2012 (9) TMI 840 - HC - Income Tax

Settlement Application Rejected Due to Time-Barred Assessments

The court concluded that the settlement application for assessment years 2005-06 to 2008-09 was not maintainable as the assessments had become time-barred ... Pendency of assessment proceedings - Application before Settlement Commission accepted - assessment years 2005-06 to 2008-09 - revenue petition challenging the order of Settlement Commission - Held that:- As with effect from 1.6.2007, significant changes were made in the definition of the term 'case' defined under section 245A(b) defining the term 'case' would cover only those situations where an assessment is pending before the AO or it is still possible for him to pass any order of assessment. Accepting the proposition that even where by efflux of time, it is not open for the Assessing Officer to pass an order of assessment, merely because the return was accepted under section 143(1), the case of the assessee should be deemed to be pending for assessment only because the final order of assessment under section 143(3) was not passed, would run counter to the statutory amendments made in section 245A(b) - In the present case, the facts are not in dispute at all. For the assessment years 2005-06 to 2008-09, assessments had become time barred without any notice under section 143(2). Even final time limit for passing the orders even if such notices were issued had expired by the time the assessee filed his application for settlement before the Commission. The assessee's application qua these years, therefore, was not maintainable, ought not to have been accepted. Thus, the Settlement Commission erred in holding to the contrary in the impugned order. The impugned order to such an extent is, therefore, set aside - Request of the assessee that the material disclosed along with the settlement application should not be used in the normal assessments, cannot be accepted without full examination of such a request - petition allowed - in favour of revenue. Issues Involved:1. Maintainability of the settlement application for assessment years 2005-06 to 2008-09.2. Interpretation of the term 'case' under section 245A(b) of the Income Tax Act, 1961.3. Impact of the statutory amendments made in section 245A(b) with effect from 1.6.2007.4. The effect of the CBDT circular dated 12.3.2008 on the interpretation of section 245A(b).5. Use of material disclosed in the settlement application in normal assessments.Issue-wise Detailed Analysis:1. Maintainability of the settlement application for assessment years 2005-06 to 2008-09:The petitioner, Commissioner of Income Tax, challenged the maintainability of the settlement application filed by the assessee for the assessment years 2005-06 to 2008-09. The Commissioner contended that the application was not maintainable as the returns for these years were processed under section 143(1) and no further proceedings were pending. The Settlement Commission, however, turned down this preliminary objection, stating that the conditions under section 245C were satisfied, including the pendency of assessment proceedings and the payment of due taxes.2. Interpretation of the term 'case' under section 245A(b) of the Income Tax Act, 1961:The term 'case' is crucial for determining the maintainability of a settlement application. Section 245A(b) defines 'case' as any proceeding for assessment under the Act that is pending before an Assessing Officer on the date of the application. The definition was amended with effect from 1.6.2007 to be more restrictive, covering only those situations where an assessment is pending before the Assessing Officer or it is still possible for the officer to pass an order of assessment.3. Impact of the statutory amendments made in section 245A(b) with effect from 1.6.2007:The statutory amendments significantly narrowed the definition of 'case,' excluding situations such as reassessment proceedings under section 147 or appeal or revision proceedings pending before income-tax authorities. The court emphasized that the term 'case' would cover only those situations where an assessment is pending before the Assessing Officer or it is still possible for him to pass any order of assessment. Acceptance of a return under section 143(1) does not constitute an order of assessment, and thus, mere acceptance does not mean the case is pending.4. The effect of the CBDT circular dated 12.3.2008 on the interpretation of section 245A(b):The CBDT circular clarified that an intimation under section 143(1) is not an assessment order, and there would be no bar in filing a settlement application subsequent to receiving such intimation. However, the court noted that the circular should be read as a whole, and it does not suggest that a case should be deemed pending merely because the final order of assessment under section 143(3) was not passed. The court agreed with the view that proceedings for assessment are pending only for as long as the Assessing Officer can take action under the Act.5. Use of material disclosed in the settlement application in normal assessments:The court did not accept the assessee's request that the material disclosed in the settlement application should not be used in normal assessments. The court found no formal prayer on record and was not inclined to examine this request in the petition filed by the revenue.Conclusion:The court concluded that the application for settlement for the assessment years 2005-06 to 2008-09 was not maintainable as the assessments had become time-barred without any notice under section 143(2). The Settlement Commission erred in holding otherwise, and the impugned order was set aside to that extent. The petition was allowed and disposed of accordingly.