Whether definition of 'case' over which Settlement Commission has exclusive jurisdiction excludes proceedings for reassessment - NO: HC

THE issues before the Bench are - Whether the definition of “case” over which the Settlement Commission has exclusive jurisdiction excludes proceedings for reassessment, under Section 245A(i) and Whether reopening of proceedings is permissible in respect of proceedings completed by the Settlement Commission. And the answers favour the assessee.

Facts of the case

The assessee company is engaged in real estate business. Its premises were searched different dates. It filed its return declaring taxable income. The assessee had earlier been issued separate notice under Section 153-A of the Act. In response to the notice, the assessee stated that its returns filed for 2000-2006 be treated as reiterated under Section 153A. The assessee approached the Settlement Commission to settle pending assessments for AY 2000-2001 to 2006-2007 and declared additional income. Initially, after hearing parties, the Commission admitted the application for hearing and disposal. The Commission passed its order under Section 245D(4), finally determining the assessee’s liability, for 2004-05 to 2006-07.

The AO issued notice under Section 148 proposing reopening of assessment for 2006-07. Assessee’s objections to the notice were rejected by the AO. AO passed the final reassessment order. This was challenged in writ petition filed by the assessee. The writ petition was allowed by order dated 13.07.2012 and the notice for reassessment under Section 147 of the Act for the AY 2006-07 was quashed.

In the meanwhile, consequent to search in the premises of one M, a satisfaction note was recorded by the AO of M for initiating proceedings under Section 153C of the Act against the assessee for 2004-05 to 2009-10. The Revenue, consequent to search in the case of M, issued notices under Section 153C of the Act seeking to reassess the assessee’s income, inter alia, for assessment years 2004-05 to 2009-10. Responding to notice issued under Section 153C of the Act, the assessee objected to assessment/ reassessment of income for assessment years 2004-05 to 2006-07 under the said provision since the assessments had already been concluded by the order of the Settlement Commission. Assessee’s objections were rejected. The assessee thereafter filed detailed objections to notice issued under Section 153C of the Act, inter alia, objecting to assessment/ reassessment of income for assessment years 2004-05 to 2006-07, particularly in the light of the judgment of this Court dated 13.07.2012. The Revenue issued the impugned order dismissing the said objections. During the course of proceedings under Section 153C, the Revenue also issued notices under Section 142(1) inter alia calling for detailed information pertaining to the assessment years in question.

Assessee contended that by virtue of Section 245I, the finality attached to the Settlement Commission’s order in respect of a particular period – in this case AY 2006-07 cannot be disturbed. It was argued that in the previous judgment of this Court – reported as Omaxe Ltd. & Jai Bhagwan Goel Vs. ACIT & Anr. 2012-TIOL-518-HC-DEL-IT, the applicability of any other provision of law including Section 148 had been ruled out once an order was made by the Settlement Commission. It was argued that once the Settlement Commission admits an application for final decision, all information in the statements and application filed by the assessee are disclosed and reports are furnished by the Commissioner. Thereafter upon assumption of jurisdiction and the making of an admission order, it is the Settlement Commission alone which has exclusive jurisdiction under Section 245F (2) of the Act to pass orders in respect of the matters and related aspects. For this purpose, it exercises powers and functions of all Income Tax authorities.

Revenue contended that the application preferred before the Settlement Commission and an order related to five issues. The search carried out in the case of M was subsequent to its order, i.e., on 19.6.2009. The materials were not part of the settlement and more importantly revealed fresh non-disclosure of facts. There were instances that pointed to undisclosed income of assessee which were not the subject matter of the settlement proceedings and therefore had not been decided or adverted to. They stood excluded from the proceedings and the Revenue could justifiably proceed under Section 153C of the Act. It was argued that the exclusive jurisdiction of the Settlement Commission under Section 245F(2) to exercise powers and perform the functions of the IT Authorities was only in relation to the “case”, which, as defined in Section 245A(b) read with proviso (i), refers to any proceeding for assessment pending before an AO when the application for settlement is made, except a proceeding for reassessment under Section 147. Thus, any reassessment attempted to be initiated would not impermissibly interfere with the jurisdiction of the Settlement Commission.

Having heard the parties, the Court held that,

++ the finality which attaches itself to Settlement Commission’s order is in respect of the matters referred to it. The Revenue’s contention appears to be that the non-disclosure of materials which have a bearing on AY 2006-07, discovered or seized in search proceedings concerning M, were not the subject matter of the Commission’s deliberations and consequently the subject matter of its order. Attractive though this aspect appears to be, the ruling in Omaxe precludes exercise of authority by the Revenue. Whilst from the Revenue’s perspective, every non-disclosure or a fresh discovery of facts which might have a bearing on the assessee’s returns, prima facie, stands excluded from what is referred to a Settlement Commission, the fallacy in that argument is the Commission has a full weight and the jurisdiction of all the authorities under the Income Tax Act when it is seized of a matter. Concededly in this case, the subject matter before the Commission was the submission of the assessee to its jurisdiction with respect to AY 2006-07. Of course, the Revenue contends that the recovery of material in a third party’s premises were not a subject matter of the settlement proceedings, which got concluded on 17.3.2008. However, equally its case can proceed only on the assumption that the assessee was guilty of non-disclosure or suppression of material facts which ought to have been primarily revealed to the Settlement Commission when the application was moved under Section 245D in the first place. The fallacy in the Revenue’s argument is that it overlooks the remedy available for the Revenue, i.e to approach the Settlement Commission under Section 245D(6) contending that its previous order of 17.3.2008 ought to be reopened because the non-disclosure amounted to a fraud or misrepresentation;

++ it is evident from the rulings of the Supreme Court that orders of Settlement Commission are final and conclusive as to matters stated therein. The “matters” necessarily could comprehend disputed questions, items or heads of income, disallowance, etc. or variants of it, but always with reference to a particular assessment year. In this case, the Settlement Commission was seized of AY 2006-07. Whilst exercising its authority over the application, the Commission concededly exercised the vast plenitude of its power or jurisdiction. The assessee had made a disclosure in its application – as it was duty bound to. What is in controversy today is that the subsequent event of search and seizure operation conducted in the premises of Shri Modi – in the contention of the Revenue – have thrown light on material that had been suppressed from the Commission. If such is the case, it would be only logical that the Commission itself should be approached for a declaration that its order of 17.3.2008 is a nullity. Allowing any other authority, even by way of a notice under Section 153C, would be to permit multiple jurisdictions which can result in chaos. After all non-disclosure or suppression of information in respect of what is required to be revealed to the concerned authorities is akin to fraud and if it has a material bearing on the outcome of the assessment, it would most certainly be misrepresentation. During the course of hearing, the learned counsel for the Revenue had voiced apprehensions that the Commission might well be of the opinion that “misrepresentation” has to fall within the four corners of the meaning of such expression under the Contract Act. This Court sees no rationale for such apprehension. Misrepresentation has not been defined under the Income Tax Act; importing the definition of misrepresentation or for that matter fraud from the Contract Act in the circumstances would not be appropriate. As one understands, the term “misrepresentation” would mean failure to disclose material or facts which are germane and relevant, or suppressing facts and materials which are germane and relevant or holding out a falsehood which gives the rise to an assumption that what is so stated or represented is true or correct. These are only illustrative and by no means conclusive as to what can be misrepresentation. The facts of each case would throw light on whether the individual or person concerned was guilty of misrepresentation having regard to the totality of the circumstances, given the nature of duty cast on him or her. This interpretation is in consonance with the ruling of the Supreme Court in Commissioner of Income Tax v Om Prakash Mittal;

++ finally, this Court is not impressed by the argument of the Revenue that the definition of “case” over which the Settlement Commission has exclusive jurisdiction excludes proceedings for reassessment, under Section 245A(i). This is because any reassessment proceedings that are sought to be excluded from the purview of “case” must be in respect of a Section 148 notice sent while the proceedings before the Settlement Commission are ongoing. Once the Settlement Commission has completed proceedings, its order is considered conclusive as regards matters “stated therein” per Section 245I and reopening any proceeding in respect of matters covered in the order would be barred;

++ the impugned notice issued to the assessee under Section 153C cannot be sustained; the said notice and all further proceedings are hereby quashed. It is open to the respondent/Revenue to move the Settlement Commission for appropriate relief of declaration that its previous order under Section 245D (6) is void, setting out the relevant facts and circumstances. In the event the Revenue approaches the Commission with an application for such relief, it shall be decided on its merits in accordance with law.