Full Judgment Text
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CASE NO.:
Appeal (civil) 5334 of 1999
PETITIONER:
C.I.T. Jalpaiguri
RESPONDENT:
Om Prakash Mittal
DATE OF JUDGMENT: 22/02/2005
BENCH:
RUMA PAL,ARIJIT PASAYAT & C.K. THAKKER
JUDGMENT:
J U D G M E N T
ARIJIT PASAYAT, J.
Challenge in this appeal is to the order passed by the Income Tax
Settlement Commission, Additional Bench Calcutta (in short the
’Commission’). By the impugned order it was held that the prayer made
by the Commissioner of Income Tax, West Bengal-VIII, Calcutta (in short
’CIT’) to declare the settlement order passed by the Commission on
18.9.1990 to be void and for withdrawing the benefits and immunities
granted to the respondent-assessee was not acceptable. The order dated
18.9.1990 was passed under Section 245D(4) of the Income Tax Act, 1961
(in short the ’Act’). The application by the CIT for declaration of the
said order to be void was made purportedly under Section 245D(6) of the
Act.
The controversy in the present appeal has arisen in the following
factual background:
A search was conducted in the premises of the respondent
(hereinafter referred to as the ’assessee’) on 8.2.1989 and 9.2.1989
and certain seizures were made. The assessee filed an application for
settlement in terms of Section 245C of the Act on 13.1.1989. It is
relevant to note that application for settlement was made was the
financial year 1985-86. The Settlement Commission passed an order on
18.9.1990 in terms of Section 245D(4). It is to be noted that in the
application for settlement before the Commission the assessee claimed
to have received Rs.1.5 crores from seven persons on 31.3.1985 in cash.
All these seven persons were claimed to be residents of Sikkim and that
the amounts were received by way of loan. The details of the receipts
are as follows:
(i) Rs.20,00,000 From Shri Srinivas Agarwal, Singtam, Sikkim.
(ii) Rs.20,00,000 From Shri Hari Krishan Agarwal, Singtam, Sikkim.
(iii) Rs.20,00,000 From Shri Keshu Ram Agarwal, Melli, Sikkim.
(iv) Rs.20,00,000 From Shri Subhas Ch. Minda, Melli, Sikkim.
(v) Rs.20,00,000 From Shri Vinod Kr. Minda, Melli, Sikkim.
(vi) Rs.25,00,000 From Shri Gauri Shankar Agarwal, Melli, Sikkim.
(vii) Rs.25,00,000 From Shri Chandulal Agarwal, Melli, Sikkim.
Certain documents were produced before the Commission to prove
the genuineness of the aforesaid loans. The Commission accepted the
stand of the assessee and did not cast any doubt on the credibility of
sum of Rs.1.5 crores to have been advanced as loans. It appears that
enquiries were conducted by the Central Bureau of Investigation (in
short the ’CBI’) at the request of the revenue regarding the aforesaid
loans, at Jorthang, Melli and Singtam. In the opinion of the CBI the
alleged lenders had no means or financial capacity to advance huge loan
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to the assessee and were mere name lenders. When the investigating
officer contacted the so called lenders, they denied having advanced
any loan. Some of the certificates purportedly issued were not
authentic. One of the persons i.e. the then Commissioner of Siliguri
municipality Mr. Rabin Paul admitted that he had no direct knowledge of
the transaction and, therefore, the assessee had obtained the
certificate by practising fraud. The further fact is that some of the
lenders i.e. S/Shri Gauri Shankar Agarwal, Subhas Ch. Minda and Vinod
Kr. Minda had made payment of tax to the Sikkim authorities after the
order of settlement. It was projected before the Commission at the
first instance as if they were tax payers. Enquiries revealed that
Shri Subhas Ch. Minda was not assessed to income tax up to the period
1985-86. Therefore, the submission made before the Commission that he
was assessed regularly before the Sikkim authorities was false.
In the aforesaid background prayer was made by the CIT for
declaration of the order passed by the Commission to be void and for
withdrawal of the benefits granted. The motion was opposed by the
assessee according to whom the order of the Commission was final in
terms of Section 245I. There was no power for any review of the
earlier order and in any event the Commission had analysed the factual
position. Fresh analysis would amount to sitting in judgment over the
earlier decision which power the Commission did not possess.
By the impugned order the Commission held that the stand taken by
the assessee’s counsel was correct. It was held that the department
had not established that settlement order under Section 245D (4) dated
18.9.1990 was obtained by the assessee by fraud and misrepresentation
of facts. It was further noted that under Section 245D(6) the
Commission was not considering whether the loans of Rs.1.5 crores
claimed to have been taken by the assessee from seven persons were
genuine or not. It was held that if the Commission would go into merit
regarding genuineness of the loans, that would amount to re-appraisal
and re-evaluation of the evidence which was already apprised by the
earlier Bench, and it would amount to sitting in judgment over the
findings arrived at by the earlier Bench which was not legally
permissible to the Commission to review its own decision. Further it
was held that the CBI report did not merit acceptance as the alleged
lenders were genuine persons who were admittedly contacted by the CBI
officials. There was no statement recorded from them stating that they
had not given the loans. Therefore, the petition under Section 245D(6)
was rejected.
Mr. Mohan Parasaran, learned Additional Solicitor General
appearing for the appellant submitted that approach of the Commission
is legally not tenable. The Commission has not kept the scope and ambit
of the power exercisable under Section 245D (6) of the Act in its
proper perspective. The application filed by the appellant-revenue was
not really for review. There was no question of any review involved.
There was also no question of the subsequent Bench sitting in appeal
over the earlier Bench’s decision. The jurisdiction under Section
245D(6) is exercisable when it is subsequently found by the Commission
that the settlement had been obtained by fraud or misrepresentation of
facts. The Commission after having held that the case of the appellant
was not covered by Section 245D(6) of the Act had given clean chit to
the assessee by abruptly concluding that the stand presented by the
assessee’s counsel was acceptable. It also lightly brushed aside the
evidentiary value of the materials placed on record to justify the
stand of the revenue that the settlement order had been obtained by
fraud or misrepresentation of facts. The fraud and/or misrepresentation
of facts are tell tale. The investigating officer had categorically
stated that the alleged lenders categorically denied to have advanced
any loan. There was inherent improbability in the assessee’s stand
that seven persons would keep huge sums of money and would give money
on the same day by cash. Since there was no assessment question of
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furnishing certificates about assessment from unconnected persons is
sufficient to show misrepresentation of facts. No returns of income
were filed by the lenders upto relevant time. Therefore, it was
submitted that the order of the Commission needs to be set aside.
In response, Mr. C.S. Agarwal, learned counsel appearing for the
assessee submitted that finality is attached to the order passed under
Section 245D (4) in terms of Section 245I. It is only the Commission
which has the power to initiate proceedings to set aside the order
passed under Section 245D(4) if it on its own comes to the conclusion
that the order was obtained by fraud or misrepresentation of facts. The
revenue cannot initiate any proceedings in terms of Section 245D(6).
Further, all the relevant aspects were considered by the Commission
earlier. The CIT had ample opportunity to object to any statement made
in the application for settlement. The Commission while dealing with
the application had dealt with the aspects involved and had passed the
order. On mere unsubstantiated allegation regarding lack of capacity to
advance loans, alleged inherent improbabilities, or the authorities
giving a different version after having issued certificates, there is
no scope for coming to the conclusion that there was any fraud or
misrepresentation of facts. Therefore, the Commission had rightly
refused to accept the prayer made by the CIT as it would have amounted
to review of the earlier order and in essence would have amounted to
the subsequent Bench sitting in appeal over the decision of the earlier
Bench.
Sections 245A to 245V are covered by Chapter XIXA of the Act.
A new Chapter XIX-A was introduced by the Taxation Laws
(amendment) Act, 1975 (in short the ’Amendment Act’) w.e.f. 1.4.1976.
The Commission is constituted by the Central Government for the
settlement of cases under Chapter XIX-A. The expression "case" as
appearing in Section 245A(b) refers to any proceeding under the Act for
the assessment or re-assessment of income of any person in respect of
any year or years or by way of appeal or revision in connection with
such assessment or re-assessment which may be pending before any
income-tax authority on the date on which an application under sub-
section (1) of Section 245C is made. It further provides that where any
appeal or application for revision has been preferred after the expiry
of the specified period and which has not been admitted then the same
shall not be deemed to be a proceeding pending within the meaning of
clause (b) of Section 245A. Scheme of Chapter XIX-A shows that the
filing of application by the assessee is a unilateral act, and the
department may not be aware of the same. It has to be noted that if an
application for settlement is filed under Section 245C, it is not
automatically admitted. Section 245D deals with procedure on receipt of
an application under Section 245C. Under sub-section (1) thereof, the
Commission after following the prescribed procedure can allow the
application to be proceeded with or rejected. Only after the Commission
allows the petition to be proceeded with, it exercises the power of
settlement.
One basic feature of Chapter XIXA is that it relates to income
which was not disclosed before the income-tax authorities. This is
evident from Section 245C which reads as follows:
"Section 245C: Application for settlement of cases.
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, and
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
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derived, the additional amount of income-tax payable
on such income and such other particulars as may be
prescribed, to the Settlement Commission to have the
case settled and any such application shall be
disposed of in the manner hereinafter provided:
Provided that no such application shall be made
unless, -
(a) the assessee has furnished the return of income
which he is or was required to furnish under any of
the provisions of this Act; and
(b) the additional amount of income-tax payable on
the income disclosed in the application exceeds one
hundred thousand rupees.
(1A) For the purposes of sub-section (1) of this
section and sub-sections (2A) to (2D) of section
245D, the additional amount of income-tax payable in
respect of the income disclosed in an application
made under sub-section (1) of this section shall be
the amount calculated in accordance with the
provisions of sub-sections (1B) to (1D).
(1B) Where the income disclosed in the application
relates to only one previous year, -
(i) if the applicant has not furnished a return in
respect of the total income of that year (whether or
not an assessment has been made in respect of the
total income of that year), then, except in a case
covered by clause (iii), tax shall be calculated on
the income disclosed 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 (whether or
not an assessment has been made in pursuance of such
return), 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;
(iii) if the proceeding pending before the income-tax
authority is in the nature of a proceeding for
reassessment of the applicant under section 147 or
by way of appeal or revision in connection with such
reassessment, and the applicant has not furnished a
return in respect of the total income of that year
in the course of such proceeding for reassessment,
tax shall be calculated on the aggregate of the
total income as assessed in the earlier proceeding
for assessment under section 143 or section 144 or
section 147 and the income disclosed in the
application as if such aggregate were the total
income.
(1C) 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 (1B) 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;
(iii) in a case referred to in clause (iii) of that
sub-section, the amount of tax calculated under that
clause as reduced by the amount of tax calculated on
the total income assessed in the earlier proceeding
for assessment under section 143 or section 144 or
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section 147".
(Underlined for emphasis)
Prior to substitution by Finance Act, 1987 w.e.f. 1.6.1987, the
proviso to sub-section (1) read as follows:
"provided that no such application shall be
made unless the additional amount of income tax
payable on the income disclosed in the application
exceeds fifty thousand rupees."
The word "fifty thousand rupees" in the earlier proviso has been
substituted by the expression "one hundred thousand rupees" by the
Finance Act, 1995 w.e.f. 1.7.1995. Some changes were introduced by
Finance Act, 1987 w.e.f. 1.6.1987 in sub section (1B) and (1C) which do
not have much importance for the present appeal.
The Commission is not bound to proceed with any application filed
under Section 245C as is clear from Section 245D. The special
provisions so far as relevant read as follows:
Section 245D: Procedure on receipt of an application
under section 245C.
"245D(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 the Commissioner shall
furnish the report within a period of forty-five
days of the receipt of communication from the
Settlement Commission in case of all applications
made under section 245C on or after the 1st day of
July, 1995 and if the Commissioner fails to furnish
the report within the said period, the Settlement
Commission may make the order without such report.
(2) x x x x x
(2A) Subject to the provisions of sub-section (2B),
the assessee shall within thirty-five days of the
receipt of a copy of the order under sub-section (1)
allowing the application to be proceeded with, pay
the additional amount of income-tax payable on the
income disclosed in the application and shall
furnish proof of such payment to the Settlement
Commission.
(2B) If the Settlement Commission is satisfied, on
an application made in this behalf by the assessee,
that he is unable for good and sufficient reasons to
pay the additional amount of income-tax referred to
in sub-section (2A) within the time specified in
that sub-section, it may extend the time for payment
of the amount which remains unpaid or allow payment
thereof by instalments if the assessee furnishes
adequate security for the payment thereof.
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(2C) Where the additional amount of income-tax is
not paid within the time specified under sub-section
(2A), then, whether or not the Settlement Commission
has extended the time for payment of the amount
which remains unpaid or has allowed payment thereof
by instalments under sub-section (2B), the assessee
shall be liable to pay simple interest at fifteen
per cent per annum on the amount remaining unpaid
from the date of expiry of the period of thirty-five
days referred to in sub-section (2A).
(2D) x x x x x
(3) Where an application is allowed to be proceeded
with under sub-section (1), the Settlement
Commission may call for the relevant records from
the Commissioner and after examination of such
records, if the Settlement Commission is of the
opinion that any further enquiry 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.
(4) After examination of the records and the report
of the Commissioner, received under sub-section (1),
and the report, if any, of the Commissioner received
under sub-section (3), and after giving an
opportunity to the applicant and to the Commissioner
to be heard, either in person or through a
representative duly authorized in this 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 under sub-section (1) or sub-section
(3).
(5) x x x x x
(6) Every order passed under sub-section (4) shall
provide for the terms of settlement including any
demand by way of tax, penalty or interest] the
manner in which any sum due under the settlement
shall be paid and all other matters to make the
settlement effective and shall also provide that the
settlement shall be void if it is subsequently found
by the Settlement Commission that it has been
obtained by fraud or misrepresentation of facts."
(underlined for emphasis)
Sub-section (1) of Section 245C makes it clear that at any stage of a
case relating to him an assessee may make an application to the
Commission disclosing fully and truly his income which has not been
disclosed before the Assessing Officer. To put it differently, an
assessee cannot approach the Commission for settlement of his case in
respect of an income which has already been disclosed before the
Assessing Officer. The income disclosed as contemplated is in the
nature of voluntary disclosure of concerned income.
Section 245F dealing with powers and procedure of Settlement
Commission provides that in addition to the powers conferred on the
Settlement Commission under Chapter XIX-A, it has all the powers which
are vested in the income-tax authority under the Act. Sub-section (2)
is of vital importance and provides that where an application made
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under Section 245C has been allowed to be proceeded with under Section
245D, the Commission shall until an order is passed under sub-section
(4) of Section 245D, subject to the provisions of sub-section (3) of
that section have exclusive jurisdiction to exercise the powers and
perform the functions of the income-tax authority under the Act in
relation to the case. In essence, the Commission assumes jurisdiction
to deal with the matter after it decides to proceed with the
application and continues to have the jurisdiction till it makes an
order under Section 245D. Section 245D(4) is the charging section 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 245D
is "order" and not "assessment". The order is not described as the
original assessment or regular assessment or re-assessment. In that
sense, the Commission exercises a plenary jurisdiction.
The Commission’s power of settlement has to be exercised in
accordance with the provisions of the Act. Though the Commission has
sufficient elbowroom in assessing the income of the applicant and it
cannot make any order with a term of settlement which would be in
conflict with the mandatory provisions of the Act like in the quantum
and payment of tax and the interest. The object of the legislature, in
introducing Section 245C is to see that protracted proceedings before
the authorities or in Courts are avoided by resorting to settlement of
cases. In this process an assessee cannot expect any reduction in
amounts statutorily payable under the Act.
A bare reading of Section 245D(6) shows that every order passed
under sub-section (4) has to provide the terms of the settlement and
also to provide that the settlement shall be void if it is found
subsequently by the Commission that it has been obtained by fraud or by
misrepresentation of facts. The plea of the assessee that the
initiation of proceeding to find out as to whether the order has been
obtained by fraud or misrepresentation of facts has to be initiated by
the Commission suo motu is not spelt out in the said sub-section. It is
a statutory requirement that a condition has to be incorporated in the
order passed under sub-section (4) specifying that settlement shall be
void if it is subsequently found by the Commission that it has been
obtained by fraud or misrepresentation of facts. The decision whether
the order has been obtained by fraud or misrepresentation of facts is
that of the Commission. But it is not a requirement that the Commission
must suo motu initiate the action. If the revenue has material to show
that the order was obtained by fraud or misrepresentation of facts it
certainly can move the Commission for decision on that issue.
Otherwise, even if in a given case there is material in abundance to
establish that the order was obtained by fraud or misrepresentation of
facts, yet the void order would continue to be operative because of the
fortuitous circumstance that the Commission does not suo motu initiate
the proceeding. Merely because Section 245I provides that the order of
Settlement is conclusive it does not take away the power of the
Commission to decide whether the settlement order had been obtained by
fraud or misrepresentation of facts. Any other interpretation would
render sub-section (6) otiose. The Commission had really missed the
true scope and ambit of Section 245D(6). If the CIT was able to
establish that the earlier decision was void because of
misrepresentation of the facts, certainly it was open to the Commission
to decide that issue. It cannot be called by any stretch of imagination
to be review of the earlier judgment or the subsequent Bench sitting in
appeal over the earlier Bench’s decision. Further the conclusions of
the Commission regarding the genuineness of the loan transactions were
arrived at without indicating reasons. It only referred to the
respective stands and the submissions of the assessee’s counsel. That
was not the proper way to deal with the matter.
The foundation for settlement is an application which assessee
can file at any stage of a case relating to him in such form and in
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such manner as is prescribed. The statutory mandate is that the
application shall contain "full and true disclosure" of the income
which has not been disclosed before the assessing officer, the manner
in which such income has been derived. The fundamental requirement of
the application under Section 245C is that full and true disclosure of
the income has to be made, along with the manner in which such income
was derived. On receipt of the application, the Commission calls for
report from the Commissioner and on the basis of the material contained
in the report and having regard to the nature and circumstances of the
case or complexity of the investigation involved therein, it can either
reject the application or allow the application to be proceeded with as
provided in Section 245D(1).
It has to be noted that the Commission exercises power in respect
of income which was not disclosed before the authorities in any
proceeding, but are disclosed in the petition under Section 245C. It
is not that any amount of undisclosed income can be brought to the
notice of the Commission in the said petition. Commission exercises
jurisdiction if the additional amount of tax on such undisclosed income
is more than a particular figure (which at different points of time
exceeded rupees fifty thousand or rupees one hundred thousand, as the
case may be). The assessee must have in addition furnished the return
of income which he is or was required to furnish under any of the
provisions of the Act. In essence the requirement is that there must be
an income disclosed in a return furnished and undisclosed income
disclosed to the Commission by a petition under Section 245C.
There is a purpose why the legislature has prescribed the
condition relating to declaration of the order void when it is obtained
by fraud or misrepresentation of facts. It cannot be said that there
has been a true and fair declaration of income which is the pre-
requisite for settlement by the Commission. If an order is obtained by
fraud or misrepresentation of facts, it cannot be said that there was
true and fair disclosure. It was noted here that unlike Section 139 of
the Act which provides for filing of revised return, there is no
provision for revision of an application made in terms of Section 245C.
That shows clear legislative intent that the applicant for settlement
has to make a true and fair declaration from the threshold. It is on
the basis of the application received that the Commissioner calls for
report to decide whether the application is to be rejected or permitted
to be continued. The declaration contemplated in Section 245C is in
the nature of voluntary disclosure of concealed income, but as noted
above it must be true and fair disclosure. Voluntary disclosure and
making a full and true disclosure of the income are necessary pre-
conditions for invoking the Commission’s jurisdiction.
In the aforesaid background it would be proper to direct the
Commission to re-hear the matter. It shall be open to the parties to
place any further material which they may choose to place for
consideration in support of their respective stands. The Commission
shall decide the matter afresh keeping in view the observations made
above. It is, however, made clear that we have not expressed any
opinion on the facts of the case.
The appeal is accordingly disposed of. Costs made easy.
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