Commissioner Of Income Tax,Chennai-Iii v. The Income Tax Settlement Commission, Additional Bench, 488-489 Anna Salai, Chennai – 35

Commissioner of Income Tax,Chennai-III,121, M.G.Road,Nungambakkam,Chennai – 600 034...Petitioner vs 1.The Income Tax Settlement Commission, Additional Bench, 488-489 Anna Salai, Chennai – 35. 2.M/s.Sri Krishna Tiles and Potteries (Madras) Pvt Ltd., Flat No.A-1, Kumaravijayam, No.99, Royapettah High Road, Mylapore, Chennai – 600 004. ..Respondents Prayer: Writ Petition filed under Article 226 of theConstitution of India praying to issue a Writ of Certiorari,call for the records of the 1[st] respondent in SettlementApplication No.TN/CN3/07-08/10/IT filed by the 2[nd] respondent andquash the order dated 14.03.2008. The Income Tax Settlement Commission dated 14.03.2008 isunder challenge in the present writ petition. 2. The petitioner is Commissioner of Income Tax, questionedthe validity of the application filed by the 2[nd]respondent/assessee under Section 245(C) of the Income Tax Actand the consequential order passed by the Settlement Commission. https://hcservices.ecourts.gov.in/hcservices/ 3. The facts in nutshell needs to be considered are that the2[nd] respondent / M/s.Sri Krishna Tiles and Potteries (Madras)Private Limited, filed return of income for the Assessment Year2006-07. On 03.04.2007, even before issuing notice, commencingthe assessment proceedings, the 2[nd]respondent filed anapplication before the Settlement Commission on 30.05.2008 underSection 245(C) of the Income Tax Act. 4. The 2[nd] respondent was the owner of 34.04 acres ofimmovable property situated at Anna Nagar, Chennai, out of which2 acres were sold on 11.09.2002 and 32.04 acres were sold on02.03.2006. The 2[nd] respondent was assessed to tax by anAssessing Officer working under the petitioner both under theIncome Tax Act and Wealth Tax Act. The 2[nd] respondent sold 2acres of its property in the financial year 2002-2003 and thebalance 32.04 acres of property in the financial year 2005-06for a total consideration of Rs.4.68 crores and Rs.206.34 croresrespectively. The assessee claimed several inadmissible andunconnected expenses as deduction from the sale price, and alsotook the base value of the land as on 1981 at an unrealisticallyhigh figure to reduce the amount of capital gains. 5. On account of vast contradictions noticed by the IncomeTax Department, the Revenue asked before the SettlementCommission that it had no jurisdiction to take up theapplication filed by the 2[nd] respondent for Settlement as therewas no case pending as on the date of filing the application forthe Assessment Year 2006-07 since no assessment proceedings hadcommenced by issuance of notice. In contradiction with thesubmissions made by the Assessing Officer, the SettlementCommission treated that the applicants settlement applicationand passed an order. It is contended that Clause (iv) inexplanation to Section 245A(b) has been inserted with effectfrom 01.06.2007, it would convey the meaning of “proceedings forassessment” for the earlier also and can be deemed to beconsidered retrospective “in nature”. 6. In this context, the learned Senior Standing counselappearing on behalf of the petitioner Department mainlycontended that the assessee wanted the amendment in Section 245(C), which is workable for the assessee, because the assesseefiled the application before the Settlement Commission on30.05.2007, one day before the amendment on 01.06.2007. Theassessee approached the Settlement Commission, but only with aguilty mind that the assessee company preempted the initiationof proceedings before the Income Tax authorities as could be unraveled from certain facts. The report filed by the petitioner/ Department reveals all those facts. It is contended that noapplication for Settlement was pending as per Section 245(A)b ofthe Act. Thus, the Application filed by the assessee itself isnot maintainable. unraveled from certain facts. The report filed by the petitioner/ Department reveals all those facts. It is contended that noapplication for Settlement was pending as per Section 245(A)b ofthe Act. Thus, the Application filed by the assessee itself isnot maintainable. 7. The learned Senior standing counsel contended that in theeventuality of no pendency of case during the relevantassessment year, the application under Section 245(C) of the Actis not maintainable before the Settlement Commission. Suchapplications may be entertained by the Settlement Commissiononly after the amendment, which came into effect on 01.06.2007. 8. In the present case, after filing of the applicationunder Section 245(C) of the Act, the assessee made a revisedoffer and the details of the revised offer are also brought tothe notice of this Commission for the purpose of rejecting theapplication filed by the assessee. It is contended that therevised offer was filed on two occasions in vide letters dated10.03.2008 and on 14.03.2008 and the statement of factsdiscloses the following informations, which reads as under: 9. Relying on the said statement of facts filed throughtheir letter dated 10.03.2008 and on 14.03.2008, which weresubmitted during the proceedings before the SettlementCommission and after filing of the application under Section 245(C) on 30.05.2007, it is to be construed that the application https://hcservices.ecourts.gov.in/hcservices/ initially filed was not in consonance with the requirements ascontemplated under Section 245(C) of the Act as there was notrue and full disclosure of income. Thus, the application itselfis not entertainable by the Settlement Commission and theSettlement Commission erroneously continued the proceedings andpassed an order, which is untenable. 10. With reference to the pre-amendment position and afteramendment, the Hon'ble Supreme Court of India considered thesame in the case of Commissioner of Income Tax Vs. ExpressNewspaper Limited, reported in [1994] 72 Taxman 438 (SC) isrelied upon and paragraph 10 is extracted hereunder: “6. Chapter XIX-A providing for settlement ofcases was introduced in the Income Tax Act, 1961pursuant to the recommendations of the Direct TaxInquiry Committee headed by Justice Wanchoo. It isnecessary to notice a few provisions relevant herein.Section 245-A defines certain expressions occurring inthe chapter. Clause (b) defines the expression “case”in the following words— “(b) ‘case’ means any proceeding under this Act for theassessment or reassessment of any person in respect ofany year or years, or by way of appeal or revision inconnection with such assessment or reassessment, whichmay be pending before an income tax authority on thedate on which an application under sub-section (1) ofSection 245-C is made:Provided that where any appeal or application forrevision has been preferred after the expiry of theperiod specified for the filing of such appeal orapplication for revision under this Act and which hasnot been admitted, such appeal or revision shall not bedeemed to be a proceeding pending within the meaning ofthis clause;” 10. Section 245-D prescribes the procedure to befollowed by the Commission on receipt of an applicationunder Section 245-C. Sub-section (1) is relevant forour purpose. As originally enacted, the sub-sectionread as follows: “245D. Procedure of receipt as an application underSection 245-C--(1) On receipt of an application underSection 245-C, the Settlement Commission shall call fora report from the Commissioner and on the basis of thematerials contained in such report and having regard tothe nature and circumstances of the case or thecomplexity of the investigation involved therein, the Settlement Commission may, by order, allow theapplication to be proceeded with or reject theapplication: 10. Section 245-D prescribes the procedure to befollowed by the Commission on receipt of an applicationunder Section 245-C. Sub-section (1) is relevant forour purpose. As originally enacted, the sub-sectionread as follows: “245D. Procedure of receipt as an application underSection 245-C--(1) On receipt of an application underSection 245-C, the Settlement Commission shall call fora report from the Commissioner and on the basis of thematerials contained in such report and having regard tothe nature and circumstances of the case or thecomplexity of the investigation involved therein, the Settlement Commission may, by order, allow theapplication to be proceeded with or reject theapplication: Provided that an application shall not be rejectedunder this sub-section unless an opportunity has beengiven to the applicant of being heard:Provided further that an application shall not beproceeded with under this sub-section if theCommissioner objects to the application beingproceeded with on the ground that concealment ofparticulars of income on the part of the applicant orperpetration of fraud by him for evading any tax orother sum chargeable or imposable under the IndianIncome Tax Act, 1922 (XI of 1922) or under this Acthas been established or is likely to be established byany income tax authority in relation to the case.” 11. In the context of the maintainability of the writpetition filed by the Commissioner of Income Tax, challengingthe order passed by the Settlement Commission, the petitionersrelied on the judgment of the Hon'ble Supreme Court of India inthe case of Ajmera Housing Corporation Vs. Commissioner ofIncome Tax, reported in [2010 193 Taxman 193 (SC)] and theentertainability of the writ petition and the manner in whichthe application is to be admitted by the Settlement Commissionand the sanctity behind the pre-requisite condition of full andtrue disclosure of income by the assessee are elaboratelydiscussed in the above judgment and the relevant paragraphsextracted hereunder would throw a light on the issues. “8. Dissatisfied with the order passed by theSettlement Commission, the Commissioner challenged itby preferring a writ petition in the High Court ofBombay. Holding that the Settlement Commission had notgiven any finding as to whether there was full and truedisclosure of the income by the assessee, by a stronglyworded order, dated 28-7-2000, the High Court allowedthe writ petition and set aside the order. 14. Next, it was urged by the learned SeniorCounsel for the assessee that the High Court erred inentertaining the writ petition filed by theCommissioner under Article 226 of the Constitutionagainst the order passed by the Settlement Commissionbecause: (i) in terms of Section 245-D(1) of the Act,the order made by the Settlement Commission under sub-section (4) of the said section is conclusive as to thematters stated therein and no matter covered by such order can be reopened in any proceedings under the Actor under any other law for the time being in force; and(ii) in the absence of any illegality in the procedurefollowed by the Settlement Commission, the power ofjudicial review could not be exercised by the HighCourt to interfere with the findings of fact recordedby the Settlement Commission. To buttress hisproposition that judicial review is concerned only withthe decision-making process and not with the finaldecision, learned counsel referred us to the decisionsof this Court in Jyotendrasinhji v. S.I. Tripathi [1993Supp(3)SCC389], R.B.ShreeramDurgaPrasad v. Settlement Commission (IT & WT) [(1989) 1 SCC628 : 1989 SCC (Tax) 124] and Shriyans PrasadJain v. ITO [1993 Supp (4) SCC 727] . order can be reopened in any proceedings under the Actor under any other law for the time being in force; and(ii) in the absence of any illegality in the procedurefollowed by the Settlement Commission, the power ofjudicial review could not be exercised by the HighCourt to interfere with the findings of fact recordedby the Settlement Commission. To buttress hisproposition that judicial review is concerned only withthe decision-making process and not with the finaldecision, learned counsel referred us to the decisionsof this Court in Jyotendrasinhji v. S.I. Tripathi [1993Supp(3)SCC389], R.B.ShreeramDurgaPrasad v. Settlement Commission (IT & WT) [(1989) 1 SCC628 : 1989 SCC (Tax) 124] and Shriyans PrasadJain v. ITO [1993 Supp (4) SCC 727] . 16. Shri Raval, on the other hand, supporting theimpugned judgment, submitted that the scheme of ChapterXIX-A does not envisage revision of the applicationfiled by the assessee under Section 245-C(1) of the Actand, therefore, the Settlement Commission committedserious procedural irregularity in permitting theassessee to file revised annexure, declaring higherundisclosed income. Additionally, the learned counselargued that acceptance of such annexure, after theconclusion of hearing on 12-9-1994, behind the back ofthe departmental representative and after theSettlement Commission had reserved its order underSection 245-D(1), was improper and clearly in breach ofprinciples of natural justice and, therefore, the orderpassed by the Settlement Commission on 17-11-1994,deciding to proceed with the application deserves to beset aside. 22. It is clear that disclosure of “full and true”particulars of undisclosed income and “the manner” inwhich such income had been derived are theprerequisites for a valid application under Section245-C(1) of the Act. Additionally, the amount of incometax payable on such undisclosed income is to becomputed and mentioned in the application. It needslittle emphasis that Section 245-C(1) of the Actmandates “full and true” disclosure of the particularsof undisclosed income and “the manner” in which suchincome was derived and, therefore, unless theSettlement Commission records its satisfaction on thisaspect, it will not have the jurisdiction to pass anyorder on the matter covered by the application. 27. It is trite law that a taxing statute is to beconstrued strictly. In a taxing Act one has to lookmerely at what is said in the relevant provision. Thereis no presumption as to a tax. Nothing is to be readin, nothing is to be implied. There is no room for anyintendment. There is no equity about a tax. (See CapeBrandy Syndicate v. IRC [(1921) 1 KB 64] and Federationof A.P. Chambers of Commerce & Industry v. State ofA.P. [(2000) 6 SCC 550] ) In interpreting a taxingstatute, the court must look squarely at the words ofthe statute and interpret them. Considerations ofhardship, injustice and equity are entirely out ofplace in interpreting a taxing statute. 28. As aforestated, in the scheme of Chapter XIX-A, there is no stipulation for revision of anapplication filed under Section 245-C(1) of the Act andthus the natural corollary is that determination ofincome by the Settlement Commission has necessarily tobe with reference to the income disclosed in theapplication filed under the said section in theprescribed form. 28. As aforestated, in the scheme of Chapter XIX-A, there is no stipulation for revision of anapplication filed under Section 245-C(1) of the Act andthus the natural corollary is that determination ofincome by the Settlement Commission has necessarily tobe with reference to the income disclosed in theapplication filed under the said section in theprescribed form. 31. We are convinced that, in the instant case,the disclosure of Rs. 11.41 crores as additionalundisclosed income in the revised annexure, filed on19-9-1994 alone was sufficient to establish that theapplication made by the assessee on 30-9-1993 underSection 245-C(1) of the Act could not be entertained asit did not contain a “true and full” disclosure oftheir undisclosed income and “the manner” in which suchincome had been derived. However, we say nothing moreon this aspect of the matter as the Commissioner, forreasons best known to him, has chosen not to challengethis part of the impugned order.” 12. Relying on the above judgments, the learned SeniorStanding counsel made a submission that there was no true andfull disclosure of income by the assessee in respect of theapplication filed under Section 245(C) of the Act and theassessee themselves filed statement of facts belatedly duringthe pendency of the proceedings before the Settlement Commissionon 10.03.2008 and on 14.03.2008, which would reveal that theoriginal application was filed without disclosing the true andfull disclosure of income and therefore, the SettlementCommission ought to have rejected the application, soon aftersuch statement of fact is filed during the pendency of theproceedings. 13 . This Court is of the considered opinion that Section245(C) of the Income Tax Act enumerates that "An assessee may,at any stage of a case relating to him, make an application insuch form and in such manner as may be prescribed, andcontaining a full and true disclosure of his income which hasnot been disclosed before the Assessing] Officer, the manner inwhich such income has been derived, the additional amount ofincome- tax payable on such income and such other particulars asmay be prescribed, to the Settlement Commission to have the casesettled and any such application shall be disposed of in themanner hereinafter provided". 14. A reading of the section portrays that it is a specialprovision contemplated enabling the assessee to settle thedisputes in a peaceful manner with the Department, if they havecome out with full and true disclosure of income. Such specialprovisions are enacted with an intention to provide anopportunity to the assessee to settle the issues, in order torectify certain omissions, commission, mistakes etc., by theAssessee at the time of original assessment intentionally orunintentionally or otherwise. In view of the complex nature ofbusiness by the Entrepreneurs, it is possible for such omission,commission, mistakes etc., while filing income tax returns andfurnishing other particulars. Thus, the legislative intention ofSection 245C is to provide an opportunity to the Assessee tosettle the issues, if they found some discrepancy orcommissions, omissions in respect of the disclosures made beforethe Assessing Officer at the first instance. Since such enablingprovisions are made with good intention and to provide anopportunity to the assessee to correct the mistakes, it is to bedone in the manner prescribed. Section 245(C) unambiguouslystipulates that the application filed under Section 245(C) is tobe disposed of in the manner provided in the very sectionitself. Therefore, it is an exclusive provision under the Act,wherein the procedures are also contemplated and certain termsand conditions are also stipulated for the purpose of settlingthe disputes. 15. Law presumes that every assessee discloses his true andfull income at all times. Law mandates that an assessee mustfile his returns and show the income in a true and correctmanner. While the law expects that an assessee to be truthfuland correct in his particulars, the additional provisions forsettlement of the disputes are provided enabling the assessee tosettle the disputes in the event of any correction, omission,commission or mistakes etc. Thus, an application for settlementof cases cannot be construed as an absolute right. But, it is aright of an assessee to approach the Settlement Commission with full and true disclosure of his income. The right of theassessee is well enumerated in many other provisions of theIncome Tax Act. The assessment made by the Assessing Officer atthe first instance would be the factor for all purposes and thesettlement of the disputes is an additional provision, enablingthe assessee to correct certain mistakes, if at all occurred oron account of various other factors. Thus, the scope of Section245C of the Income Tax Act cannot be compared with the regularassessments to be made in accordance with the procedurescontemplated under the Act nor Section 245(C) can be taggedalong with the regular provisions for the purpose of settlingthe disputes between the assessee and the Department. 16. In a common parlance, the settlement of disputes arepossible, only if there is a consensus between the parties tothe disputes. The dictionary meaning of "settlement" would showthat the settlement can be made, if the difference between theparties are narrowed down. Undoubtedly, the SettlementCommission has got certain powers to settle the issues. However,such power of settlement is absolutely guided by the provisionitself. That is the reason why the proviso clauses are providedunder Section 245(C). The proviso clause stipulates that noapplication shall be made unless certain terms and conditionsare fulfilled. But Section 245(C)(1) provides that it is a pre-condition to entertain an application that the assessee mustdisclose full and true facts and the evidence. Thus, Sub-clause(1) to Section 245(C) is the preliminary requirement forentertaining the application under Section 245C. 17. A question arises, who will be the deciding Authorityfor the full and true disclosure as contemplated under Section245C. When an application is made by the assessee forsettlement, then an assessee wil1 contend that the particularsprovided in the application are the full and true disclosure.However, if the Department raises an objection regarding suchfull and true disclosure made by the assessee, then theSettlement Commission is empowered to go into the facts andcircumstances and find out the correctness or truthfulness ofthe disclosure made by the assessee. Therefore, it is always amixed question of fact and law and in order to ascertain theentertainability of the writ petition, the High Court is boundto look into the facts as well as the laws. In the absence ofexamining both the facts and laws, it may not be possible toform an opinion, whether the application filed under Section 245(C) of the Income Tax Act is entertainable or not? 18. Thus, let us consider the scope as well as the powers ofthe Settlement Commission to entertain an application underSection 245(C) of the Income Tax Act. When the Section inunambiguous terms contemplates that the application in such formand in such manner as may be prescribed containing a "full andtrue disclosure" alone is entertainable, then it becomes a pre-requisite condition for entertaining an application underSection 245(C). The phraseology 'full and true disclosure of hisincome' is contemplated in Section 245(C)(1) itself. Thus, it isfor the assessee to establish at the first instance that theapplication contains full and true disclosure of the income.Once the said factum is established, then alone the question ofsettlement would arise and not otherwise. 19. As far as the original power of the Assessing Officerunder Section 153(A) of the Act is concerned, the Division Benchof this Court in the case of CANARA JEWELLERS vs. SETTLEMENTCOMMISSION reported in [2009] 184 Taxman 491 (Madras) held that"the Settlement Commission is empowered to have all the powerswhich are vested in an income-tax Authority under the Act, inaddition to the power conferred under Chapter XIX-A, but suchpower can be exercised for the purpose of procedure ofsettlement of application under Section 245C and not forreasssessment of tax of a particular year which is vested withthe Assessing Authority". 20. Thus, the power of the Assessing Officer conferred underSection 153(A) cannot usurped by the Settlement Commission,which would defeat the very scheme of the Act nor the originalpowers vested on the Assessing Officer cannot be neutralized. Inother words, in the event of permitting the SettlementCommission to exercise the original power of assessment, thenthe power of assessment of the Assessing Officer is not onlydiluted, but the very provision will be frustrated. Thus, such apower is neither contemplated nor intended. As per the DivisionBench judgment, the original assessment power vested with theAssessing Officer cannot be exercised by the SettlementCommission. 21. This Court is of the considered opinion that theprovision for settlement is an enabling provision to settle thedispute between the parties. Therefore, law expects that theparties, who are approaching the Settlement Commission by way ofapplication, must disclose full and true income in the event ofany difference or confrontation in this regard such anapplication for settlement cannot be entertained. Contrarily,the Assessing Officer must be permitted to make regularassessment of income under Section 153A of the Act. When thereare discrepancies and doubt arises with regard to the true andfull disclosure of income, then the natural course of action would be that the Assessing Officer must be permitted to make aregular assessment under Section 153A of the Act and settlementcannot be arrived under doubtful circumstances. In suchcircumstances, settlements are impermissible and cannot beconstrued as settlement at all. 22. The very concept of settlement is depending on themutual consensus and in the absence of element of mutualconsensus between the parties, the settlement by the SettlementCommission cannot be unilateral and in such an event, SettlementCommission is usurping the powers of the Assessing Officer underother provisions of the Act. In other words, every authorityunder the Income Tax Act, 1961 is expected to exercise thepowers as contemplated. would be that the Assessing Officer must be permitted to make aregular assessment under Section 153A of the Act and settlementcannot be arrived under doubtful circumstances. In suchcircumstances, settlements are impermissible and cannot beconstrued as settlement at all. 22. The very concept of settlement is depending on themutual consensus and in the absence of element of mutualconsensus between the parties, the settlement by the SettlementCommission cannot be unilateral and in such an event, SettlementCommission is usurping the powers of the Assessing Officer underother provisions of the Act. In other words, every authorityunder the Income Tax Act, 1961 is expected to exercise thepowers as contemplated. 23. The question of exercise of excessive powers orjurisdiction would arise, if the authority made an attempt totravel beyond the scope of the provision under which, suchpowers are conferred to a particular authority. In the instantcase, the power of the Settlement Commission is well enumeratedunder Section 245C and 245D of the Act. The manner in whichsettlement is to be arrived is also contemplated under the Act.Certain pre-conditions are also stipulated. Thus, the SettlementCommission cannot enter into the venture of assessment, which isthe power of an Assessing Officer under Section 153A of the Act.Therefore, this Court is of an opinion that in the absence ofany true and full disclosure, the Settlement Commission cannotgo beyond the scope of Section 245C of the Act and adjudicatethe additional income found by the Department during seizure,which is admittedly not disclosed in the application filed atthe first instance by the assessee. 24. In view of the fact that the respondent/assessee in thepresent case filed statement of facts in vide two letters dated10.03.2008 and 14.03.2008, offering additional income and theSettlement Commission also proceeded and settled the issues, itis to be inferred that the assessee at the first instance, hadnot disclosed true and full income and therefore, the subsequentadditional statements cannot be relied upon in order to satisfythe requirements of the provisions under Section 245(C). Theprinciples involved in Section 245(C) of the Income tax is thatthe person approaching the Settlement Commission should file anapplication with clean hands and surrender the full and truedisclosure of income. Only in the eventuality of proving thegenuinity, then alone the Settlement Commission is empowered tosettle the disputes and not otherwise. Thus, the primeconsideration and pre-condition for entertaining an application is true and full disclosure of income and subsequent adding,deletion or insertion would dis-entitle the SettlementCommission from entertaining an application. In such an event,the genuinity of the assessee became questionable and the matteris to be sent back for assessment before the jurisdictionalAssessing Officer. This being the scope of the provision underSection 245(C) for entertaining an application for settlement.In the present case, the Settlement Commission exceeded itsjurisdiction by settling the issues, even after filing of theadditional statement of facts by the assessee on two occasions,providing further disclosure of income. 25. Under these circumstances, the petitioner could able toestablish that the Settlement has caused prejudice to theinterest of the Revenue and therefore, regular assessment is tobe made to cull out the truth and proceed with the matter in themanner known to law. 26. Accordingly, the impugned order dated 14.03.2008 inproceedings in Settlement Application No.TN/CN3/07-08/10/IT isquashed and the writ petition stands allowed. No costs.Consequently, connected miscellaneous petition is closed. Sd/- Assistant Registrar(CCC) //True Copy// Sub Assistant Registrar KakToThe Income Tax Settlement Commission,Additional Bench,488-489 Anna Salai,Chennai – 35. 25. Under these circumstances, the petitioner could able toestablish that the Settlement has caused prejudice to theinterest of the Revenue and therefore, regular assessment is tobe made to cull out the truth and proceed with the matter in themanner known to law. 26. Accordingly, the impugned order dated 14.03.2008 inproceedings in Settlement Application No.TN/CN3/07-08/10/IT isquashed and the writ petition stands allowed. No costs.Consequently, connected miscellaneous petition is closed. Sd/- Assistant Registrar(CCC) //True Copy// Sub Assistant Registrar KakToThe Income Tax Settlement Commission,Additional Bench,488-489 Anna Salai,Chennai – 35. +1CC to Mr.R.Sivaraman Sr.No.26608+1CC to Mr.A.P.Srinivas Sr.No.26680 LN (CO)A.SK (12.07.2021) W.P.No.19364 of 2008