Whether mere filing of application for settlement adversely affects powers of Assessing Officer in any manner - NO: HC

THE issues before the Bench are - Whether mere filing of an application for settlement would adversely affect the powers of the Assessing Officer in any manner; Whether the SETCOM is allowed to review its own order and Whether the remedy provided under section 245C, as a machinery provision for effecting settlement of tax disputes, is only in the nature of a option open to the assessee who desired to settle his tax matters. And the matter goes against the assessee.

Facts of the case

The assessee is an individual. It had challenged an order passed by SETCOM, which rejected the assessee's application that the assessment for the period 01.04.1986 to 07.04.1987 was time barred. On 07.08.1997, search and seizure operations were conducted at the residential and business premises in respect of assessee, his wife and other relatives. Several articles and documents were seized. The last panchnama was drawn on 26.09.1997. Upon receipt of notice, assessee filed a return for the period 01.04.1986 to 07.04.1987. After considering this, the Income Tax Authorities were of the opinion that the accounts indicated had sufficient complexities warranting an audit u/s 142(2)A. A special auditor submitted the audit report on 14.02.2000. It was contended during the pendency of these proceedings that SETCOM by its order had entertained the application made to it. The order was a speaking one and made after submissions of the parties and was drawn up by the departmental authorities. Whilst the SETCOM’s proceedings were pending, an order u/s 245 D (4) was contemplated and heard. Assessee had contended that the entire proceedings had to be closed since the block assessment had become time barred on 29.02.2000. It was submitted that by virtue of the then existing Section 158BE, which mandated that assessment were to be completed within a time bound manner which was to expire on 29.02.2000 (the period having been extended by virtue of special audit conducted u/s 142). In the absence of any order by SETCOM admitting the matter or proceeding further, AO had the lost authority to pass any orders. Consequently, the Commission itself did not possess jurisdiction. After hearing counsel for the parties, SETCOM rejected the assessee's argument.

Before HC, the assessee's counsel had relied upon the ruling of SC in the case of Brij Lal & Others v. CIT (2010-TIOL-81-SC-IT-CB), and observed that the jurisdiction of AO was not fettered merely because the assessee had filed the settlement application. The Act does not contemplate stay of the proceedings during that period i.e. when the SETCOM was deciding whether to proceed or reject the settlement application. The jurisdiction of SETCOM to proceed commences only after an order was passed u/s 245-D(1). That, after making an application for settlement the applicant was not allowed to withdraw it. Once the case stands admitted, the SETCOM shall have exclusive jurisdiction to exercise the powers of the Income Tax Authority. It was submitted that AO was always free to complete the assessment within the time period permitted by law, and was not constrained from making any order. Since he did not do so, the SETCOM which was invested with his powers could not likewise have proceeded further. It was submitted that the amendment made to Section 158 BE by the Finance Act, 2002 could not be made applicable in the present case as the block assessment had become time barred on 29.02.2000. Counsel reiterated that SETCOM did not enjoy exclusive jurisdiction by virtue of Section 25-F(1) prior to the passing of an order under Section 245-D(1) of the Income Tax Act.

On the other hand, the Revenue's counsel had argued that the power of AO is to make an order. It does not allow an applicant approaching the SETCOM to contend that jurisdiction ceases automatically if an assessment was not framed. It was submitted that a careful reading of Hindustan Bulk Carrier would show that mere filing of an application for settlement would not in any manner adversely affect the powers of the AO. That formulation of law in no way meant that Settlement Commission was placed under the kind of restrain as was sought to be suggested. It was argued that in this case even at the stage of the order u/s 245-D(1), the petitioner never contended that the Commission had lost jurisdiction on account of the matter having become time barred u/s 158BE. Counsel also submitted that if the petitioner's argument were to be accepted, the Commission would be conferred with a review power despite conclusiveness provided to its order by Section 245-D(1).

Held that,

++ it is a matter on record that when the application was admitted on 10.08.2000, the petitioner was represented and heard. At this stage, no objection as to the jurisdiction of the Settlement Commission was made, the observations in the impugned order of the Commission that to re-visit the order of 10.08.2000 would in effect amount to impermissible review is, in the opinion of this Court, sound reasoning. The conclusiveness attached to the order made by the Commission has been emphasized time and again. Section 245 (1) reiterated this in no uncertain terms. The SC has also underlined this in CIT, Mumbai v. Anjum M.H. Ghaswala & Ors., (2002-TIOL-73-SC-IT). The decision in Deen Dayal v. Union of India, (1986) 160 ITR 12, in our opinion, concludes the issue sought to be urged against the petitioner. In fact the Court visualized the very situation which we are called upon to examine and held that even while upholding the authority of the Assessing Officer to complete assessment, clarify that "there will be no impediment to the Settlement Commission in exercise its powers if it decides to exercise them. On the other hand this Settlement Commission decides not to proceed with application, there is no distinct possibility of department not being able to realize the taxes in the circumstances of this case. The authority of a Settlement Commission to make such orders as are necessary in regard to the matters before it also extends to other matters relating to the case not covered by the application but referred to in the report of the Commission. There is also an element of exclusiveness to the jurisdiction of the Settlement Commission, reiterated by Section 245-F(2). Section 245-E empowers the Settlement Commissions to re-open any proceedings connected with the case in respect of which assessment too has been completed. Given these powers, the fact as to whether the Assessing Officer was in the process of making the assessment or not becomes irrelevant. If indeed the Assessing Officer had completed the assessment, the wide nature of the Commission's jurisdiction, nevertheless, would have allowed to over-ride that assessment order while framing its order under Section 245-D(4);

++ the consequence of accepting the argument of the assessee would be that even though there was a search of his premises u/s 132 of the Act which yielded incriminating material, the proceedings arising out of which he wanted to settle by approaching the Settlement Commission, he would still end up not paying any tax, as the block assessment became barred by time and there would also be no settlement order u/s 245D(4). Such a situation could not have been intended by the statute. Though now the situation has been taken care of by the insertion of the first proviso to Section 245F(2) by the Finance Act, 2007 w.e.f. 01.06.2007, but that cannot prejudice the rights of the revenue prior to that date as it seems to us that it was inserted only "ex abundant cautela". In CIT, (Central), Calcutta vs. B.N. Bhattachargee and Anr., (1979) 118 ITR 461 (SC), it was observed that be that as it may, fiscal philosophy and interpretative technology must be on the same wave length if legislative policy is to find fulfilment in the enacted text. That is the challenge to judicial resourcefulness the present appeals offer, demanding, as it does, a holistic perspective and harmonious construction of a whole chapter, especially a complex provision therein, so that a balance may be struck between purpose and result without doing violence to statutory language and social values. The chapter is fresh and the issue is virgin; and that makes the judicial adventure hazardous, compounded by the involved and obscure drafting of the bunch of provisions in Chap. XIXA. In our view, this rule should govern our approach to the situation arising in the case in hand;

++ it is a settled rule of construction that tax laws, like all other laws, shall be interpreted reasonably and in consonance with justice so as to avoid an absurd consequence that may lead to mischief or abuse: (Hegde, J., in Jodha Mal Kuthiala vs. CIT, (2002-TIOL-943-SC-IT). A machinery provision in the Income Tax Act cannot be subjected to the literal or strict rule of construction that is adopted to interpret a charging section. In Calcutta Jute Manufacturing Co. vs. CTO, (AIR 1997 SC 2920), the Supreme Court held that a machinery provision must be so interpreted as to effectuate its purpose, and the distinction between a charging section and a machinery provision whose function is to effectuate the charge, was pointed out in the context of the rule of interpretation to be adopted. In S.P.A.M. Krishnan Chettiar and Son vs. SETCOM and Another, (1993) 202 ITR 81 (Mad.), a Division Bench of the Madras High Court ruled that Chapter XIX-A providing for settlement of cases is a machinery provision; it was observed that chapter XIX-A in the Act, introduced by the Taxation Laws (Amendment) Act, 1975, was the result of implementing the recommendations of the Wanchoo Committee to arrest the evil of black money and large scale tax evasion. One of the recommendations made was a compromise measure by which a disclosure could be made and the quantum of tax is determined and the assessee not only secured quittance for himself, but also freedom from levy of penalty and prosecution. The machinery, initially conceived of by the Wanchoo Committee to achieve this, was a Tribunal, though, later, it was rechristened the Settlement Commission with full powers to investigate, quantify the amount of tax, penalty as well as interest, etc., and grant immunity from prosecution at its discretion. The details of the application, probe, consideration, hearing and disposal, found in the report, had been incorporated in the statutory provisions in Chapter XIX-A. Thus, a careful study of the anatomy of Chapter XIX-A clearly brings out that it was only in the nature of machinery provisions for the purpose of settlement of tax disputes between the assessee and the Revenue. The provisions do not compel any assessee to resort to section 245C, but that can be availed of, if the assessee so chooses. In other words, the remedy provided under section 245C, as a machinery provision for effecting settlement of tax disputes, was only in the nature of a concession or option open to the assessee who desired to settle his tax matters. We concur with the above view. In view of the above discussion, this Court is of the opinion that there is no merit in the petition and it is accordingly dismissed without any orders as to cost. All pending applications also stand disposed of.