TaxTMI 
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1997 (5) TMI 394
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....llate Tribunal ? Can all the actions taken subsequent to the furnishing of the settlement application in respect of the assessment years 1981-82 to 1983-84, 1985-86, 1988-89 and 1989-90, and their consequences, be annulled particularly in the context of the Supreme Court's observations in Express Newspapers' case [1994] 206 ITR 443, 458A. III. What would be the just and proper course of action at this juncture in regard to the request for invoking section 245E in respect of the assessment years 1981-82, 1982-83, 1983-84, 1985-86, 1988-89, 1989-90 and 1990-91 ? " The matter arose in the course of hearing under section 245D(4) of the Act in the case of . . . . Counsel for the applicant vide letter dated December 18, 1996, requested for constitution of a Special Bench which could examine and interpret the true scope and meaning of the expression "for the proper disposal of the case pending before it, it is necessary or expedient to reopen any proceeding connected with the case but which has been completed under this Act" as appearing in section 245E of the Act. The facts of the case, in brief, are as under : (a) On February 20, 1991, the Income-tax Department carried out search and....
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....tion 132(4), the Assessing Officer estimated regular income at Rs. 10 lakhs, unexplained investment at Rs. 72.50 lakhs and unexplained money of Rs. 26,58,120 totalling Rs. 5,94,82,660. To the determined income in respect of each of the above noted years, the Assessing Officer added penalty under section 271(1)(c) as computed by him and came to the conclusion that "as the total tax and other liabilities of the assessee determined are more than the value of the assets seized and belonging to the assessee" he was retaining such seized assets. (d) On June 26, 1991, the applicant filed a return of income for the assessment year 1991-92. In the return the applicant had declared a total income of Rs. 4,06,00,010 in which was included the disclosed income under section 132(4) computed as under, as per the statement filed with the return : "Addl. income declared under section 132 read with Explanation 5 to section 271(1)(c) of the Income-tax Act, 1961, as per letter dated March 5, 1991, addressed to the ADI, Unit-I(4), and also letter dated May 15, 1991, in the course of assessment proceedings 4,85,74,540 Less: Income considered by the Assessing Officer vide his order under section 132(....
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....ng the issues to be settled, including the terms of settlement sought for by the applicant", it was stated as under : "A search was conducted at the residence and office premises of the applicant under section 132(1) on February 20, 1991. In the course of search a disclosure for the assessment year 1991-92 of Rs. 4,85,74,540 was made by the applicant under section 132(4) of the Income-tax Act, 1961, read with Explanation 5 to section 271(1)(c) of the Income-tax Act, 1961. The Assessing Officer has in his order under section 132(5) taken the view on the basis of material seized in the course of the search that a further income of Rs. 87,71,490 is assessable in the earlier assessment year. The issue to be settled is whether the said income of Rs. 4,85,74,540 is to be assessed in its entirety for the assessment year 1991-92 or any income is to be assessed for the earlier assessment years as decided by the Assessing Officer in his order under section 132(5) dated June 19, 1991, as under : Assessment year Amount (Rs.) 1981-82 6,83,000 1982-83 2,32,000 1983-84 10,06,400 1985-86 3,00,000 1988-89 22,10,500 1989-90 14,15,000 1990-91 29,24,590 Total 87,71,490 Having regar....
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....d the Assessing Officer to "entertain the rectification application made by the appellant-assessee under section 154 favourably by deleting the addition of Rs. 87,71,490". Thereafter, the Assistant Commissioner of Income-tax, Central Circle-XVIII, Mumbai, filed an appeal before the Income-tax Appellate Tribunal on February 11, 1994. The matter is pending before the Income-tax Appellate Tribunal. As regards assessment years 1981-82 to 1983-84, 1985-86, 1988-89 and 1989-90, the reassessment proceedings have been completed under section 143(3) read with section 147. These assessments except for the assessment year 1983-84 were completed on March 8, 1994. The assessment for the assessment year 1983-84 was completed on February 28, 1994. These assessments were reopened under section 147 and notices under section 148 were issued even before the application under section 245C(1) was admitted by the Commission under section 245D(1) for the assessment year 1991-92 vide order dated December 13, 1991. The submissions of the Commissioner of Income-tax (DR) in this connection have been noted by the Commission in the order. The reasons recorded for reopening these assessments under section 147 ....
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....ment on March 5, 1991, that he had earned Rs. 4,85,75,540 out of speculation, etc., during the assessment year 1991-92. (b) The order under section 132(5) dated June 19, 1991, took into account the speculation income of Rs., 4,85,74,540 as disclosed under section 132(4) for the assessment year 1991-92 in addition to other income for that year. It also took into account unexplained investments, unexplained expenses and interest earned by the applicant in the assessment years 1981-82 to 1983-84, 1985-86, 1986-87 and 1988-89 to 1990-91. The income element thereof was included in the computation along with the penalty amounts to estimate the income and income-tax thereon with a view to retain the seized assets. It is, therefore, to be noticed that the income estimated for the said years did not form part of the speculation income of the applicant as disclosed by him for the assessment year 1991-92. (c) The applicant filed an application under section 245C(1) for the assessment year 1986-87 disclosing the estimated income on account of unexplained investment for that year as per the order under section 132(5) dated June 19, 1991. (d) On the date of filing of the application under sec....
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....ra). " Statement showing break up of the amount disclosed under section 132(4) read with Explanation 5 to section 271(1)(c) of the Income-tax Act, 1961, based on various assets found and seized including the entries in all the loose papers, etc., found and seized in pursuance of action under section 132(1) dated February 20, 1992, from office at . . . Rs. Rs. Total amount of disclosure : 4,85,74,540 Break up of the same : 1. Jewellery seized 85,34,309 2. Silver utensils 2,75,280 3. Renovation, etc. 4,00,000 4. Artefacts and electronics 2,75,000 5. Cash (49,81,200 + 50,000) 50,31,200 6. Indra Vikas Patra 26,00,000 7. Tungarli Project Investment 76,78,500 8. Primary gold 26,58,120 9. Pronotes, hundies, etc., found and seized from various places 1,44,20,000 Less : Amounts not accepted as income from undisclosed sources as supported by various documentary evidence as filed before the A. D. I. Unit I(4), Bombay, and before the A. O. in the course of proceedings under section 132(5) of the Income-tax Act, 1961. 77,85,000 66,35,000 10. In respect of receipts covered by 2,00,000 11. In respect of investments in purchase of aluminium foil out of loose paper at ....
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....f certain assessments for the earlier years under section 245E. The applicant's submissions before the Commission were recorded at para 3.3 of the order to the effect that if the Department was to make assessments/reassessments for the assessment years 1981-82 to 1991-92 they would not reach finality for a long time to come and that the applicant would have to face long-drawn, tortuous proceedings and would accordingly be put to considerable hardship. Shri Dastur took us through para 4.3 of the order in which the Commission discussed the various orders of the Departmental authorities, namely, the order under section 132(5), and intimation in respect of processing under section 143(1)(a) for the assessment year 1991-92 and the observation of the Commission that it was "apparent from the above discussion and approach of the Department to the problem that if the matter is handled by the Department, it will not reach finality soon" and "the issues involved in the case also cannot be considered as simple". Accordingly, the Commission admitted the application as noted at para 4 (at page 44) of this order. The background of the case leading to the submission of the application under secti....
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....tion that the Settlement Commission do not permit the exposure of the applicant as regards the confidential enclosure at the stage of the admission of the application. In view of this the Commissioner of Income-tax could not be aware of the particulars stated at item 11 of the application. Shri Dastur further states that the Commission in the admission order took the view that the Department was taking contradictory stands in respect of the assessment year 1991-92 and in respect of earlier years as the assessments for the said years had been reopened. In view of this, the entire matter was to be settled by one authority. Since the Income-tax Department had lost the authority to deal with the entire matter relating to the assessment year for which the application was made and the assessment years for which prayer under section 245E was made on assumption of jurisdiction by the Commission, the Assessing Officer could not have finalised the reassessments before the final settlement was made under section 245D(4). It is stated that the request was made to the assessing authority not to proceed with these assessments and subsequently request was also made to the Commissioner of Income-....
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.... filed for settlement and/or was admitted to be proceeded with. The power of the Settlement Commission to invoke section 245E is not restricted in any way except that all requirements must be satisfied on the date of filing of the application. Taking us through the provisions of section 245H, Shri Dastur states that even if an application was made for settlement after prosecution proceedings had been initiated, the said proceedings could not be proceeded with further till final settlement was made by the Commission. The Commission could also grant immunity to the applicant even in a case in which a prosecution order had been made. In this connection reference is made to a decision of the Delhi High Court in the matter of Super Rubber Enterprises v. Deputy CIT [1995] 215 ITR 49, in which the court stayed the criminal proceedings till the final settle-ment in view of the fact that the application for settlement was already admitted to be proceeded with. In the said application a specific plea was made for grant of immunity from prosecution and it was the statutory obligation of the Commission to deal with the matter. Further, reference was made to a decision of the Madras High Court....
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....3 did not apply to the orders passed by the Settlement Commission. In view of the above, it was submitted that the Commission could reopen the assessments even if reassessments had been made after issuance of notice under section 148. Reference in this connection is made to clause (e) of Explanation 2 to section 147 to support his view that the Commission could, in fact, reopen such reassessments. In this connection, Shri Dastur cites the decision of the Supreme Court in the case of CIT v. Ranchhoddas Karsondas [1959] 36 ITR 569. It was put to learned counsel as to the useful purpose that could be served by the Settlement Commission, if provisions of section 245E were invoked especially when assessments for the impugned years had been reopened, assessments made, appeals disposed of and pending before the final fact-finding appellate authority, namely, the Income-tax Appellate Tribunal, in the normal course. It was argued that the reopening of these assessments by the Commission was necessary as different views were not to be taken by the different authorities and these matters were to be sorted out and settled for all times by one authority, namely, the Settlement Commission. It ....
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....of the Kerala High Court in the matter of CIT v. K. Ramakrishnan [1993] 202 ITR 997, to support the proposition that when a specific matter was not before the court, the same could not be read into the judgment. In this connection reference was made to a judgment of the Supreme Court reported in Addl. Distt. Magistrate v. Shivakant Shukla [1976] AIR 1976 SC 1207 ; [1976] 2 SCC 521 at page 714 to the effect that it was necessary for a high judicial authority to take "the greatest possible" care "to relate the observations of a judge to the precise issues before him and to confine such observations, even when expressed in broad terms, in the general compass of the question before him, unless he makes it clear that he intended his remarks to have a wider ambit". It is, therefore, submitted that neither of the Supreme Court decisions in Express Newspapers Ltd. [1994] 206 ITR 443 and/or Paharpur Cooling Towers Pvt. Ltd. [1996] 219 ITR 618 had any applicability to the facts of the case. Further, referring to the facts of the case, learned counsel reiterates that the income of the applicant disclosed in his statement under section 132(4) and shown in his application for settlement was fr....
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....the said application, and that no action was called for as the Department had already taken action by reopening and finalising the assessments. It has been held by a number of courts that a tribunal such as the Settlement Commission cannot do injustice and will necessarily correct any wrong done to a party. The decisions of the Allahabad and Bombay High Courts were cited in this connection, in the matters of ITO v. S. B. Singar Singh and Sons [1970] 75 ITR 646 and Khushalchand B. Daga v. T. K. Surendran, Fourth ITO [1972] 85 ITR 48, respectively. Our attention is also drawn to page 1528 of Kanga and Palkhivala's Income Tax, Eighth edition. The decision of the Supreme Court in the matter of CIT v. B. N. Bhattacharjee [1979] 118 ITR 461 at page 479 was referred to. Learned counsel submits that the court observed that withdrawal of an appeal before the Income-tax Appellate Tribunal for the purpose of settlement of the matter before the Settlement Commission was for the purpose of promoting justice. As regards the observations of the Supreme Court in the case of Express Newspapers [1994] 206 ITR 443 at page 458A that the Department was not prohibited in continuing its investigation and....
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....e the provisions for settlement were in the nature of statutory arbitration to which a person submits himself voluntarily, as observed by the learned judges, the dispute raised by the applicant in the present case was not clearly understandable. As to the scheme of the Act relating to settlement, the learned Commissioner of Income-tax (DR) refers to the arrangement of sections in Chapter XIX-A. Section 245C (filing of an application) is followed by section 245D(1), 245D(3), and 245D(4), etc. (relating to admission, enquiries and final order of settlement). Only thereafter, the scheme of the Chapter provides for action under section 245E. From this arrangement itself, it is apparent that the provisions of section 245E cannot be invoked at the stage of admission of the application. The Commission has very limited jurisdiction while invoking the said section, as aptly observed by their Lordships of the Supreme Court in the matter of CIT v. Paharpur Cooling Towers Pvt. Ltd. [1996] 219 ITR 618 at pages 627-628, that it was necessary or expedient for the proper disposal of the case pending before it to reopen certain completed assessments. Further, the reopening of the completed proceedi....
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.... 443. It was held that section 245C is meant for those assesses who seek to disclose income not disclosed before the officer and that "if the Department already knows and has gathered particulars of such income and the manner in which it has been derived, there was no disclosure by the assessee". It was further held by their Lordships of the High Court "that the disclosure under section 245C(1) must be full and true" and that "it cannot be half-way". It was also held that "the argument that an applicant was not required to disclose that part of his income which had not been detected by the Revenue, is wholly unacceptable and is rejected". The learned Commissioner of Income-tax (DR), therefore, pleads that the Commission could not invoke the provisions of section 245E, which is closely linked to the application under section 245C(1), unless the applicant disclosed for the years in respect of which reopening of the assessments had to be made, further income which is closely linked to the settlement for the assessment year for which the application was made and was admitted. From the order under section 132(5), it is clearly seen that the Assessing Officer has taken the disclosed inc....
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....ars, not before the Commission, cannot be taken away as held by their Lordships of the Supreme Court in the matter of Express Newspapers Ltd. [1994] 206 ITR 443. In any case, it cannot be said the Department is entitled to make investigation and enquiries but it could not finalise assessments, as pleaded before the Commission by learned counsel for the applicant. The Income-tax Department is a functional body and all investigation and enquiries have necessarily to lead to conclusions in the form of an assessment order. Fourthly, since the assessments have to be reopened under section 245E only after obtaining the consent of the applicant, some assessments could get barred by limitation if such consent is not given at the stage of admission of the application. In this connection reference was made to such a situation as dealt with by their Lordships of the Delhi High Court in the case of Deen Dayal Didwania v. Union of India [1986] 160 ITR 12. It was also held by their Lordships that there was no bar to the continuation of assessment proceedings in a pending case. If the Commission decides not to proceed with an application there will be no option for the Department but to take app....
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....elation to the year for which the settlement application is made. As to the second issue, Shri Srivastava submits that no assessment could be annulled merely on account of the fact that the same was made after an application was submitted under section 245C(1) or that an application was admitted under section 245D(1) for some other year. In view of the facts of the present case, no further action is called for in respect of the assessment years 1981-82 to 1983-84, 1985-86 and 1988-89 to 1990-91 as assessments and reassessments for these years have been completed and are finally pending before the Income-tax Appellate Tribunal. No prejudice is caused to the applicant. The assessments can be reopened under section 245E under specific circumstances laid down under the Act. As regards this applicant, these circumstances do not exist to enable the Commission to invoke the provisions of section 245E even at the stage of final settlement for the assessment year 1991-92. The order of the Commission is normally prospective and not retrospective. Shri Dastur while replying to some of the points raised by the learned Commissioner of Income-tax (DR) explains the provisions of section 245F(4).....
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.... been taken thereon by the Assessing Officer or, in the case of a reassessment, only a notice under section 148 has been issued to the assessee. A settlement application can be filed for more than one assessment year and once it is admitted under sub-section (1) of section 245D, the proceedings pending before any income-tax authority, relating to the admitted years get transferred to the Commission which, under sub-sec-tion (2) of section 245F, is vested with 'exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority under this Act in relation to the case'. Only the provisions relating to payment of self-assessment tax continue, under sub-section (3) of section 245F, to be enforced by the income-tax authority subject to any express direction of the Commission to the contrary. Every order of settlement passed by the Commission under sub-section (4) of section 245D has to be 'in accordance with the provisions of the Act'. It has, by virtue of sub-section (6) thereof, to include 'the terms of settlement including any demand by way of tax, penalty or interest, the manner in which any sum due under the settlement shall be paid and all other matte....
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....made : Provided that where any appeal or application for revision has been preferred after the expiry of the period specified for the filing of such appeal or application for revision under this Act and which has not been admitted, such appeal or revision shall not be deemed to be a proceeding pending within the meaning of this clause ; " The powers and procedure of the Settlement Commission are laid down in section 245F as under : " 245F. (1) In addition to the powers conferred on the Settlement Commission under this Chapter, it shall have all the powers which are vested in an income-tax authority under this Act. (2) Where an application made under section 245C has been allowed to be proceeded with under section 245D, the Settlement Commission shall, until an order is passed under sub-section (4) of section 245D, have, subject to the provisions of sub-section (3) of that section, exclusive jurisdiction to exercise the powers and perform the functions of an incometax authority under this Act in relation to the case. (3) Notwithstanding anything contained in sub-section (2) and in the absence of any express direction to the contrary by the Settlement Commission, nothing contain....
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....o a period beyond eight years from the end of the assessment year to which such proceeding relates. These two features make it abundantly clear that the section contemplates reopening of the completed proceedings not for the benefit of the assesse but in the interests of the Revenue. It contemplates a situation where the case before the Commission cannot be satisfactorily settled unless some previously concluded proceedings are reopened which would normally be to the prejudice of the assessee. It is precisely for this reason that the section says that it can be done only with the concurrence of the assesse and that too for a period within eight years. This section cannot be read as empowering the Commission to do indirectly what cannot be done directly. We may explain. The Commission has jurisdiction to settle the case which is before it. Take this very case: the application for settlement before it pertains to the assessment year 1975-76. Its jurisdiction is limited to settling this case alone. In this case, it cannot settle the matters relating to other assessment years, which are not before it. The Commission cannot touch the proceedings relating to the earlier or other years. T....
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....forestall the investigation/enquiries which have reached a stage where the Department is in possession of material which though not sufficient to establish such concealment or fraud, is such that it is likely to establish it-may be some more material is required to establish it fully. The Commission has to keep all this in mind while deciding whether to allow the application to be proceeded with before it or to reject it." In the matter of Deen Dayal Didwania v. Union of India [1986] 160 ITR 12 (Delhi), their Lordships of the Delhi High Court held that there was no bar to the continuation of assessment proceedings even after an application is filed under section 245C(1). At page 13, it was observed as under : "We have examined the provisions of the Act and do not find that there is any bar on the Income-tax Officer from proceeding with the assessment of any pending case. " Again at page 14, their Lordships held as under : "Furthermore, the Act does not contemplate a stay of the assessment proceedings during the period when the Settlement Commission is deciding whether to proceed or not to proceed. If we grant a stay, we will be adding a provision to the statute which is not ju....
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....he power conferred on the Settlement Commission is so wide that it can take any view on any questions of law, which it considers appropriate, having regard to the facts and circumstances of a case, which would be applicable only to that case and it has also the power to give immunity against prosecution or imposition of penalty. It is in this background that we should find out an answer to the second question, namely, the scope for interference against a decision of the Settlement Commission in a petition under article 226 of the Constitution of India. The provision for settlement would show that it is in the nature of statutory arbitration to which a person may submit himself voluntarily. Therefore, it appears to us that the scope is much more restricted than the power of the court to interfere, with an arbitration award." We have extensively dealt with the decisions cited before us. At this stage it will not be out of place to note the dictionary meaning of the words "necessary" and "expedient" used by the Legislature as enabling requirements for the Settlement Commission to invoke the provisions of section 245E. The word "necessary" means : "that must be ; that cannot be othe....
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....terpret an Act of Parliament as to give effect to its intention". In the matter of Motilal Hiralal Shisodia Firm v. CIT [1951] 19 ITR 96 ; AIR 1951 Nag 224, 225, Justice Hidayatullah laid down the golden rule of interpretation as under (page 100) : "It is an elementary rule of construction of statutes that the judicature in their interpretation have to discover and act upon the mens or sententia legis. Normally, courts do not look beyond the litera legis." The Supreme Court in the matter of Madanlal Fakirchand Dudhediya v. Shree Changdeo Sugar Mills Ltd. [1962] 32 Comp Cas 604 ; AIR 1962 SC 1543, opined as to the elementary rule of interpretation, that, words used in a section must be given their plain grammatical meaning. In Navinchandra Mafatlal v. CIT [1954] 26 ITR 758 (SC), Justice S. R. Das observed (page 763) : "The cardinal rule of interpretation, however, is that words should be read in their ordinary, natural and grammatical meaning subject to this rider that in construing words in a constitutional enactment conferring legislative power the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude." It was held by....
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....re shown separately as income for the assessment year 1991-92 in the said order under section 132(5). The Assessing Officer had separately computed income for other years and included the same in the order for the purpose of computation of tax and retention of the seized assets. In short, the sum of Rs. 87,71,490 in respect of which prayer was made for reopening of assessments for the above noted years does not form part of the speculation income of Rs. 4,85,74,540 disclosed by the applicant under section 132(4). It is also to be noted, as explained at para 2(c), (at page 41), that the sum of Rs. 42,42,000 included in the said order under section 132(5) for the assessment year 1986-87 did not form part of the disclosed speculative income for the assessment year 1991-92. This income has been separately shown and settlement application filed. This forms part of the statement of facts showing total income of Rs. 45,49,540 for the said assessment year 198687. The assertion of the applicant at column 10 of the settlement application that a part of the speculation income for the assessment year 1991-92 was assessable for some earlier years as per the order under section 132(5) is not cor....
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....n admitting the application in which the Commission had noted that the request of the applicant for reopening assessments for earlier years under section 245E was to be considered later on when the order under section 245D(4) was to be passed, if it was necessary to do so. Learned counsel views this observation as a direction for reopening of the assessments for earlier years. This proposition cannot be supported as the Commission did not take the steps required to invoke the provisions of section 245E, viz., that the Commission did not record the reasons for invoking the said provision in respect of the year for which proceedings were completed to show that it was necessary or expedient to do so. In view of this the Department could not have been prohibited from proceeding with the assessment/reassessment for any year not covered by the admission order for the assessment year 1991-92. The requirements of the statute for invoking the provisions of section 245E are clearly stated in the said section and explained by their Lordships of the Supreme Court in the matter of Paharpur Cooling Towers Pvt. Ltd. [1996] 219 ITR 618, relevant portion reproduced at para 10.4 (at page 65) of this....
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....preting the words used and circumstances in which the provisions of section 245E could be invoked, we have gone by the golden rule of interpretation to which we have made reference at para 11.2 (at page 70) above and the decision of the Supreme Court in the matter of Paharpur Cooling Towers Pvt. Ltd. [1996] 219 ITR 618. Since section 245E is not an independent section by itself, in so far as it is not operational without the filing of an application under section 245C(1) and without the same having been admitted under section 245D(1), it could not, therefore, be said that a mere request or prayer for action under section 245E would disentitle the Income-tax Department to proceed with any assessment or reassessment. The provisions can be invoked only after a "case" is pending for disposal before the Commission. Pendency before the Commission arises only after an application made under section 245C(1) has been allowed to be proceeded with under section 245D(1). The provisions of section 245E can, therefore, be considered for invocation only after a case is admitted. That takes us to the question as to the stage at which jurisdiction under section 245E could be invoked. Learned couns....
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.... refund to him, the Commission has to take a conscious decision in the interests of the Revenue. As to the actual position obtaining at the time of filing of the application under section 245C(1) for the assessment year 1991-92, the regular assessments for the assessment years 1981-82 to 1983-84, 1985-86, 1988-89 and 1989-90 in the present case had been completed. The assessment proceeding for the assessment year 1990-91 was, however, pending, as noted earlier. The provisions of section 245E could not, therefore, be applicable for the assessment year 1990-91 and the applicant ought to have included this year in his application under section 245C(1) if any income not disclosed in the return of income had escaped assessment and other prescribed conditions were satisfied. As we have observed earlier, the assessment/reassessments made for these years by the Department after admission of the application for assessment year 1991-92, could not be annulled merely on the basis of the said application under section 245C for the year 1991-92. Since there was also no direction as regards reopening of assessments under section 245E in respect of these years in the order under section 245D(1), t....