 245D (1) for his report or before the Commissioner sends his report to the Settlement Commission, the Income-tax Officer receives copies of assessee accounts from the bank, the purchasers and the sellers which definitely shows that the bank transactions and trading transactions have been concealed or suppressed by the applicant from the department.

In such a case though on the date of application the Commissioner did not have any material in his possession which could have established or which was likely to establish that there was concealment of income, the Commissioner cannot close his eyes to the information which has come to his possession as a result of enquiries started by the department.

(7) An assessee premises are raided by the Income-tax Department and large quantities of books of accounts seized. The applicant files an application for settlement before the Settlement Commission and the latter calls for a report from the Commissioner under sub-section (1).

A question in this case arises whether the Commissioner can get the seized material examined after the receipt of the Settlement Commission’s letter and base his objection on the finding of such an examination of the seized books.

(8) The Income-tax Officer finds cash credits in the books of the applicant and asks him to prove the same. The assessee agrees to the addition of cash credits to his income. The assessment is made but the assessee goes in appeal before the Appellate Assistant Commissioner and while the appeal is pending, comes before the Settlement Commission for settlement.

It has been held by the Madras High Court in the case of CIT v. Krishna & Co. 20 that in a case where the assessee himself has admitted that the amount (of cash credits) represented in his own income no further evidence would be necessary to show that it was the amount which represented his income, it represented his concealed income.

(9) The assessee files a return which is accepted by the Income-tax Officer. Later proceeding under section 147(a) are started against the assessee and he files a return of income showing much higher income than that in the original return. In this case also the Commissioner can object on the ground that concealment has been established or is likely to be established.

(10) The position will be same even in a case where during the course of assessment proceedings the assessee files a revised return suo motu showing a much higher income than was shown by him in the original return. The Commissioner can object to the case being proceeded on the ground that concealment has been established or is likely to be established. The view is supported by the judgement of the Gauhati High Court in the case of F.C. Aggarwal v CIT.

Issuing of the Commission:

Section 245D (2) provides that a copy of every order passed by the Commission under sub-section (1) shall be sent to the applicant and the Commissioner. Sub-section (3) provides that where an application is allowed to be proceeded with under sub- section (1), the Settlement Commission may call for the relevant 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 ask the Commissioner to make or cause to be made such enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case. According to this section, it is for the Settlement Commission to decide whether or not any further enquiry or investigation is necessary before disposing of the application.

It appears that the duty of making further enquiry or investigation has been given to the Commissioner because the Settlement Commission is not properly equipped or staffed to conduct such investigations, particularly in complex cases. It may be that the Settlement Commission exercise this power only in rare cases where the Commissioner’s report indicates or the Settlement Commission itself is satisfied that the assessee has not made a full and true disclosure of his state of affairs.

It is significant to not that the section enables the Commissioner to make or cause to be made enquiry and investigation and furnish a report not merely on the matters covered by the application but also any other matter relating to the case. One example of such other matter relating to a case can be the Commissioner’s finding after making such enquiry or investigation, that the income offered by the assessee is not taxable in that year alone but has to be spread over a number of earlier years by reopening such assessments under section 245E or 245F.

This procedure, it is feared, may cause unnecessary delay in the settlement of the case which will defeat the purpose of setting up the Settlement Commission to provide cheap and quick justice. The delay may be caused by the reluctance of the concerned income tax authority to give to such reports the urgency and priority they deserve because he is generally over-worked or because credit for such a work may not be available to him as the final disposal of the case is not in his hands.

To remedy this situation two suggestions may be offered. Firstly, a time-limit may be statutorily provided for submission by the Commissioner reports under this sub-section. Secondly, the Settlement Commission may be suitably strengthened with man- power and the officers working in the Settlement Commission statutorily given power to make enquiries. It may be noted that the Directors, Deputy Directors and enquiry officer working on the Settlement Commission are not even mentioned, much less defined, in the Settlement Commission (Procedure) Rules 1997. Therefore they cannot perform any statutory functions under the Income-Tax Act, 1961. The officer of the Settlement Commission may therefore, be vested with the powers of making enquiries and investigations under the income-tax Act as the authorised officers of the incometax Investigation Commission were vested under the Taxation on Income (Investigation Commission) Act, 1947.

Scrutiny Of Case Papers:

On receipt of the CIT's further report, the case papers including the application for settlement, its annexure, the CIT's report etc., are given to the Additional Director of Investigation/Joint Director of Investigation for preparation of a report. Following guidelines have been issued to the ADI/JDI or processing the cases and submission of their reports to the Commission:-

(1) Investigation and enquiry should be generally confined to matters raised in the statement of facts or by the Commissioner of Income-tax in his report, but such other legal or factual issues which comes to the notice of the ADI/JDI in the course of verification of facts, should also be dealt with and brought out in his report.

(2) In cases where original computation of income is to be made by the Settlement Commission, draft computation of income must be insisted upon from the applicants in respect of each year admitted by the Commission. If the ADI/JDI finds any deficiencies in their Statement of Facts as required by the Rules he should promptly bring it to the notice of the Commission through the Director of Investigation.

(3) The ADI/JDI should be selective in recommending cases for reference under section 245D (3) to the Commissioner of Income-tax. It is only in cases where there is no cooperation from the applicants or where there are large differences in valuation of assets or a disclosure has been made before the CIT under section 273A or the CIT himself wants to make some enquiries before giving his report, that a recommendation in this regard may be made. It is not in all cases of search and seizure that a reference under section 245D (3) is required since with the help of appraisal report of the ADI and the order u/s 132(5), the ADI/JDI would be able to examine the issues and formulate his reports. It may be borne in mind that the machinery of section 245D (3) is not an alternative to the hearing by the Commission;

(4) While there should be a full and frank discussion with the applicant by the ADI/JDI and all the evidence gathered has to be made known to the applicant and his reaction obtained, the ADI/JDI should desist from persuading or coercing the applicant with the object of obtaining a settlement proposal ;

(5) The Performa for report by the ADI/JDI approved by the Commission is intended to be a framework in which the reports are to be made without affecting narrative form of the report. In Part-III of the Performa where the issues raised in the Statement of Facts and CIT's report are to be discussed, the intention is that all the issues are focused in brief before the ADI/JDI takes up discussion of the same so that at the time of hearing not much time is wasted in knowing what are the issues to be settled.

Similarly, in Part-IV of the Performa while dealing with the issues, the ADI/JDI will highlight the areas of agreements and disagreements. It may be clarified that the ADI/JDI need not close the issue in case of agreement between the applicant's version and the Department's view in case he feels that the matter should be dealt with in some other manner. In Part V of the Performa, the ADI/JDI should give tentative computation of income based on his recommendations. Similarly, calculations of penalty and interest should be based on the taxes and income as computed by the ADI/JDI.

(6) In the course of hearing the ADI/JDI should not give any commitment to the applicant or give an impression that his recommendations are final or represent the views of the Commission. The ADI/JDI will of course examine the entire case but based on concrete evidence and not on surmises and conjectures.

(7) After the DI has approved and submitted the report prepared by the ADI/JDI, the case is considered by the Commission for passing final orders under section 245D (4). Before such an order is passed, an opportunity of being heard is given both to the applicant and the CIT. The DI and the ADI/JDI are also present in the court to assist the Commission. The DI will orally brief the Commission about the ramifications of the cases before the hearing.

Order of the Commission:

Sub-section (4) of section 245D, provides that the Settlement Commission should examine the records and the report of the Commissioner received under sub-section (1) and report under sub- section (3), if any, and there after give opportunity to the applicant and the Commissioner to be heard either in person or through a representative duly authorised in this behalf. This section further provide that the Settlement Commission should examine such further evidence as may be placed before it or obtained by it and then may, in accordance with the provision of the Act, pass such order as it thinks fit on the matters covered by the application or other matter relating to the case not covered by the application but referred to in the report of the Commissioner under sub-section (1) or sub-section (3).

It is clear from the wording of sub-section (4) that the Settlement Commission need not confine itself to what is contained in the statement of facts filed by the applicant under rule 7 of the Settlement Commission (Procedure) Rules 1997. The words “after examining such further evidence as may be placed before it or obtained by it” indicates that it is open to the Settlement Commission to go beyond the statement of facts and collect whatever it thinks will be necessary to settle the case properly.

Sub-section (4) clearly indicates that the Settlement Commission should act in accordance with the provision of the Act while passing an order under this section. Therefore, it cannot pass any order which will be in violation of the specific provisions of the Income-Tax Act but otherwise it can pass any order it deems fit to settle the case.

For example, in computing the income of an applicant under the various heads, it cannot allow more expenses than are allowable under the various provisions of the Act but after having computed the income if it feels that the income could not have been earned in one years, it can allow it to be spread over, over a number of years, even though it cannot be said exactly how much income relates to any particular year. In such circumstances the income tax officer or the Commissioner cannot allow such spread over, because they are bound by section 69 whereas section 245E gives to the Settlement Commission such power of spread over.

Provisional Attachment:

Section 245DD gives powers to the Commission to attach property.  The said section provides that where, during the pendency of any proceeding before it, the Settlement Commission is of the opinion that for the purpose of protecting the interests of the revenue it is necessary so to do, it may, by order, attach provisionally any property belonging to the applicant.  Such provisional attachment is only for six months.   The Commission may extend the attachment by such further period or periods as it thinks fit for the reasons recorded in writing.

Re-Opening Of Completed Assessments (section 245E):

In view of section 245A (b), an application for settlement can be made only in respect of the assessment years for which proceedings are pending. However, if the Settlement Commission is of the opinion (reasons for such opinion to be recorded by it in writing) that, for proper disposal of the case pending before it, it is necessary or expedient to reopen any proceeding connected with the case but which had been completed by an Income-tax Act, 1922 (11 of 1922) or under this Act by any Income-Tax authority before the application under section 245C was made, it may with the concurrence of the applicant, reopen such proceedings and pass such order thereon as it thinks fit, as if the case in relation to which the application for settlement had been made by the applicant under that section covered such years also. No proceedings, however, shall be re-opened by the Commission if the period between the end of assessment year to which such a proceeding relates and the date of application for settlement under section 245C exceeds nine years. No proceedings are to be reopened if it only serves the interest of the applicant.

Additional Powers:

Section 245F provides that in addition to the powers conferred on the Commission, it shall have the powers which are vested in an Income Tax Authority under this Act.  The Commission is having power to regulate its own procedure and the procedure of Benches thereof in all matters arising out of the exercise of its powers or of the discharge of its functions, including the places at which the Benches shall hold their sittings.

Immunity From Prosecution And Penalty:

Section 245H provides that the Commission may, if it is satisfied that any person who made the application for settlement  under section 245C has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his income and the manner in which such income has been derived, grant to such person, subject to such conditions as it may think fit to impose, for the reasons to be recorded in writing immunity from prosecution for any offence under this Act or under the Indian Penal Code (45 of 1860) or under any other Central Act for the time being in force and also (either wholly or in part) from the imposition of any penalty under this Act, with respect to the case covered by the settlement.

Abatement Of Proceedings:

Section 245HA provides that where-

·an application made under section 245C on or after the 1st day of June, 2007 has been rejected under section 245D(1); or

·an application made under section 245C has not been allowed to be proceeded with under sub-section (2A) or further proceeded with under sub-section (2D) of section 245D; or

· an application made under section 245C has been declared as invalid under sub-section (2C) of section 245D; or

·in respect of any application made under section 245C, an order under sub-section (4) of section 245D has been passed not providing for the terms of settlement; or

·in respect of any other application made under section 245C, an order under sub-section (4) of section 245D has not been passed within the time or period specified under sub-section (4A) of section 245D,

the proceedings before the Settlement Commission shall abate on the specified date.

Order Of Settlement To Be Conclusive (Section 245I):

Every order of Settlement passed under sub-section (4) of section 245D shall be conclusive as to the matters stated there in and no matter covered by such order shall, save as otherwise provided in this chapter, be reopened in any proceeding under this Act or under any other law for the time being in force.

According to this section, every order of the Settlement Commission passed under section 245D (4) is final. The exception is provided by the words “save as otherwise provided in this chapter”. Such provision is to be found in sub-sections (6) and (7) of section 245D. As mentioned earlier, according to section 245D (6), a Settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts. Sub-section (7) of section 245D, provides that if settlement becomes void under Sub-Section (4) of Section 245D, the case goes out of the jurisdiction of the Settlement Commission and the Income tax Department has to take up the case afresh from the stage at which the case was allowed to be proceeded with by the Settlement Commission. However, the main question is whether the order of Settlement passed by the Settlement Commission is really final, i.e, it cannot be questioned at all before any authority. The answer to this question is in negative for the reason stated in the succeeding paragraphs.

How Final Is The Settlement Commission’s Order- Order Rectifiable:

Any clerical or arithmetical mistake which is apparent from the records, can be rectified under section 35 of the 1922 Act or under section 154 of the 1961 Act, as the case may be, by the Settlement Commission on its own initiative or on an application made by the applicant or the Commissioner in this regard.

Similarly, any glaring and obvious mistake of law which is apparent from record can also be corrected by the Settlement Commission. In the case of Venkatachalam v. Bombay Dyeing & Mfg. Co. Ltd., the Supreme Court has held at page 150 that:

“….. If a mistake of fact apparent from the record of the assessment order can be rectified under section 35 of the 1922 Act (corresponding to section 154 of the 1961 Act], we see no reason why a mistake of law which is glaring and obvious cannot be similarly rectified.”

Ex Parte Order Cannot Be Cancelled:

It may be noted here that an order passed by the Settlement Commission ex parte cannot be cancelled by it under section 27 of the 1922 Act or under section 146 of the 1961 Act, as the case may be, because the order passed by the Settlement Commission is under section 245D(4) and section 27 of the 1922 Act applies to an assessment order passed under section 23(4) of that Act and section 14629 of the 1961 Act, applies to ex parte order passed under section 144 of the latter Act.

Recovery Of Sum Due Under Order:

Section 245 J provides that any sum specified in an order of settlement passed under sub-section (4) of section 245D may, subject to such conditions, if any, as may be specified therein, be recovered, and any penalty for default in making payment of such sum may be imposed and recovered in accordance with the provisions of Chapter XVII, by the Assessing Officer having jurisdiction over the person who made the application for settlement under section 245C.

Power Of Review Own Order:

In certain circumstances, the Settlement Commission has power to review its own order. For example, in the case of CIT v. B.N. Bhattacharjee , it was held by the Supreme Court that having regard to the rulings of this Court in the case of Mohinder Singh Gill v. Chief Election Commission31 and Maneka Gandhi v. Union of India, the Settlement Commission’s decided to rehear and pass a de novo order cannot be said to be illegal.

The facts of this case are that the premises of Bhattachatjee were searched by the income-tax department and about Rs. 30 lakh in cash seized from him. His assessments in respect of the assessment years 1962-63 to 1972-73 were reopened and the total tax burden fixed came to over Rs. 60lakhs plus about Rs. 35 lakh assessed for assessment year 1973-74. Prosecution under section 277 was also launched. Appeals to the appellate Assistant Commissioner brought only marginal relief. The assessee filed 12 appeals and the Income-tax Department filed 10 appeals before the Appellate Tribunal against the Appellate Assistant Commissioner’s decision. At this stage the applicant decided to go before the Settlement Commission for settlement of his case. To be able to do this he addressed a letter to the Appellate Tribune seeking to withdraw his appeals as required under section 245M.

Since departmental appeals were also pending before the Appellate Tribunal, Bhattacharyajee simultaneously approached the Central Board of Direct Taxes requesting it to instruct the concerned officer of the Income-tax Department to withdraw all the pending appeals filed by the Department before the Tribunal. The department appeals before the Appellate Tribunal were also withdrawn and the Appellate Tribunal passed orders dismissing the appeals filed by the applicant as well as the Department as withdrawn. The applicant then applied to the Settlement Commission under section 245C for settlement of his case. The Settlement Commission called for report under section 245D (1) from the Commissioner who objected under the second proviso to section 245D (1), as it was then, to the Settlement Commission allowing the case to be proceeded with on the ground that prosecution proceedings for concealment of Income and also false verification in the return were already pending before the Chief Metropolitan Magistrate and that he did not see this as a fit case to be proceeded with by the Settlement Commission.

After corresponding with the applicant and without giving a hearing, the Settlement Commission by their order, dated February 3, 1978, informed the applicant that as the Commissioner had objected under the second proviso to section 245D(1), the Settlement Commission would not allow the applicant to be proceeded with. The applicant urged the Settlement Commission to review its order dated February 3, 1978 on the ground that the principle of natural justice had not been complied with as no hearing to the applicant as well as the Commissioner, the Settlement Commission reversed their original order and decided that the application for the settlement shall be considered on merits.

The Union of India, through the Commissioner concerned, challenged the Settlement Commission’s decision on jurisdictional and other legal grounds. One of the main arguments of the revenue was that there was no power of review available to the Settlement Commission, once it had declined to proceed with the application for settlement. Therefore, the reopening of the settlement proceeding was invalid. As mentioned earlier, the Supreme Court did not accept the arguments and held that the Settlement Commission had the power to review its own order.

In this connection reference may able be made to the Punjab High Court’s decision in the case of Mangat Ram Kuthiala v. CIT34. The learned judges have observed at page 10:

“…. The learned Advocate-General has pressed that through there is inherent power in a judicial tribunal like a court to recall and quash its order in certain exceptional and rare circumstances, there is no such inherent power in a quasi-judicial tribunal. Now, it is a settled rule that a judicial Tribunal can recall and quash its own order in exceptional and rare cases when it is shown that it was obtained by fraud or by palpable mistake or was made in utter ignorance of a statutory provision and the like. The learned Advocate-General does not admit that the same rule applies in the case of quasi-judicial tribunals. It appears to me that his emphasis is on the class of tribunal ignoring the nature of proceedings. The rule has bearing upon the nature of proceeding and not necessarily on the class of the tribunal. It is the judicial proceeding in which such a rule is made applicable. If the judicial proceedings are before a tribunal like a court it is a judicial tribunal and if they are before an administrative tribunal it is a quasi-judicial tribunal. It appears to me that for the application of the rule the class of the tribunal is not a material matter but what is of substance and material is the nature of the proceedings before the tribunal. If the proceedings are in the nature of judicial proceedings, then, irrespective of the class of the tribunal, the rule will apply, and if an order has been obtained from or has been made by a judicial, and if an order has been obtained from or has been made by a judicial or a quasi-judicial tribunal because of practice of fraud, or because of palpable mistake, or because of ignorance of clear statutory provision and the like, it has inherent power to recall such an order, quash it, and make an order on merit and according to law in the end of justice.”

The honourable judges had derived support for their judgment from the decision in the case of Bhagwan Radha Kishen v. CIT.

Appeal / Writ against Settlement Commission’s Order:

A writ against the Settlement Commission’s order can be filed before the High Court under article 226 or before the Supreme Court under article 32of the Constitution of India. Appeal against the Settlement Commission’s order can also be filed before the Supreme Court under article 13638 of the Constitution of India.

Articles 32, 136(1) and 226 of the Constitution are reproduced below:

“ 32. Remedies for enforcement of right conferred by this part.—

(1) The right to move the Supreme Court by appropriate proceedings for the enforcement of the rights conferred by this Part is guaranteed.

(2) The Supreme Court shall have power to issue directions or orders or writs, including write in the nature of habeas corpus, mandamus, prohibition, quo warrantor and certiorari, whichever may be appropriate, for the enforcement of any of the rights conferred by this Part.

(3) Without prejudice to the powers conferred on the Supreme Court by clauses (1) and (2), Parliament may by law empower any other court to exercise within the local limits of its jurisdiction all or any of the powers exercisable by the Supreme Court under clause(2).

(4) The right guaranteed by this article shall not be suspended except as otherwise provided for by this Constitution.”

“136. Special leave to appeal by the Supreme Court—

(1) Notwithstanding anywhere in this Chapter, the Supreme Court may, in its discretion grant special leave to appeal from any judgment, decree determination, sentence or order in any cause or matter passed or made by any court or tribunal in the territory of India.”

“226. Power of High Courts to issue certain writs—

(1) Notwithstanding anything in article 32, every High Court shall have power, throughout the territories in relation to which it exercises jurisdiction, to issue to any person or authority, including in appropriate cases, any Government, within those territories, directions, order or writs, including writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari, or any of them, for the enforcement of any of the rights conferred by Part III and for any other purpose.

(2) The power conferred by clause (1) to issue directions, orders or writs to any Government, authority or person may also be exercised by any High Court exercising jurisdiction in relation to the territories within which the cause of action, wholly or in part, arises for the exercise of such power, notwithstanding that the seat of such Government or authority or the residence of such person in not within those territories.

(3) Where any party against whom an interim order, whether by way of injunction or stay or in any other manner, is made on, or in any proceedings relating to, a petition under clause (1), without—

(a) furnishing to such party an opportunity of being heard, makes an application to the High Court for the vacation of such order and furnishes a copy of such application to the party in whose favour such order has been made or the counsel of such party, 

(b) the High Court shall dispose of the application within a period of two weeks from the date on which it is received or from the date on which the copy of such application is so furnished, whichever is later, or where the High Court is closed on the last day of that period, before the expiry of the next cat afterwards on which the High Court is open; and if the application is not so disposed of, the interim order shall, on the expiry of that period, or, as the case may be, the expiry of the said next day, stand vacated.

(4) The power conferred on a High Court by this article shall not be in derogation of the power conferred on the Supreme Court by clause (2) of article 32.”

Whether Settlement Commission Is A Tribunal:

The question whether the Settlement Commission is a “tribunal” has been answered in the affirmative by the Supreme Court in the case of CIT v. B.N. Bhattacharjee (supra) in the following words at page 480:

“The preliminary objection raised by Shri A.K. Sen need not detain us because we are satisfied that the amplitude of article 136 is wide enough to bring within its jurisdiction orders passed by the Settlement Commission. Any judgment, decree, determination, sentence or order in any case or matter passed or made by any court or tribunal, comes within the correctional cognizance and review power of articles 136. The short question, then, is whether the Settlement Commission cannot come within category of “Tribunals”. To clinch the issue, section 245L declares all proceedings before the Settlement Commission to be judicial proceeding. We have hardly any doubt that it is a tribunal. Its powers are considerable; its determination affects the right of parties; its obligations are quasi-judicial; the order it makes at every stage have tremendous impact on the rights and liabilities of parties. When a body is created by statute and clothed with authority to determine rights and duties of parties and to impose pains and penalties on them it satisfies the test laid down in Associated Cement Co.’s case. A constitutional Bench of this court in that case has indicated the quintessential test in this regard and we need only extract a portion of the head note relevant to this aspect:

‘In considering the question about the status of any body or authority as a tribunal under the article, the consideration about the presence of all or some of the trapping of a court is really not decisive. The presence of some of the trappings may assist the determination of the question as to whether the power exercising by the authority which processed the said trappings, is the judicial power of the State or not. The main and basic test however is whether the adjudicating power which a particular authority is empowered to exercise, has been conferred on it by a statute and can be described as a part of the State’s inherent power exercised in discharging its judicial function.’

The expending jurisprudence of administrative tribunals to which some eminent judges, cradled in Dicean concepts, in the early days of English law, has come to stay whether we call it the new despotism or the pragmatic instrumentality of dispensing justice untrammelled by the complexities and mystiques which are part of the processual heredity of courts. The Franks Committee rightly said:

‘Reflection on the general, social and economic change of recent decades convinces us that tribunal as a system for adjudication has come to stay.’

‘The advantage which tribunals had over courts’, states Seervai in his classic work on the Constitution of India, ‘lay in cheapness, accessibility, freedom from technicality, expedition and expert knowledge of their particular subject’. A casual perusal of Chapter XIXA convinces the discerning eye that the Settlement Commission exercise many powers which affect for good or otherwise, the rights of the parties before it and vests in it powers to grant immunity from prosecution and penalty, to investigate into many matters and to enjoy conclusiveness regarding its orders or settlement. In short, Settlement Commissions are Tribunals…..’

In this connection, it will be useful to mention the views of that eminent English Jurist Lord Denning on the subject as to the finality of the order of a tribunal which here means the Commission. In his book, A Discipline of Law, he says:

“I threw out a suggestion by way of an obiter dictum in Taylor v. National Assistance Board. ‘The remedy is not excluded by the fact that the determination of the Board is by Statute made ‘finally’ : parliament gives the impress of finality to the decisions of the Board on the condition that they are rigid in accordance with the law and the queens court can issue a declaration to see that, that condition is fulfilled.’

‘That dictum was destined to have important consequences. Expanded a little it meant that Parliament only conferred jurisdiction on a Tribunal or Board on condition that it made its determination in accordance with the law. If it went wrong in law, it went outside the jurisdiction conferred on it. Its decision was therefore void. It had jurisdiction to decide rightly but no jurisdiction to decide wrongly.”

Lord Denning says further at page 71:

“So we ourselves dug up the new ground. I applied my dictum in Taylor’s case and said:

‘The Act of 1946 provides that ‘any decision of a claim or question …….. Shall be final’. Do these words preclude the Court of Queen’s Bench from issuing certiorari to bring up the decision?

This is a question which we did not discuss in R. v. Northumberland Compensation Appeal Tribunal46, ex parte Shaw, because it did not these arise. It does arise here, and on looking again into the old books I find it very well settled that the remedy by certiorari is never to be taken away by any statute except by the most clear and explicit words. The word ‘final’ is not enough. That only means ‘without appeal’. It does not mean ‘without recourse to certiorari’. It makes the decision final on the facts but not final on the law. Notwithstanding that the decision is by a statute made ‘final’, certiorari can still issue for excess of jurisdiction or for error of law on the face of the record’.”

Thus it would be seen that as far as legal points are concerned, the Settlement Commission’s order though said to be conclusive under this section, can be questioned and a genuine hardship got relieved.

Ex parte order - A question may arise as to whether in the case of non-co-operation by an applicant, the Settlement Commission can pass ex parte orders. It will be seen that section 245C nowhere provides for filing of a statement of facts by the applicant. This provision is contained in the rules. Obviously the intention was that obtaining such a statement of facts would facilitate the disposal of the case by the Settlement Commission.

Therefore, there is no legal obligation on the Settlement Commission to wait indefinitely for the applicant to file the statement of facts. The rules do not provide any time limit for filing the statement of facts.

However, the Settlement Commission may call for it within a reasonable period. Therefore, if an applicant does not file the statement of facts, verified in the prescribed manner, within that time or extended time, if any, allowed by the Settlement Commission, it will be open to the Settlement Commission to pass ex-parte orders in the absence of co-operation from an applicant. Such power is inherent or implied in the body which has power to call for some documents/ papers/ returns/ report/ statements. Otherwise it would be easy for an applicant to completely stall the income-tax proceeding for the relevant years by having his case admitted and then not caring to file the statement of facts. Once the case is admitted, the income-tax authorities cease to have jurisdiction over the case. However, it should be mentioned that the Settlement Commission can dispose of the matter only on the merits.

The various rulings given by the courts in respect of best judgement, assessment made by the Income-Tax Officer’s apply with equal force to an ex-parte settlement made by the Settlement Commission.

In this connection, the decision in the cases of Abdul Baree Chowdhury v. CIT 47 , CIT v. Laxminnarain Badridas 48 and State of Orissa v. Singh Deo49 may be seen.

Judicial Proceeding

Section 245L provides that any proceeding under this Chapter before the Settlement Commission shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228, and for the purposes of section 196, of the Indian Penal Code (45 of 1860).

Immunity From Prosecution And Imposition Of Penalty (245H):

Under section 245H(1), the Commission, may if it is satisfied that the applicant has cooperated with it in the proceedings before it and has made a full and true disclosure of his income and the manner in which such income has been derived, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under the Income-tax Act or under the Indian Penal Code or under any other Central Acts and also either wholly or in part, from the imposition of penalty under the Income-tax Act, 1961 with respect to the case covered by the settlement. However, w.e.f. 01.06.1987 no such immunity can be granted by the Commission in cases where the proceedings for prosecution for any such offence have been instituted before the date of receipt of the application under section 245C.

Settlement applications invariably contain a prayer for waiver of penalty and interest and for granting immunity from prosecution. Request of the applicant in this regard is examined by the Commission on the facts and circumstances of each case and a specific finding is given on these points.

Power Of The Commission To Send A Case Back To The Income Tax Officer (U/S 245HA):

If the Commission is of the opinion that the applicant has not cooperated with the Commission it may send the case back to the ITO who shall there upon dispose of the case in accordance with the provisions of the Income-tax Act as if no application u/s 245C was made. In such a situation the A.O. shall also be entitled to use all the materials and other information produced by the applicant before the Commission or the results of the enquiry or the evidence recorded by it in course of its proceedings. For the purpose of time limits prescribed under various sections mentioned in section 245HA (3), the period commencing with the date of application u/s 245C to the date of sending the case back to the ITO shall be excluded.

Bar On Subsequent Application For Settlement In Certain Cases (u/s 245K):

Where an order passed by the Commission u/s 245D (4) provides for the imposition of penalty for concealment of income or the applicant is convicted of any offence under Chapter XXII of the Income-tax Act in relation to that case or the case is sent back to the A.O. by the Commission u/s 245HA, the applicant shall not be entitled to apply for settlement under section 245C in relation to any other matter.

Rectification / Review of the Orders of the Settlement Commission by the High Courts

1.Patel Desai and Co. & Meera Industries v ACIT & Others

 In exercise of writ jurisdiction u/s 226 it is not opened to the High Court to decide whether the conclusion recorded by the Settlement Commission on a question of fact and even law is correct or not. The conclusions reached by a Settlement Commission cannot be nullified except under very limited circumstances such as violation of mandatory procedural requirements, violation of rules of natural justice or lack of nexus between reasons given and the decision taken by the Settlement Commission. In the above case, it was decided that the deduction of development expenditure disallowed as Capital Expenditure by the Income-tax Settlement Commission could not be altered by writ of certiorari. The judicial review power of High Court cannot be extended to review of administrative actions or findings of quasi-judicial Tribunal.

2. C.A. Abraham v ACIT

The High Court’s powers of judicial review on decision of the Settlement Commission are very restrictive. In this case, the Assessing Officer and the Settlement Commission proceeded on the basis that the income dealt with in the orders was only undisclosed income and the same had been taken into consideration for the purpose of assessment of block period. So, while exercising jurisdiction under Article 226 of the Constitution, the fact whether that income was undisclosed income or the income other than undisclosed income would not be gone into. So, it could not be said that the Settlement Commission had followed an illegal procedure, so as to enable the High Court to interfere with the orders of the Commission.

3. M/s. Bhanwar Lal Kanhya Lal, Sarangpur

The Commission has the inherent jurisdiction to rectify a wrong committed by it when that wrong causes prejudice to a party for which that party is not responsible. In a case where the Commission had directed the ITO to examine the old books of account and other documents relied on by the applicant in support of his claim of HUF and the applicant submitted a lot of material before the ITO and he made further verifications of the claim of the applicant. But the order u/s 245D(4) was passed by the Commission without taking into consideration the material furnished by the applicant to the ITO and the enquiries made by him in this regard, the Commission recalled its order and reopened the case for fresh hearing and disposal.

4. Shri Hanooram Bhagwanlal, Ujjain

The Commission does not have the power to review its own order if the matter raised by the applicant has been properly considered and a conscious decision has been taken thereon. In a case where the assessee filed a miscellaneous application claiming that during the course of hearing it was stated by the Commission that the matter was a petty one and they were inclined to allow it, however, the final order was contrary to this and on verification of the records the Commission found that after hearing both the sides, a speaking order was passed giving reasons in support of its decision, there did not appear to be any mistake apparent from the record and the case could not be reopened or reviewed by the Commission.

5.    M/s.H.B. Chemicals, Jallandar City

In a case where an objection was raised by the applicant for review or rectification of the order passed by the Commission rejecting the application on the ground that the sequence of certain dates had gone unnoticed or their effect had not been properly appreciated as a result of which a mistake had crept in, it was held that there was no mistake apparent on the record and the prayer of the applicant merely was for revaluing and re-examining the evidence and the report of the Commissioner. The application was accordingly rejected.

Legal Pronouncements:




1. HIGH COURT OF GUJARAT

Vishnubhai Mafatlal Patel vs. Assistant Commissioner of Income-tax

AKIL KURESHI AND MS. SONIA GOKANI, JJ.

SPECIAL CIVIL APPLICATION NOS. 12060, 12061 & 12063 OF 2012

DECEMBER 4, 2012

Section 245D of the Income-tax Act, 1961 - Settlement Commission - Procedure on application under section 245C [Jurisdiction of Commission] - Whether it is well within jurisdiction of Commission at stage of sub-section (1) of section 245D to examine whether application for settlement fulfils statutory requirements contained in sub-section (1) of section 245C and to reject application if it comes to conclusion that such application does not fulfil legal requirements - Held, yes - Whether at that stage, if application is allowed to be proceeded with, such decision would be tentative in nature and it would still be open for Commission, if grounds are so available, to declare such an application invalid after obtaining report from Commissioner and giving an opportunity of being heard to applicant - Held, yes - Whether unless decision of Commission is contrary to statutory provisions contained in Act, interference in exercise of writ jurisdiction under article 226 of Constitution of India would not be warranted - Held, yes [In favour of revenue].

2. HIGH COURT OF GUJARAT

Unipon (India) Ltd. vs. Income Tax Settlement Commission

AKIL KURESHI AND MS. SONIA GOKANI, JJ.

SPECIAL CIVIL APPLICATION NO. 6382 OF 2008
CIVIL APPLICATION NO. 2273 OF 2009

APRIL 16, 2014

Section 245C of the Income-tax Act, 1961 - Settlement Commission - Application for settlement of cases (Total income) - Assessment year 2005-06 - Whether for computing additional tax for settlement application, definition of 'total income' under section 5 is not applicable in view of deeming fiction contained in clause (ii) of sub-section (1B) of section 245C whereby total income has to be considered as if aggregate of total income returned and income disclosed would be total income - Held, yes - Whether such deeming fiction must be allowed in its full effect - Held, yes [In favour of revenue].

3. HIGH COURT OF ALLAHABAD

Rama Nath vs. Special Chief Judicial Magistrate, Allahabad

A.K. ROOPANWAL, J.

CRIMINAL MISC. APPLICATION NO. 13193 OF 1987

AUGUST 14, 2008

Section 245H, read with section 245J, of the Income-tax Act, 1961 - Settlement Commission - Immunity from prosecution/penalty - Assessment years 1968-69 and 1972-73 to 1975-76 - Whether during existence of immunity from prosecution granted by Settlement Commission under section 245H if an assessee does not obey directions of Settlement Commission and makes default in payment, assessing authority may impose penalty upon him and all amount, i.e, sum assessed as per directions of Settlement Commission and penalty imposed may be recovered in accordance with provisions of Chapter XVII, but no criminal prosecution can be launched against assessee - Held, yes - Whether if income-tax authorities want to prosecute person concerned for his lapse committed after order of Settlement Commission, they have to get immunity granted by Settlement Commission cancelled under section 245H(2); they cannot straightaway go for prosecution - Held, yes.

4. HIGH COURT OF DELHI

Commissioner of Income-tax vs. Income Tax Settlement Commission  
   
BADAR DURREZ AHMED, ACTG. CJ. AND R.V. EASWAR, J.

WP (C) NO. 1609 OF 2013, JULY 2, 2013

Section 245D, read with section 245C, of the Income-tax Act, 1961 - Settlement Commission - Procedure on application under section 245C [True and full disclosure of income] - Assessment years 2006-07 to 2012-13 - Whether, since settlement application passes through several stages before final order providing terms of settlement is passed by Settlement Commission, requirement to record specific finding that applicant has made full and true disclosure of income need not be examined and authoritatively determined at threshold of any proceeding initiated before Settlement Commission, and such question can be kept open to be examined at a later stage or at stage of disposal of application - Held, yes - Whether, applicant is not allowed to file subsequent settlement application only if previous settlement application was rejected after it was allowed to be proceeded with and not if it was rejected at threshold - Held, yes  [In favour of assessee]

5. HIGH COURT OF BOMBAY

Gobind Builders & Developers vs. Income-tax Settlement Commission

F.I. REBELLO AND R.S. MOHITE, JJ.

WRIT PETITION NO. 180 OF 2008

MARCH 4, 2008

Section 245C of the Income-tax Act, 1961 - Settlement Commission - Application for settlement of cases – Assessment years 2003-04 to 2005-06 - Whether any payment of additional tax made after 31-7-2007 can be considered for purpose of compliance with requirement of section 245C - Held, no Section 245C, read with sections 245D and 2(45), of the Income-tax Act, 1961 - Settlement Commission - Application for settlement of cases - Assessment years 2003-04 to 2005-06 - Whether Settlement Commission, while considering as to whether tax has been paid as contemplated by section 245D(2A), has to examine whether that tax is on total income as disclosed - Held, yes - Whether if otherwise assessee is entitled to benefits of allowance or disallowance, same cannot be denied for purpose of working out total income under section 245C; therefore, if assessee is entitled to carry-forward loss of previous year, then total income has to be calculated in that manner - Held, yes.

6. HIGH COURT OF GUJARAT

Arpan Associates vs. Income-tax Settlement Commission

AKIL KURESHI AND MS. SONIA GOKANI, JJ.

SPECIAL CIVIL APPLICATION NO. 11830 OF 2003

FEBRUARY 28, 2013

Section 245F, read with sections 245C and 245D, of the Income-tax Act, 1961 - Settlement Commission - Power and procedure [Judicial review] - Assessment years 1994-95 to 1996-97 - Consequent to search and seizure operations, assessee-firm, a booking agent for a real estate scheme, made an application before Settlement Commission, offering additional income on account of on-money receipts on bookings - Settlement Commission concluded that there was no true disclosure and made further addition of Rs. 30 lakhs - Whether, order of Settlement Commission can be interfered with only if it is contrary to provisions which prejudices applicant - Held, yes - Whether, therefore, where Settlement Commission made further addition over and above amount offered by assessee, as on-money collection on individual flats did not tally with one partner's statement in respect of total rate, on-money received and expenditure made, Commission's order could not be interfered with - Held, yes [In favour revenue].

7. SUPREME COURT OF INDIA

Ajmera Housing Corpn. vs. Commissioner of Income-tax

D.K. JAIN AND H.L. DATTU, JJ.

CIVIL APPEAL NOS. 6827 AND 6848 OF 2010

AUGUST 20, 2010

Section 245C of the Income-tax Act, 1961 - Settlement Commission - Application for settlement of cases – Assessment years 1989-90 to 1993-94 - Whether section 245C(1) mandates ‘full and true’ disclosure of particulars of undisclosed income and ‘manner’ in which such income was derived and, therefore, unless Settlement Commission records its satisfaction on this aspect, it will not have jurisdiction to pass any order on matters covered by application - Held, yes - Whether even when Settlement Commission decides to proceed with application, it will not be denuded of its power to examine as to whether in his application under section 245C(1), assessee has made a full and true disclosure of his undisclosed income - Held, yes - Whether in scheme of Chapter XIX-A, there is no stipulation for revision of income disclosed in an application filed under section 245C(1) and, thus, determination of income by Settlement Commission has necessarily to be with reference to income disclosed in an application filed under said section in prescribed form - Held, yes

Section 245D of the Income-tax Act, 1961 - Settlement Commission - Procedure on application under section 245C - Assessment years 1989-90 to 1993-94 - Assessee-group of firms was engaged in business of land development and building construction - In January 1989 and December, 1992, searches were conducted at premises of assessee and on basis of seized documents, assessments for relevant years were completed at much higher income than that disclosed in returns - Assessee filed an application under section 245C before Settlement Commission disclosing additional income of Rs. 1.94 crores for relevant years - Commissioner, while objecting to entertainment of application for settlement submitted by assessee as not being a full and true disclosure of its income, suggested that, at any rate, income of group should not be settled at less than Rs. 223.55 crores - Thereafter, on 19-9-1994, assessee filed revised settlement application containing ‘confidential annexure and related papers’, declaring therein an additional income of Rs. 11.41 crores - Thereafter also, assessee made further disclosures of additional income - On 29-1-1999, Settlement Commission passed final order under section 245D(4), determining total income of assessee at Rs. 42.58 crores and observing that assessee had cooperated during proceedings before it, imposed a ‘token’ penalty of Rs. 50 lakhs as against minimum leviable penalty of Rs. 562.87 lakhs, as per its own assessment - On writ, High Court observed that (i) since Settlement Commission had not supplied annexure filed on 19-9-1994, declaring additional income of Rs. 11.41 crores, due opportunity had not been given to revenue to place its stand properly; (ii) huge amount of unexplained expenses, unexplained loans and unexplained surplus, total of which was more than Rs. 14 crores, was not taken into consideration while passing final order and (iii) Settlement Commission was not justified in imposing a token penalty of Rs. 50 lakhs taking into consideration multiple disclosures made by assessee - High Court, therefore, set aside order of Commission and remitted case back to it for fresh adjudication - Whether on facts, High Court was correct in making order of remand - Held, yes.

8. HIGH COURT OF ALLAHABAD

Smt. Neeru Agarwal vs. Union of India

PRAKASH KRISHNA AND SUBHASH CHANDRA NIGAM, JJ.

WRIT TAX NOS. 1231 TO 1234 OF 2008

DECEMBER 18, 2009

Section 245-I, read with sections 245D and 245F, of the Income-tax Act, 1961 - Settlement Commission - Order of, to be conclusive - Assessment years 1999-2000 to 2005-06 - Whether except in case of fraud or misrepresentation of facts, order passed by Settlement Commission is final and conclusive and binding on all parties - Held, yes - Whether it is obligatory on Settlement Commission to pass an appropriate order after taking into consideration entire material brought before it by parties including department; there is no statutory provision which empowers Settlement Commission to restore back matter in respect of certain items to Assessing Officer and also to finally settle income of applicant - Held, yes - Assessee filed an application before Settlement Commission for settlement of her case arising out of search operation conducted at her residential and business premises - Settlement Commission passed an order settling undisclosed income of assessee - Thereafter, Assessing Officer issued a notice under section 142, read with sections 153A and 245D(4), to assessee on ground that on examination of records and seized material, it was found that assessee had made certain investments, sources of which had not been explained before Settlement Commission - According to department, said notice was issued on basis of a portion of order of Settlement Commission, in which it had been stated that Commissioner/Assessing Officer might take such an action as was appropriate in respect of matters not placed before Commission by applicant, as per provisions of section 245F(4) - Whether when facts found and documents seized in search operation were matters which related to settlement of undisclosed income of assessee, contention of department that investment in bonds, etc., was not subject-matter of order of Settlement Commission was not correct - Held, yes - Whether after passing of order by Settlement Commission, no power vested in Assessing Officer to issue impugned notice in respect of relevant period and income covered under order of Settlement Commission and in case of fraud or misrepresentation of facts, remedy was to approach Settlement Commission - Held, yes - Whether, on facts, Settlement Commission could have empowered income-tax authorities to frame another assessment order, while settling undisclosed income of assessee for period covered by its order, in respect of investment in bonds, etc. - Held, no.

9. HIGH COURT OF BOMBAY

Commissioner of Income-tax (Central), Pune vs. Income Tax Settlement Commission (ITSC)

DR. D.Y. CHANDRACHUD AND A.A. SAYED, JJ.

WRIT PETITION NO. 3900 OF 2013

JUNE 13, 2013

Section 245C, read with section 245D, of the Income-tax Act, 1961 - Settlement commission - Application for settlement of cases [Scope of provision] - Assessment years 2006-07 to 2012-13 - Whether in order to constitute a valid application under section 245C(1), there must be a full and true disclosure of undisclosed income by assessee and manner in which it has been derived - Held, yes - Whether it is only upon satisfaction of Commission that application meets prerequisites of a valid application that Commission shall have jurisdiction to proceed, and it is bound to determine validity of application in course of its proceedings under section 245D(2C) - Held, yes - Whether, where Commission had permitted application to be proceeded without examining fundamental issue as to whether application was valid, its order was unsustainable - Held, yes [Paras 19 & 20] [In favour of revenue].

10. HIGH COURT OF GUJARAT

Mohanlal S. Doppa vs. Commissioner of Income-tax

M.S. SHAH AND D.A. MEHTA, JJ.

IT REFERENCE NOS. 59 AND 60 OF 1988

OCTOBER 3, 2001

Section 245D, read with sections 271(1)(a) and 273(c), of the Income-tax Act, 1961 - Settlement Commission – Procedure on application under section 245C - Assessment years 1974-75 and 1975-76 - Whether once any order is passed by Settlement Commission, Assessing Officer or any other authority has no power to go beyond or behind that order - Held, yes - Whether if Settlement Commission’s order under sub-section (4) of section 245D of the Act did not contain any direction for levy of penalty, any such omission would amount to immunity under section 245H(1) from imposition of penalty under Act with respect to case covered by settlement and it is not open to Assessing Officer to initiate any proceedings for imposition of penalty, even if any specific order for exemption from imposition of penalty, is not contained in order of Settlement Commission under section 245D(4) - Held, yes.

Jurisdiction

SL. NO.
NAME OF BENCH
STATES / UNION TERRITORIES
1.
Principal Bench at New Delhi
a) Delhi, Rajasthan and all States, Union Territories and Cities other than those mentioned in S. No. 2,3,4,5,6 and 7 below.
2.
Additional Bench-I at New Delhi
a) Punjab, Haryana Union Territory of Chandigarh and

b) Cases within the jurisdiction of Principal Commissioner/commissioner of Income Tax(Central), Delhi-1.
3.
Additional Bench-II at New Delhi
a) Uttar Pradesh and Uttarakhand, Himachal Pradesh and Jammu & Kashmir; and
b) Cases within the jurisdiction of Principal Commissioner/Commissioners of Income Tax Delhi- 1, 2,3,4,5,6,7,8,9,10,11,12,13,14,15,16,17,18,19,20,21,22,23 and 24.
c) Madhya Pradesh except the Assessing Officers under the jurisdiction of Principal Commissioner/Commissioner of Income Tax(Central), Bhopal with headquarters in the State of Chhattisgarh.
4.
Additional Bench-I at Mumbai
a) Mumbai other than :-

(i) Principal commissioner/Commissioners of Income Tax,Mumbai 9,10,11,12,13,14,15,27,28,29,30,31,32,33,34, and 35

(ii) Principal Commissioners/Commissioners of Income Tax (Central), Mumbai-2, 3 and Commissioners of Income Tax (International Taxation)-1,2,3, and 4, Mumbai)

b) Pune.
c) Goa, Daman and Diu.
d) Maharashtra (other than Mumbai and Pune.)
5.
Additional Bench-II at Mumbai
a) Principal Commissioner/Commissioners of Income Tax, Mumbai- 9,10,11,12,13,14,15,27,28,29,30,31,32,33,34, and 35)

b) Principal Commissioner/Commissioners of Income Tax (Central)-2 & 3, Mumbai
c) Commissioners of Income Tax (International Taxation)-1,2,3 and 4, Mumbai
d) Gujarat.
6.
Additional Bench at Kolkata
a) Bihar, Meghalaya, Odisha, West Bengal, Chattishgarh, Jharkhand, Andaman & Nicobar Islands, Manipur, Assam, Tripura, Sikkam, Mizoram, Nagaland & Arunachal Pradesh.
b) Assessing Officers under the jurisdiction of Principal Commissioners/Commissioners of Income Tax (Central), Bhopal with headquarters in the state of Chattishgarh.
c) Assessing Officers under the jurisdiction of Principal Commissioners/Commissioners of Income Tax (Central), Hyderabad with headquarters in the state of Orissa.
d) Principal Commissioner/Commissioners of Income Tax (Central), Vishakhapatnam where the headquarter of Central Circle Assessing Officers in the State of Orissa & cases have been Centralized with Principal Commissioner/Commissioners of Income Tax, Vishakhapatnam.
7.
Additional Bench, Chennai
a) Tamil Nadu
b) Telangana
c) Karnataka
d) Kerala
e) Pondicherry
f) Lakshadweep & Minicoy Islands
g) Andhra Pradesh (excluding Assessing of Officers under the jurisdiction of Principal Commission/Commissioner of Income Tax (Central) Hyderabad and Vishakhapatnam with headquarters in the state of Orissa)


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