TaxTMI 
TaxTMI 
2010 (1) TMI 897
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee for 6 assessment years, i.e., from assessment years 1999-2000 to 2005-06. On 31-10-2005, the assessee filed return of income for assessment year 2005-06 in which he declared total loss of Rs. 3,92,54,327. 4. On 23-10-2006, the entire Dolat group consisting of 46 applicants, being 27 companies (including the assessee, 5 HUFs, 1 firm and 13 individuals) filed application before the Income-tax Settlement Commission under section 245C(1) of the Act. In the application among other incomes offered to tax, the group offered a sum of Rs. 5 crores earned from share speculation, commission and financial consultancy. The above offer was for all the six assessment years for which assessments were made under section 153A/153C of the Act against the Dolat group. The applications before the Settlement Commission (at page 103 para 13) specifically mentions that the above income is not in the knowledge of the department and remained unaccounted and that they do not have any documentary evidence to support such income. The income of Rs. 5 crores was, accordingly, spread over in equal ratio among the applicants (except one of the 46 entities by name Nirship Securities Ltd.) in all the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pplications for some assessment years were not admitted or settled under section 245D(1) and (4), the information regarding disclosure by the assessee for assessment year 2005-06 of a sum of Rs. 2,27,273 became available to the Assessing Officer. 6. Based on the information obtained as above, the Assessing Officer completed the assessment for assessment year 2005-06, whereby he reduced the loss declared by the assessee by Rs. 2,27,273 which was the income declared by the assessee for assessment year 2005-06 before the Settlement Commission. The assessee pleaded before the Assessing Officer that the aforesaid offer of income by the assessee before the Settlement Commission was on an ad hoc basis and was not owing to any incriminating material found in the course of search or on the basis of any other material. The offer was made purely to cooperate and avoid litigation and settle the matter once and for all. The Assessing Officer did not accept the plea of the assessee; but made the addition of Rs. 2,27,273 as aforesaid to the total income of the assessee. It is not in dispute before us that this addition made by the Assessing Officer attained finality, the assessee not having su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r assessment year 2005-06 was not admitted under section 245D(1) of the Act or even if construed as if no order under section 245D(4) has been passed, will not give a license to the Assessing Officer to use the confidential information disclosed in an Annexure to the application for settlement. His further submission was that in a penalty proceedings, the assessee was entitled to point out that the very assessment of income by way of addition in an assessment proceedings in respect of which penalty is sought to imposed under section 271(1)(c) was bad in law, for the limited purpose of coming to a conclusion whether or not penalty can be imposed on the assessee. In this regard, our attention was drawn to the following decision:- * Dhiraj Suri v. Addl. CIT [2006] 98 ITD 187 (Delhi). 9. According to the learned counsel for the assessee, if application of the assessee is treated as not admitted under section 245D(1) of the Act, then the provisions are very clear that the confidential information can never be passed on to the Assessing Officer nor can it be used in evidence against the assessee. In this regard, his submission was that in the order under section 245D(4) of the Act,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e laid down in section 245C(1) and section 245D(1) These conditions, precedent for successful admission of the case before the Settlement Commission are enumerated below:- "(i) Pendency of proceedings before an income-tax authority:- As per section 245C(1):- 'An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed....' The word 'case' has been defined in section 245A(b) which states that:- 'case' means any proceeding under this Act for the assessment or reassessment of any person in respect of any year or years, or by way of appeal or revision in connection with such assessment or reassessment, which may be pending before an income-tax authority on the date on which an application under sub-section (1) of section 245C is made; (ii) Filing of return relating to the case:- One of the important requirements for admission of the case by the Settlement Commission is that the assessee must have filed his return of income relating to the case for which he has filed the application. This is as per proviso (a) to section 245C(1), which has been introduced with effect from 1st June, 1987. It reads ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... However, where he clearly asserts that others are his benami and for that reasons income in the name of others really belongs to him, he is entitled to make such disclosure." [Emphasis supplied] 14. Rule 44C and rule 44CA of the Income-tax Rules, 1962 prescribes the form of application (under section 245C of the Act) for settlement of cases. The application is required to be submitted in Form 34B in Appendix II to the Income-tax Rules. The annexure to Form 34B is of some importance and this requires the assessee to state the following:- (1) Amount of income which has not been disclosed before the Assessing Officer. (2) Additional amount of income-tax payable on the said income. (3) Full and true statement of facts regarding the issues to be settled, including the terms of settlement sought for by the appellant. (4) The manner in which the income referred to in item No. 1 has been derived. 15. Rule 44CA of the Income-tax Rules is important and this reads as follows:- "44CA. Disclosure of information in the application for settlement of cases:- (1) The Settlement Commission may, while calling for a report from the Commissioner under sub-section (1) of section....
X X X X Extracts X X X X
X X X X Extracts X X X X
....45 days of the receipt of the said copy of the application by him. 9. CIT's further report - where an order is passed by the Commission under sub-section (1) of section 245D allowing the settlement application to be proceeded with a copy of annexure to the said application together with a copy of each of the statements and other documents accompanying such annexure, shall be forwarded to the CIT along with a copy of the said order with the direction that the CIT shall furnish a further report within ninety days of the receipt of the said annexure (including the statements and other documents accompanying it) or within such further period as the commission may specify. If the CIT fails to furnish his report on or before the expiry of the specified period of 90 days or such extended period, the Commission may pass the appropriate order without such report." 19. It can be seen from the aforesaid provisions that the confidential portion of the application for settlement remained confidential from the Income-tax Department till the time of its admission by an order under section 245D(1); if the application was not admitted, the very occasion for the Settlement Commission to sen....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... authority before whom the proceeding at the time of making the application was pending, shall dispose of the case in accordance with the provisions of this Act as if no application under section 245C had been made. (3) For the purposes of sub-section (2), the Assessing Officer or as the case may be, other income-tax authority, shall be entitled to use all the material and other information produced by the assessee before the Settlement Commission or the results of the inquiry held or evidence recorded by the Settlement Commission in the course of the proceedings before it, as if such material, information inquiry and evidence had been produced before the Assessing Officer or other income-tax authority or held or recorded by him in the course of the proceedings before him." 21. Thus, when a proceedings before the Settlement Commission abates, it reverts to the income-tax authority before whom it was pending at the time of making the application for settlement and the income-tax authority has to dispose of the case in accordance with the provisions of the Act as if no application for settlement had been made and for that purpose, it is entitled to use all the material and othe....