TaxTMI 
TaxTMI 
2016 (1) TMI 256
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....tax settlement commission. On 22.12.2011, the principal bench of the said settlement commission passed an order under section 245D (1) of the said act admitting the application made by petitioner nos. 1 to 7 for settlement before it. Similarly, on 28.12.2011, the principal bench of the income tax settlement commission passed an order under section 245D (1) of the said act admitting the applications made by petitioner nos. 8 to 10 for settlement before it. On 21.06.2012, the Commissioner of income tax, Delhi furnished his consolidated report as required by the income tax settlement commission. The petitioners submitted their reply to the said consolidated report on 10.09.2012. As required by the settlement commission, the petitioners submitted their consolidated profit and loss account and balance sheets for the assessment year's 2004-05 to 2011-12 before the assessing officer (Asst Commissioner of income tax, central circle 23, Jhandewalans, New Delhi). 3. The Commissioner of income tax submitted a supplementary report dated 05.12.2012 in which he noted that after examining the accounts submitted by the petitioners, the assessing officer was of the opinion that the accounts were....
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....the petitioners it was argued that there is a clear distinction between a settlement and an assessment. The procedure for assessment is provided in chapter XIV of the said act. On the other hand the procedure for settlement of cases is set out in chapter XIX-A of the said act. The requirement of a special audit is spelt out in section 142 (2A) of the said act which falls within the ambit of inquiry before assessment. It was contended that the proceedings under chapter XIX-A are entirely different from assessment proceedings and, therefore, the settlement commission which is concerned with settlement of cases would not have the jurisdiction to direct a special audit. It was also contended that merely because section 245F confers powers on the settlement commission which are vested in an income tax authority, does not mean that all the powers of an income tax authority under the said act vest in the income tax settlement commission. It was submitted that the powers conferred under section 245F ought to be construed keeping in mind the distinction between an assessment and a settlement. Reliance was placed on the following decisions: (1) CIT v. Om Prakash Mittal: (2005) 2 SCC....
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.... A. Section 142 {in Chapter XIV: Procedure for Assessment} as it stood on the date of the impugned order: "142. Enquiry before assessment.-(1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under Section 115-WD or Section 139 or in whose case the time allowed under sub-section (1) of Section 139 for furnishing the return has expired a notice requiring him, on a date to be therein specified,- (i) where such person has not made a return within the time allowed under sub-section (1) of Section 139 or before the end of the relevant assessment year, to furnish a return of his income or the income of any other person in respect of which he is assessable under this Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or: Provided that where any notice has been served under this sub-section for the purposes of this clause after the end of the relevant assessment year commencing on or after the 1st day of April, 1990 to a person who has not made a return within the time allowed under sub-section (1) of Section 1....
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....ct of any assessment year or assessment years which may be pending before an Assessing Officer on the date on which an application under sub-section (1) of Section 245-C is made: Provided that- (i) a proceeding for assessment or reassessment or recomputation under Section 147; (ii) [* * *] (iii) [* * *] (iv) a proceeding for making fresh assessment in pursuance of an order under Section 254 or Section 263 or Section 264, setting aside or cancelling an assessment, shall not be a proceeding for assessment for the purposes of this clause. Explanation.-For the purposes of this clause- (i) a proceeding for assessment or reassessment or recomputation referred to in clause (i) of the proviso shall be deemed to have commenced from the date on which a notice under Section 148 is issued; (ii) [* * *]; (iii) a proceeding for making fresh assessment referred to in clause (iv) of the proviso shall be deemed to have commenced from the date on which the order under Section 254 or Section 263 or Section 264, setting aside or cancelling an assessment was passed; (iii-a) a proceeding for assessment or ....
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....plication exceeds ten lakh rupees, (ii) in any other case, the additional amount of Income Tax payable on the income disclosed in the application exceeds ten lakh rupees, and such tax and the interest thereon, which would have been paid under the provisions of this Act had the income disclosed in the application been declared in the return of income before the Assessing Officer on the date of application, has been paid on or before the date of making the application and the proof of such payment is attached with the application. Explanation.-For the purposes of clause (i-a),- (a) the applicant, in relation to the specified person referred to in clause (i-a), means,- (i) where the specified person is an individual, any relative of the specified person; (ii) where the specified person is a company, firm, association of persons or Hindu undivided family, any director of the company, partner of the firm, or member of the association or family, or any relative of such director, partner or member; (iii) any individual who has a substantial interest in the business or profession of the specified person, or any relative of such individu....
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.... in the application as if such income were the total income; (ii) if the applicant has furnished a return in respect of the total income of that year, tax shall be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income. (1-C) The additional amount of income tax payable in respect of the income disclosed in the application relating to the previous year referred to in sub-section (1-B) shall be,- (a) in a case referred to in clause (i) of that sub-section, the amount of tax calculated under that clause; (b) in a case referred to in clause (ii) of that sub-section, the amount of tax calculated under that clause as reduced by the amount of tax calculated on the total income returned for that year; (c) [* * *] (1-D) Where the income disclosed in the application relates to more than one previous year, the additional amount of income tax payable in respect of the income disclosed for each of the years shall first be calculated in accordance with the provisions of sub-sections (1-B) and (1-C) and the aggregate of the amount so arrived at in respect ....
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....d to be proceeded with under sub-section (1), within thirty days from the date on which the application was made; or (ii) in respect of an application referred to in sub-section (2-A) which is deemed to have been allowed to be proceeded with under that sub-section, on or before the 7th day of August, 2007, call for a report from the Commissioner, and the Commissioner shall furnish the report within a period of thirty days of the receipt of communication from the Settlement Commission. (2-C) Where a report of the Commissioner called for under sub-section (2-B) has been furnished within the period specified therein, the Settlement Commission may, on the basis of the report and within a period of fifteen days of the receipt of the report, by an order in writing, declare the application in question as invalid, and shall send the copy of such order to the applicant and the Commissioner: Provided that an application shall not be declared invalid unless an opportunity has been given to the applicant of being heard: Provided further that where the Commissioner has not furnished the report within the aforesaid period, the Settlement Commission sh....
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....his behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner. (4-A) The Settlement Commission shall pass an order under sub-section (4)- (i) in respect of an application referred to in sub-section (2-A) or sub-section (2-D), on or before the 31st day of March, 2008; (ii) in respect of an application made on or after the 1st day of June, 2007 but before the 1st day of June, 2010], within twelve months from the end of the month in which the application was made. (iii) in respect of an application made on or after the 1st day of June, 2010, within eighteen months from the end of the month in which the application was made. (5) Subject to the provisions of Section 245-BA, the materials brought on record before the Settlement Commission shall be considered by the Members of the Bench concerned before passing any order under sub-sect....
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....assessment or recomputation required to be made by the Assessing Officer in pursuance of any directions contained in such order passed by the Settlement Commission and nothing contained in the proviso to sub-section (1) of Section 186 shall apply to the pursuance of any such directions as aforesaid." "245-F. Power and procedure of Settlement Commission.-(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 245-C has been allowed to be proceeded with under Section 245-D, the Settlement Commission shall, until an order is passed under sub-section (4) of Section 245-D, have, subject to the provisions of sub-section (3) of that section, exclusive jurisdiction to exercise the powers and perform the functions of an income tax authority under this Act in relation to the case: Provided that where an application has been made under Section 245-C on or after the 1st day of June, 2007, the Settlement Commission shall have such exclusive jurisdiction from the date on which the application was made: ....
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....y, with the previous approval of the Chief Commissioner of Commissioner, direct the assessee to get the accounts audited by an accountant as prescribed under the said act and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particulars as the assessing officer may require. It is obvious that the expression "at any stage of the proceedings before him" has clear reference to the assessment proceedings. Thus, the assessing officer, subject to the pre-conditions set out in the said provision, could require a special audit to be conducted but this is with the sole and ultimate object of making an assessment under the said act. The language employed in section 142 clearly indicates that the steps, including that of special audit, taken thereunder are part and parcel of the assessment proceedings with the object and purpose of enabling the assessment to be made under the said act by the assessing officer. 10. We shall now examine the provisions pertaining to settlement of cases. These provisions have been examined in detail in Commissioner of Income Tax v. Income T....
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....m the Settlement Commission. Section 245D(2C) of the said Act prescribes that where a report of the Commissioner, which has been called for under sub-section (2B), has been furnished within the specified period, the Settlement Commission may, on the basis of the report and within a period of 15 days of receipt of the report, by an order in writing, declare the application in question as invalid and in such eventuality, the Settlement Commission is enjoined to send a copy of such order to the applicant and the Commissioner. The first proviso to Section 245D (2C) ensures that an application shall not be declared invalid by the Settlement Commission unless an opportunity has been given to the applicant of being heard. The second proviso thereto stipulates that where the Commissioner has not furnished the report within the specified period, the Settlement Commission is enjoined to proceed further in the matter without the report of the Commissioner. 9. Under Section 245D(3), the Settlement Commission, inter alia, in respect of an application which has not been declared invalid under Section 245D(2C) of the said Act may call for the records from the Commissioner and after exami....
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....ncial year in which the settlement became void. 12. From the above provisions, it is apparent that the settlement application passes through several stages before the final order providing for the terms of settlement is passed by the Settlement Commission. The first stage is under Section 245D(1). This is followed by the next step under Section 245D(2C) and finally by the order passed under Section 245D(4)............... 13. .................., it would also be appropriate if we refer to the provisions of Section 245F of the said Act. The said section deals with the powers and procedures of the Settlement Commission. Sub-section (1) stipulates that in addition to the powers conferred on the Settlement Commission under the said Act, it would also have all the powers which are vested in an income tax authority under the said Act. Sub-section (2) of Section 245F further stipulates that where an application 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 ....
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....authority can be exercised by the settlement commission. What we mean to say is that the settlement commission does not engage itself in the process of assessment and cannot make an assessment order. The order that the settlement commission makes under section 245D(4) is not in the nature of an assessment but by way of a settlement and contains the terms of settlement. Thus, we reiterate that the powers which are vested in an income tax authority and could be exercised by the settlement commission are such which have a nexus with the settlement proceedings which does not include, in our view, the making of an assessment under the said act. 12. Coming now to sub-section (2) of section 245F of the said act read with the first proviso thereto, it is thus clear that where an application has been made under section 245C on or after the first day of June, 2007 (which is the case at hand), 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 section 245D, exclusive jurisdiction to exercise the powers and perform the functions of an income tax authority under the said act in relation to the ....
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....ry or investigation in the matter is necessary, it may direct the Commissioner to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case. Thus, the only income tax authority who is permitted some jurisdiction in the matter is the Commissioner, who, when called upon by the Settlement Commission, is enjoined to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case. 14. It is, therefore, clear that the powers and functions of an income tax authority which are to be exclusively exercised by the settlement commission (subject to the provisions of section 245D (3)) must be in the context of and have a nexus with the settlement proceedings. That being the case, since the requirement of a special audit falls under the procedure for assessment which is distinct and different from settlement proceedings, the settlement commission would not, in our view, have jurisdiction to direct a special audit as it does not have any nexus with the settlement proceedings. All tha....
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....tion and sub-section (6) prescribes the modalities to be adopted to give effect to the order. It has to be noted that the language used in Section 245-D is "order" and not "assessment". The order is not described as the original assessment or regular assessment or reassessment. In that sense, the Commission exercises a plenary jurisdiction." (emphasis supplied) 16. In Brij Lal v. CIT: (2011) 1 SCC 1, the Supreme Court held: "23. Descriptively, it can be stated that assessment in law is different from assessment by way of settlement. If one reads Section 245-D(6) with Section 245-I, it becomes clear that every order of settlement passed under Section 245-D(4) shall be final and conclusive as to the matters contained therein and that the same shall not be reopened except in the case of fraud and misrepresentation. Under Section 245-F(1), in addition to the powers conferred on the Settlement Commission under Chapter XIX-A, it shall also have all the powers which are vested in the Income Tax Authority under the Act. In this connection, however, we need to keep in mind the difference between "procedure for assessment" under Chapter XIV and "procedure for settlement"....
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.... advance tax under Section 207 (which is also in Chapter XVII) and to the computation of total income in the manner indicated under Chapter XIX-A vide Sections 245-C(1-B) and 245-C(1-C) read with the provisos to Section 245-C(1) on the additional income tax payable on the undisclosed income." (emphasis supplied) 17. The Supreme Court, in Brij lal (supra), made a clear distinction between assessment in law (regular assessment under Chapter XIV) and "assessment" by way of settlement. It clearly held that there is a difference between "procedure for assessment" under Chapter XIV and "procedure for settlement" under Chapter XIX-A. In fact, it reiterated that under the said Act, there is a clear difference between 'assessment in law' [regular assessment or assessment under Section 143(1)] and 'assessment by settlement' under Chapter XIX-A. It also held categorically that an order of settlement under Section 245D(4) is not an order of regular assessment nor is it an order under Section 143(1) or Section 143(3) or Section 144. What is of importance is that the Supreme Court held that the making of an order of assessment is an integral part of the process of assessment. Meaning....
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....s for the levy of tax on the undisclosed income which is nothing but "assessment". Similarly, Section 245-C(1-C) provides for deductions from the total income computed in terms of Section 245-C(1-B). 27. Thus, the special procedure under Sections 245-C and 245-D in Chapter XIX-A shows that a special type of computation of total income is engrafted in the said provisions which is nothing but assessment which takes place at Section 245-D(1) stage. However, in that computation, one finds that provisions dealing with a regular assessment, self-assessment and levy and computation of interest for default in payment of advance tax, etc. are engrafted. [See Sections 245-C(1-B), 245-C(1-C), 245-D(6), 245-F(3) in addition to Sections 215(3), 234-A(4) and 234-B(4).]" (emphasis supplied) 19. On the strength of the observations quoted above it was contended by the learned counsel for the revenue that the proceedings under Chapter XIX-A also entail assessment. The corollary to this being that the direction for the conducting of a special audit was legitimate. We cannot agree with this contention of the learned counsel for the revenue. Wherever the Supreme Court spoke of asse....