Jalpaiguri Vs. Om Prakash Mittal  Insc 111 (22 February 2005)
Pal,Arijit Pasayat & C.K. Thakker Arijit Pasayat, J.
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.
controversy in the present appeal has arisen in the following factual
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.
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:
Rs.20,00,000 From Shri Srinivas Agarwal, Singtam, Sikkim.
Rs.20,00,000 From Shri Hari Krishan Agarwal, Singtam, Sikkim.
Rs.20,00,000 From Shri Keshu Ram Agarwal, Melli, Sikkim.
Rs.20,00,000 From Shri Subhas Ch. Minda, Melli, Sikkim.
Rs.20,00,000 From Shri Vinod Kr. Minda, Melli, Sikkim.
Rs.25,00,000 From Shri Gauri Shankar Agarwal, Melli, Sikkim.
Rs.25,00,000 From Shri Chandulal Agarwal, Melli, Sikkim.
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 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.
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.
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.
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
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 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.
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).
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.
245A to 245V are covered by Chapter XIXA of the Act.
Chapter XIX-A was introduced by the Taxation Laws (amendment) Act, 1975 (in
short the 'Amendment Act') w.e.f. 1.4.1976.
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.
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:
245C: Application for settlement of cases.
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 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:
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.
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).
Where the income disclosed in the application relates to only one previous
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;
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;
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.
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 case referred to in clause (i) of that sub-section, the amount of tax
calculated under that clause;
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;
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 section 147".
for emphasis) Prior to substitution by Finance Act, 1987 w.e.f. 1.6.1987, the
proviso to sub-section (1) read as follows:
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.
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:
245D: Procedure on receipt of an application under section 245C.
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 :
that an application shall not be rejected under this sub-section unless an
opportunity has been given to the applicant of being heard:
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.
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.
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).
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.
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
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 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.
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.
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
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.
foundation for settlement is an application which assessee can file at any
stage of a case relating to him in such form and in 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).
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.
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.
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.
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.
appeal is accordingly disposed of. Costs made easy.