TaxTMI 
TaxTMI 
1994 (1) TMI 1
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....day and the request was made after the commencement of the arguments. We then heard her fully. Relevant facts of the case : The respondent-assessee filed its return for the assessment year 1985-86 on July 22, 1985. A revised return was filed on February 26, 1988. It disclosed a loss of Rs. 32,80.700. The Assessing Officer, however, assessed the income at Rs. 1,27,95,570 by his order dated March 30, 1988. The Assessing Officer held that the transactions of sale and purchase of potatoes, iron scrap and shares, from which the assessee claimed to have suffered huge losses were not true but were bogus transactions fabricated for the purpose of evading the legitimate tax due on its income. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals), who dismissed the same by his order dated March 31, 1989. During the pendency of the said appeal, the assessee approached the Commission on December 16, 1988, with respect to four assessment years, namely, 1985-86, 1986-87, 1987-88 and 1988-89. On that date, the assessments relating to the three later years were pending before the Assessing Officer. The application to the Commission made by the assessee is in Form N....
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....he four assessment years are stated in the annexure to the report. "Enquiries regarding the claims made by the company for losses on transactions in these years had commenced before the date of filing of the application by the company with the Settlement Commission and these enquiries had reached a final stage even before the petition was filed by the assessee." The Commissioner then set out the comprehensive and elaborate enquiries made by the Department into the claims made by the assessee company relating to its alleged dealings in potatoes, scrap and shares from which it claimed to have suffered substantial losses. He referred to the statements of parties, through whom the said transactions were said to have been put through, denying any such transactions. He pointed out with reference to the books of the assessee and other relevant persons that the several alleged payments were not real and that the several transactions disclosed by the assessee were mere make-believe and that all those entries were fabricated. Some of the parties-who made statements adverse to the assessee's interest were also cross-examined by the assessee. We do not think it necessary to refer to or set ....
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....hed or that enquiries have reached the stage where it can be said that concealment of income is likely to be established. The material referred to in the report of the Commission, as on the date of filing of the application, does not establish with certainty that the concealment has been established or is likely to be established. Many of the enquiries referred to in the report were made after the filing of the application under section 245C ; they cannot be taken into consideration for the purpose of taking a decision under section 245D. The enquiries made do not establish a complete chain of concealment or fraud on the part of the assessee. (He concluded)-"We, therefore, hold that it is a case where it cannot be said beyond dispute that concealment of income has been established or is likely to be established. Section 245D(1) of the Income tax Act describes situations in which the application can be allowed to be proceeded with, where the objection of the Commissioner is not upheld. The Settlement Commission has to consider the material contained in the report of the Commissioner, the nature and circumstances of the case or complexity of investigation involved therein. In the ins....
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....e or more assessment years. It takes in a proceeding for assessment or reassessment. Similarly, it may be a proceeding pending at the stage of assessment or in appeal or revision. Section 245B provides for constitution of the Income-tax Settlement Commission. Sub-section (3) provides specifically that the Chairman, Vice Chairman and other members of the Settlement Commission shall be appointed by the Central Government "from amongst persons of integrity and outstanding ability, having special knowledge of, and experience in, problems relating to direct taxes and business accounts". Section 245C provides for filing of an application by an assessee for settlement of his case. Sub-section (1) says that an assessee may "at any stage of a case relating to him" make an application in the prescribed form and manner, "containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed" to settle his case. There are certain other requirements which he must fulfil before making such an app....
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....ub-section read as follows : "(1) On receipt of an application under section 245C, the Settlement Commission shall call for a report from the Commissioner and on the basis of the materials contained in such report and having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, the Settlement Commission may, by order, allow the application to be proceeded with or reject the application : Provided that an application shall not be rejected under this sub-section unless an opportunity has been given to the applicant of being heard: Provided further that an application shall not be proceeded with under this sub-section if the Commissioner objects to the application being proceeded with on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under the Indian Incometax Act, 1922 (11 of 1922), or under this Act, has been established or is likely to be established by any income-tax authority, in relation to the case. " By the Finance Act, 1979, the second proviso was omitted and subsection (1A) was inserted, ....
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....opportunity of hearing is afforded to the applicant. The second proviso to sub-section (1), however, provided that the Commission shall not proceed with the application filed under section 245C, if the Commissioner objected to the application being proceeded with on the ground that "concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, has been established or is likely to be established by any income-tax authority, in relation to the case". If the Commissioner objected on the ground aforesaid, the Commission could not proceed with the application under section 245C. (It is not necessary to decide, for the purpose of this case, whether the mere objection of the Commissioner sufficed and whether the Commission had no power to examine the correctness of the said objection). By the Finance Act, 1979, the second proviso was deleted. The main limb of sub-section (1) and the first proviso, however, remained untouched. In place of the second proviso, sub-section (1A) was introduced. The effect of this amendment was that ....
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....section 245C can be made only in respect of an income not disclosed by the assessee before the Assessing Officer. If so, what did Parliament mean when it said that the Commission shall not allow the application to be proceeded with if the Commissioner objects, on the ground that "concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under the Indian Income-tax Act, 1922, or under this Act, has been established or likely to be established by any income-tax authority, in relation to the case ?" To appreciate the meaning of the said words, it is necessary to keep in mind the following facts : even though the assessee has not disclosed a particular income before the Assessing Officer, the latter is free to and is empowered to unearth it by making or causing such investigation and enquiries as he thinks appropriate. He may gather and receive information for that purpose. We may take two illustrative cases : One, where the Assessing Officer has discovered some income, which was not disclosed by the assessee, and has added it to the assessee's income. The latter challenges the same and the....
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....been derived". If the Department already knows and has gathered particulars of such income and the manner in which it has been derived, there is no "disclosure" by the assessee. Let it be remembered that the words in question (in section 245C(1A) are not words of limitation nor are they meant to help unscrupulous assessees. Chapter XIX-A is a part of the Income-tax Act and must be construed consistent with the overall scheme and object. The chapter is meant for those assessees who want to disclose income not disclosed till then together with the manner in which the said income is derived. It is not meant for those who come after the event, i.e., after the discovery of the particulars of income and its source, or discovery of particulars of fraud perpetrated by the assessee, as the case may be-nor even to those who come to the Commission to 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 wh....
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....om which loss is said to have resulted) were bogus and fictitious ones, fabricated only for the purposes of evading the tax lawfully due on its income. In his application to the Commission, the respondent did not disclose any income not disclosed by him before the Assessing Officer nor did he disclose in his application the manner in which such income was derived. The assessee merely offered a part of the amount (claimed by him as losses) towards taxable income. Thus, his application, not being in compliance with the first and foremost requirement of section 245C(1), was not maintainable thereunder. It ought to have been rejected in limine. The Commission had no jurisdiction to entertain the said application. Secondly, this is a case where the income-tax authorities had made extensive investigation and enquiries wherein they had collected voluminous material, which, according to them, established the particulars of concealment of income on the part of the respondent-assessee. It was so held by the Assessing Officer with whom the first appellate authority agreed, no doubt, subsequent to the filing of the application under section 245C but before the passing of the impugned order. ....