Komalkant Faikirchand Sharma v. Deputy Commissioner Of Income Tax, Circle 1

C/SCA/14883/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 14883 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE MR. JUSTICE BHARGAV D. KARIA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ?4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== KOMALKANT FAIKIRCHAND SHARMA Versus DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1 ==========================================================Appearance:MR B S SOPARKAR(6851) for the Petitioner(s) No. 1MRS MAUNA M BHATT(174) for the Respondent(s) No. 1========================================================== CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 06/05/2019 ORAL JUDGMENT (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) C/SCA/14883/2018 JUDGMENT 1.By this petition under article 226 of the Constitution of India, the petitioner has challenged the notice dated 31.03.2018 issued by the respondent under section 148 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) proposing to reopen the assessment of the petitioner for assessment year 2011-12. 2.The petitioner is an individual engaged in the business of real estate, transportation and ship-breaking. The petitioner filed his return of income for assessment year 2011-12 on 29.09.2011declaringtotalincomeof Rs.20,49,590/-. The return of income was accepted without any scrutiny. A search took place at the premises of the petitioner on 17.02.2012. Thereafter, the petitioner filed an application under section 245C of the Act before the Settlement Commission. The application of the petitioner was admitted and the Settlement Commission passed an order dated 12.01.2015 under section 245D(4) of the Act. 3.Thereafter, the respondent issued the impugned notice under section 148 of the Act seeking to reopen the assessment for assessment year 2011-12. Upon receipt of the notice, the petitioner requested the respondent to supply the reasons for reopening, pursuant to which, such reasons came to be furnished on 28.05.2018. By a letter dated 03.07.2018, the petitioner raised various objections on merits and requested the respondent to drop the reassessment proceedings. By an order dated 20.07.2018, the respondent disposed of the objections by rejecting the objections raised by the petitioner. Being aggrieved, the petitioner has filed the present petition. 3.Thereafter, the respondent issued the impugned notice under section 148 of the Act seeking to reopen the assessment for assessment year 2011-12. Upon receipt of the notice, the petitioner requested the respondent to supply the reasons for reopening, pursuant to which, such reasons came to be furnished on 28.05.2018. By a letter dated 03.07.2018, the petitioner raised various objections on merits and requested the respondent to drop the reassessment proceedings. By an order dated 20.07.2018, the respondent disposed of the objections by rejecting the objections raised by the petitioner. Being aggrieved, the petitioner has filed the present petition. 4.Mr. B.S. Soparkar, learned advocate for the petitioner, submitted that the reasons recorded suffer from various infirmities. It was submitted that reasonable belief, as contemplated under section 147 of the Act, must be that of an honest and reasonable person based upon a reasonable ground and it should not be based on some suspicious and vague reasons. Whereas, in this case, the reasons are vague and do not reveal any income having escaped assessment and furthermore, the reasons recorded make it clear that this is a case of borrowed satisfaction without any independent application of mind. It was also contended that in this case, the reopening is beyond a period of four years from the end of relevant assessment year and there is not even a whisper in the reasons recorded regarding any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment. 4.1 Elaborating upon the above submissions, it was submitted that there is no escapement of income inasmuch as the petitioner had disclosed all material facts in the books of accounts and, therefore, it is not permissible for the revenue to reopen the assessment. 4.2 It was submitted that there is no independent application of mind on the part of the Assessing Officer while recording the reasons for reopening and that merely placing reliance on the materials provided by the investigation wing for recording the reasons is impermissible. It was submitted that the Assessing Officer must record an independent finding as to how income has escaped assessment on a proper application of mind. However, in the present case, no inquiry has been conducted by the Assessing Officer based on the evidence collected in the earlier search. Referring to the reasons recorded for reopening the assessment, it was submitted that there is no independent correlation established in respect of any transaction between Shri Pradip Birewar and the petitioner – assessee. It was submitted that there is no link between the information received and formation of opinion that income has escaped assessment and that the reasons recorded do not C/SCA/14883/2018 JUDGMENT indicate any relationship between the petitioner and SCN or Shri Pradip Birewar and that the reasons, as stated, do not reflect application of mind nor do they say as to how income has escaped assessment. 4.3It was submitted that in the affidavit-in-reply filed by the respondent, the respondent seeks to supplement the reasons recorded by him, which is not permissible in law. In support of such submission the learned advocate placed reliance upon the decision of Bombay High Court in Hindustan Lever Limited v. R.B. Wadkar, Asst. Commissioner of Income-tax Circle, 2004 (268) ITR 332, for the proposition that reasons recorded by the Assessing Officer cannot be supplemented by filing an affidavit or by making oral submissions, otherwise, the reasons, which were lacking in material particulars, would get supplemented by the time the matter reaches to the Court on the strength of affidavit or oral submissions advanced. 4.3It was submitted that in the affidavit-in-reply filed by the respondent, the respondent seeks to supplement the reasons recorded by him, which is not permissible in law. In support of such submission the learned advocate placed reliance upon the decision of Bombay High Court in Hindustan Lever Limited v. R.B. Wadkar, Asst. Commissioner of Income-tax Circle, 2004 (268) ITR 332, for the proposition that reasons recorded by the Assessing Officer cannot be supplemented by filing an affidavit or by making oral submissions, otherwise, the reasons, which were lacking in material particulars, would get supplemented by the time the matter reaches to the Court on the strength of affidavit or oral submissions advanced. 4.4 Reliance was also placed upon another decision of Bombay High Court in Prashant S. Joshi; Dattaram Shridhar Bhosale v. Income Tax Officer; Union of India, 2010 (324) ITR 154, wherein the court held that the reasons which are recorded by the Assessing Officer for reopening an assessment are the only reasons which can be considered when the formation of the belief is impugned. The recording of reasons distinguishes an objective from a subjective exercise of power. The requirement of recording reasons is a check against arbitrary exercise of power. For, it is on the basis of the reasons recorded and on those reasons alone that the validity of the order reopening the assessment is to be decided. The reasons recorded while reopening the assessment cannot be allowed to grow with age and ingenuity, by devising new grounds in replies and affidavits, not envisaged when the reasons for reopening an assessment were recorded. The principle of law, therefore, is well settled that the question as to whether there was reason to believe, within the meaning of section 147 of the Act, that income has escaped assessment, must be determined with reference to the reasons recorded by the Assessing Officer and that the reasons which are recorded cannot be supplemented by affidavits. 4.5 Reliance was also placed upon the decision of this court in Gujarat Fluorochemicals Ltd. v. Deputy Commissioner of Income Tax, 2009 (319) ITR 282,wherein the court recorded that if the Assessing Officer has reason to believe that the assessee has not disclosed fully and truly C/SCA/14883/2018 JUDGMENT all material facts, then it should have been stated clearly in the reasons recorded, which has not been done. Instead, the court found that the order dated 28.08.2008 rejecting the objections of the petitioner therein, sought to supplement the reasons which had been recorded, so as to fill in the lacunae, attempting to bring it within the ambit and scope of the proviso to section 147 of the Act. The court held that the order dated 28.08.2008 traveled far beyond the reasons recorded, as had been communicated, which is not permissible and therefore, the Court cannot look into the contents thereof, which seek to supplement the reasons recorded. It is the statutory duty of the Assessing Officer to record reasons for issuing notice under section 148 of the Act and the reasons recorded cannot further be supplemented or explained by a subsequent order so as to give an entirely different complexion to the case. 4.6 Reliance was placed upon the decision of Delhi High Court in Principal Commissioner of Income-tax-6 v. Meenakshi Overseas (P.) Ltd., [2017] 82 taxmann.com 300 (Delhi), wherein the court held thus: “22. As rightly pointed out by the ITAT, the ‘reasons to believe' are not in fact reasons 4.6 Reliance was placed upon the decision of Delhi High Court in Principal Commissioner of Income-tax-6 v. Meenakshi Overseas (P.) Ltd., [2017] 82 taxmann.com 300 (Delhi), wherein the court held thus: “22. As rightly pointed out by the ITAT, the ‘reasons to believe' are not in fact reasons but only conclusions, one after the other. The expression ‘accommodation entry' is used to describe the information set out without explaining the basis for arriving at such a conclusion. The statement that the said entry was given to the assessee on his paying "unaccounted cash" is another conclusion the basis for which is not disclosed. Who is the accommodation entry giver is not mentioned. How he can be said to be "a known entry operator" is even more mysterious. Clearly the source for all these conclusions, one after the other, is the Investigation report of the DIT. Nothing from that report is set out to enable the reader to appreciate how the conclusions flow therefrom. 23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing. 24. The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening are considered or even during the assessment proceedings that follow. This is the bare minimum mandatory requirement of the first part of Section 147 (1) of the Act. The first part of Section 147 (1) of the Act requires the AO to have “reasons to believe” that any income chargeable to tax has escaped assessment. It is thus formation of reason to believe that is subject matter of examination. The AO being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. While the report of the Investigation Wing might constitute the material on the basis of which he forms the reasons to believe the process of arriving at such satisfaction cannot be a mere repetition of the report of investigation. The recording of reasons to believe and not reasons to suspect is the pre-condition to the assumption of jurisdiction under Section 147 of the Act. The reasons to believe must demonstrate link between the tangible material and the formation of the belief or the reason to believe that income has escaped assessment.” 4.7Reliance was also placed upon the decision of Delhi High Court inPrincipal Commissioner of Income-tax v. RMG Polyvinyl (I) Ltd., [2017] 83 taxmann.com 348 (Delhi), wherein the court placed reliance upon its earlier decision in the case of Principal Commissioner of Income-tax-6 v. Meenakshi Overseas (P.) Ltd. (supra). 4.8 Referring to the reasons recorded, it was submitted that the crucial link between the information available to the Assessing Officer and the formation of belief is absent in the reasons recorded. escaped assessment.” 4.7Reliance was also placed upon the decision of Delhi High Court inPrincipal Commissioner of Income-tax v. RMG Polyvinyl (I) Ltd., [2017] 83 taxmann.com 348 (Delhi), wherein the court placed reliance upon its earlier decision in the case of Principal Commissioner of Income-tax-6 v. Meenakshi Overseas (P.) Ltd. (supra). 4.8 Referring to the reasons recorded, it was submitted that the crucial link between the information available to the Assessing Officer and the formation of belief is absent in the reasons recorded. 4.9 Another contention raised by the learned advocate for the petitioner, which goes to the root of the matter, is that this is a case where there is no original assessment under section 143(3) of the Act, but, the assessee has gone to the Settlement Commission, which passed an order under section 245D(4) of the Act. It was submitted that in view of the provisions of section 245I of the Act, the order of the Settlement Commission is conclusive and there cannot be two assessments of the assessee for the same assessment year. It was submitted that therefore, the reopening of assessment, in a case where the Settlement Commission has passed an order under section 245D(4) of the Act, is without authority of law. 4.10 In support of such submission, the learned advocate placed reliance upon the decision of the Bombay High Court in Mandhana Industries Ltd. v. Principal Commissioner of Income-tax Central-1, [2019] 103 taxmann.com 301 (Bom), wherein the court has held that the Act does not envisage a return of an assessee to be split into two parts; one for consideration before the Settlement Commission by way of settlement and another for normal assessment at the hands of the Assessing Officer or the appellate or the revisional authority. In other words, if an application for settlement is allowed and the case is settled, the entire assessment for the assessment years in question would stand settled. 4.11 Reliance was also placed upon the decision of the Delhi High Court in Omaxe Ltd. v. Assistant Commissioner of Income Tax, [2012] 25 taxmann.com 190 (Delhi), wherein the court held that a harmonious reading of the provisions of the statute would show that it does not postulate the existence of two orders, each of a different income-tax authority, determining the total income of an assessee for the same assessment year. The court held that if the contention of the Revenue is accepted, not only will the finality of the order of settlement be disturbed, but it will also result in different orders relating to the same assessment year and relating to the same assessee being allowed to stand. The court expressed grave doubt whether such a C/SCA/14883/2018 JUDGMENT result, which is likely to create chaos and confusion in the tax administration, could have been intended. The court held that the order of the Settlement Commission can be reopened only in cases of fraud and misrepresentation and in no other case. It further held that if the order of settlement is an assessment order and under section 245I of the Act, there is a finality attached to it, it is difficult to conceive of a situation where the Assessing Officer would be empowered to reopen the assessment of the income made by the Settlement Commission on any ground. The only ground by which the finality of the order of the Settlement Commission can be disturbed is where it is subsequently found by the Settlement Commission itself that its order has been obtained by fraud or misrepresentation of facts. 4.12It was submitted that the reopening of assessment is, therefore, without jurisdiction and hence, the impugned notice under section 148 of the Act deserves to be quashed and set aside. 4.12It was submitted that the reopening of assessment is, therefore, without jurisdiction and hence, the impugned notice under section 148 of the Act deserves to be quashed and set aside. 5.Vehemently opposing the petition, Mrs. Mauna Bhatt, learned senior standing counsel for the respondent, invited the attention of the court to the reasons recorded for reopening the assessment to submit that the same are clear and reflect proper application of mind on the part of the Assessing Officer. 5.1It was submitted that the petitioner is a beneficiary of accommodation entries through Shri Shirish Chandrakant Shah and Shri Pradip Birewar and that this is not a case where the AssessingOfficer’sactioniswithout jurisdiction. The learned senior standing counsel placed reliance upon the decision of this court in Vicky Rajesh Jhaveri v. Deputy Commissioner of Income Tax & 1, 2017 (396) ITR 265, to submit that in a similar set of facts, the court had dismissed the petition challenging the notice under section 148 of the Act. 5.2Dealing with the contention raised on behalf of the petitioner that the reopening of assessment is bad on the ground that earlier the matter had travelled to the Settlement Commission and the Settlement Commission had passed an order under section 245D(4) of the Act and hence, the Assessing Officer has no jurisdiction to reopen the assessment, the learned senior standing counsel drew the attention of the court to the provisions of section 245I of the Act to submit that the same provides that the order of the Settlement Commission passed under sub-section (4) of section 245D of the Act shall be conclusive as to the matters stated therein and no matter covered by such order shall be reopened in any proceeding under the Act. It was submitted that therefore, what is conclusive is the matter stated in the order of the Settlement Commission, whereas the income, which is stated to have escaped assessment in the present case, was not a matter before the Settlement Commission, and hence, the order of the Settlement Commission would not be conclusive in respect of matters in relation to which the assessment is sought to be reopened by the Assessing Officer, as there was no consideration of the said issue by the Settlement Commission. Therefore, the reopening of assessment is valid and legal. 5.3It was further submitted that sub-section (5) of section 245D of the Act provides that subject to the provisions of section 245BA of the Act, the materials brought on record before the Settlement Commission shall be considered by the Members of the concerned Bench before passing any order under sub-section (4) of section 245D of the Act and in relation to passing of such order, the provisions of section 245BD shall apply. It was submitted that the material, on the basis of which the Assessing Officer seeks to reopen the assessment, was not brought on record before the Settlement Commission and therefore, the Settlement Commission had no opportunity to consider the same before passing the order under section 245D(4) of the Act. 5.4Reliance was placed upon the decision of Supreme Court in Brij Lal & Ors. v. Commissioner of Income Tax, Jalandhar, 2010 (328) ITR 477, reference to which shall be made at a later stage. 5.5 Reliance was also placed upon the Commission and therefore, the Settlement Commission had no opportunity to consider the same before passing the order under section 245D(4) of the Act. 5.4Reliance was placed upon the decision of Supreme Court in Brij Lal & Ors. v. Commissioner of Income Tax, Jalandhar, 2010 (328) ITR 477, reference to which shall be made at a later stage. 5.5 Reliance was also placed upon the decision of the Delhi High Court in Gupta Perfumers (P) Ltd. v. Income Tax Settlement Commission & Ors., 2012 (348) ITR 86, wherein the court held that section 245I of the Act states that the order of the Settlement Commission under section 245D(4) shall be conclusive as to the matters stated therein and save as otherwise provided no matter in the said order shall be reopened in any proceedings. The use of the words “save as otherwise provided” in that Chapter refers to the reopening of matters, which are conclusively decided. The conclusiveness attached to the orders of the Settlement Commission relates to the matters stated in the orders of the Settlement Commission. 5.6 Reliance was also placed upon the decision of Bombay High Court in Rajiv Yashwant Bhale v. The Principal Commissioner of Income Tax, (2018) 401 ITR 408, wherein the court has held that the conclusivity of the order passed by the Settlement Commission is to the matters stated in such order passed under section 245D(4) of the Act, whereas, in this case, the matters in respect of which the assessment is sought to be reopened, have not been decided by the Settlement Commission and hence, there is no bar against reopening the assessment under section 147 of the Act. 6.In the backdrop of the facts and contentions noted herein above, it is evident that in this case, the validity of the reopening of assessment by the Assessing Officer under section 147 of the Act has been called in question, principally, on two grounds. Firstly, that in this case, after the search was conducted and proceedings were initiated against the petitioner, the petitioner had approached the Settlement Commission, which had passed an order under section 245D(4) of the Act, which has become final and conclusive and, therefore, the Assessing Officer has no jurisdiction to reopen the assessment. Secondly, on merits, on the reasons recorded, the Assessing Officer could not have formed the belief that income chargeable to tax has escaped assessment. 7. Insofar as the first question is concerned, it may be germane to refer to the decisions relied upon by the learned counsel for the respective parties. InOmaxe Ltd. v. Assistant Commissioner of Income-tax (supra), the Delhi High Court was considering a case where the assessment was sought to be reopened by issuing a notice under section 148 of the Act. The court held that a harmonious reading of the provisions of the statute would show that it does not postulate the existence of two orders, each of a different income-tax authority, determining the total income of an assessee for the same assessment year. It was held that if the contention of the Revenue is accepted, not only will the finality of the order of settlement be disturbed, but it will also result in different orders relating to the same assessment year and relating to the same assessee being allowed to stand. The court observed that the order of the Settlement Commission can be reopened only in cases of fraud and misrepresentation and in no other case. It further held that if the order of settlement is an assessment order and under section 245I of the Act, there is a finality attached to it, it is difficult to conceive of a situation where the Assessing Officer would be empowered to reopen the assessment of the income made by the Settlement Commission on any ground. The only ground by which the finality of the order of the Settlement Commission can be disturbed is where it is subsequently found by the Settlement Commission itself that its order has been obtained by fraud or misrepresentation of facts. The court placed reliance upon the decision of Allahabad High Court in the case of CIT v. Smt. Diksha Singh, [2011] 201 Taxman 378, wherein it was held that since the legislature in its wisdom had conferred powers on the Settlement Commission to reopen the proceedings in certain circumstances and to deal with the situation in the event of commission of fraud or misrepresentation and has left it to the Settlement Commission to deal with such contingencies, it cannot be postulated that the Assessing Officer or any other income tax authority will have jurisdiction to assess the tax for the same financial year despite the finality and conclusiveness of the order of settlement. It was further held that there cannot be piecemeal determination of the income of an assessee for the relevant period, one by the Settlement Commission and another by the assessing authority, and to hold otherwise would be to frustrate the very purpose of filing an application before the Settlement Commission for settlement. The court further observed that the question therein was what would be the position when an order under section 245D(4) is passed by the Settlement Commission and whether such an order can be construed as one dealing with the entire gamut of the return filed by the assessee and the issues raised therein, and held that since the exclusive jurisdiction to exercise the powers and perform the functions of an income tax authority in relation to the case vests with the Settlement Commission, after an order is passed under section 245D(1) till the final settlement order is passed under section 245D(4) of the Act, it is not possible to countenance a situation where it can be said that the assessee’s claim for deduction was not the subject matter of the order passed by the Settlement Commission under section 245D(4) of the Act. 7.1 In Mandhana Industries Ltd. v. Principal Commissioner of Income-tax Central-1(supra), the Bombay High Court held that the provisions of section 245D read with section 245H, 245I and 245F of the Act make it abundantly clear that a case could either be dealt with by the concerned income tax authority or the Settlement Commission, but not both. The court held that the Act envisages only one order concerning a case of the assessee, it may either be an order of settlement passed by the Settlement Commission or an order of assessment passed by the Assessing Officer, but not both. The court further referred to the relevant provisions contained in Chapter XIX-A of the Act and came to the conclusion that once an application for settlement of a case is filed before the Settlement Commission and is allowed to pass through various stages under section 245D of the Act, it is only the Settlement Commission which can pass any order concerning such a case. At all stages, the Act refers to a case for which an application for settlement can be filed, a case which the Settlement Commission considers for settlement, a case the Commission either allows to be settled or does not allow to be so settled. The court further held that the Act does not envisage a return of an assessee to be split into two parts, one for consideration before the Settlement Commission by way of settlement and another for normal assessment at the hands of the Assessing Officer or the appellate or the revisional authority. In other words, if an application for settlement is allowed and the case is settled, the entire assessment for the assessment years in question would stand settled. 7.2 In Rajiv Yashwant Bhale v. The Principal Commssioner of Income Tax (supra), on which C/SCA/14883/2018 JUDGMENT reliance has been placed by the learned senior standing counsel for the respondent, the contention was that non-compliance of the order of the Settlement Commission does not make the order itself, not a final or conclusive one. A continuing default per se is different from the finality and conclusiveness of the order itself and cannot affect the conclusiveness of an order of a judicial authority. The question in that case was whether the order passed by the Settlement Commission was a conditional order and that if the conditions remained satisfied, whether the order can be said to be final or conclusive? This decision, therefore, would have no applicability to the facts of the present case. 7.3 In Brij Lal v. Commissioner of Income Tax, Jalandhar (supra), the Supreme Court held thus: “18. Coming to Chapter XIX-A which deals with settlement of cases, it may be stated that the word “case” is defined under Section 245-A(b). It is an exhaustive definition. The definition makes it clear that an application for settlement shall lie only when any proceedings for assessment or reassessment are pending or an appeal or revision in connectionwithsuchassessmentor reassessment is pending before the Income Tax Authority. Under Section 245-C(1), such application for settlement will not be maintainable without full and true disclosure of the income by the applicant, the manner in which such undisclosed income was derived and that the applicant had furnished his return of income and that the additional tax payable on such income exceeds the specified amount.” “23. Descriptively, it can be stated that assessment in law is different from assessment by way of settlement. If one reads Section 245-D(6) with Section 245-I, it becomes clear that every order of settlement passed under Section 245-D(4) shall be final and conclusive as to the matters contained therein and that the same shall not be reopened except in the case of fraud and misrepresentation. Under Section 245-F(1), in addition to the powers conferred on the Settlement Commission under Chapter XIX-A, it shall also have all the powers which are vested in the Income Tax Authority under the Act. In this connection, however, we need to keep in mind the difference between “procedure for assessment” under Chapter XIV and “procedure for settlement” under Chapter XIX-A (see Section 245-D). Under Section 245-F(4), it is clarified that nothing in Chapter XIX-A shall affect the operation of any other provision of the Act requiring the applicant to pay tax on the basis of self-assessment in relation to matters before the Settlement Commission.” “25. Our detailed analysis shows that though Chapter XIX-A is a self-contained code, the procedure to be followed by the Settlement Commission under Sections 245-C and 245-D in the matter of computation of undisclosed income; in the matter of computation of additional income tax payable on such income with interest thereon; the filing of settlement application indicating the amount of income returned in the return of income and the additional income tax payable on the undisclosed income to be aggregated as total income shows that Chapter XIX-A indicates aggregation of incomes so as to constitute total income which indicates that the special procedure under Chapter XIX-A has an in-built mechanism of computing total income which is nothing but assessment (computation of total income).” settlement application indicating the amount of income returned in the return of income and the additional income tax payable on the undisclosed income to be aggregated as total income shows that Chapter XIX-A indicates aggregation of incomes so as to constitute total income which indicates that the special procedure under Chapter XIX-A has an in-built mechanism of computing total income which is nothing but assessment (computation of total income).” “26. To elaborate, under Section 245-C(1-B), if the applicant has furnished a return in respect of his total income, tax shall be calculated on the aggregate of total income returned and the income disclosed in the settlement application as if such aggregate were total income. Under the Act, tax is payable on the total income as computed in accordance with the provisions of the Act. Thus, Section 143(3) provision is sought to be incorporated in Section 245-C. When Parliament uses the words “as if such aggregate would constitute total income”, it presupposes that under the special procedure the aggregation of the returned income plus income disclosed would result in computation of total income which is the basis for the levy of tax on the undisclosed income which is nothing but “assessment”. Similarly, Section 245-C(1-C) provides for deductions from the total income computed in terms of Section 245-C(1-B).” “30. Now, Section 245-C(1) is voluntary disclosure by the assessee of his undisclosed income. Under Section 245-C(1), the assessee has to mention in his settlement application the additional amount of tax payable by him on such undisclosed income. Under proviso (a), the application for settlement shall not be entertained till the assessee has furnished the return of income which he was required to file under the Act to the extent of his income. Under proviso (b), the assessee has to declare the additional amount of tax payable. Thus, the two provisos to Section 245-C(1) show that Chapter XIX-A, which prescribes a special procedure for assessment by settlement, contemplates a pre-assessment collection of tax.” “31. With the filing of the settlement application and after such application is allowed to be proceeded with under Section 245-D(1), intimation under Section 143(1), regular assessment under Sections 143(3)/144 and reassessment under Section 147 lose their existence as under Sections 245-C(1-A) and (1-B) it is only the income disclosed in the return of income before the AO alone which survives for consideration by the Settlement Commission for settling the amount of income which is not disclosed in the return.” “37. As held hereinabove, under Section 245-C(1) read with Section 245-C(1-B)(ii) and Section 245-C(1-C)(b), the additional amount of income tax payable is to be calculated on the aggregate of total income returned and the income disclosed in the settlement application as if such aggregate is the total income. Thus, the scheme of the said sections is based on computation of total income and in that sense we have stated that such application for settlement is akin to a return of income. The said provision deals with “total income”. Thus, as stated above, Sections 234-A, B and C are applicable up to the stage of Section 245-D(1) order passed by theSettlementCommission.However, Parliament has not extended the provisions and the liability to pay interest beyond the date of application for settlement. This is the position even after the Finance Act of 2007.” date of application for settlement. This is the position even after the Finance Act of 2007.” “39. Moreover, as stated above, under the Act, there is a difference between assessment in law [regular assessment or assessment under Section 143(1)] and assessment by settlement under Chapter XIX-A. The order under Section 245-D(4) is not an order of regular assessment. It is neither an order under Section 143(1) or Section 143(3) or Section 144. Under Sections 139 to 158, the process of assessment involves the filing of the return under Section 139 or under Section 142; inquiry by the AO under Sections 142 and 143 and making of the order of assessment by the AO under Section 143(3) or under Section 144 and issuing of notice of demand under Section 156 on the basis of the assessment order. The making of the order of assessment is an integral part of the process of assessment. No such steps are required to be followed in the case of proceedings under Chapter XIX-A. The said chapter contemplates the taxability determined with respect to undisclosed income only by the process of settlement/arbitration. Thus, the nature of the orders under Sections 143(1), 143(3) and 144 is different from the orders of the Settlement Commission under Section 245-D(4). 40. Even in CIT v. Anjum M.H. Ghaswala[6] there is no finding by this Court that the order of the Settlement Commission under Section 245-D(4) is an order of assessment under Section 143(3) or under Section 144. In Ghaswala case[6] the only question decided by this Court is that the interest under Section 234-B is mandatory in nature and that the Settlement Commission, therefore, had no authority to waive it.” “41. xxxxxx Once the case stands admitted, the Settlement Commission shall have exclusive jurisdiction to exercise the powers of the Income Tax Authority.” “42. The order of the Settlement Commission under Section 245-D(4) shall be final and conclusive under Section 245-I subject to two qualifications under which it can be recalled viz. fraud and misrepresentation but even here it is important to note that under Section 245-D(7) where the settlement becomes voidonaccountoffraudand misrepresentation the proceedings with respect to the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission.” 7.4Thus, in Brij Lal v. Commissioner of Income Tax, Jalandhar(supra), the Supreme Court has held that under the Act, there is a difference between assessment in law [regular assessment or assessment under section 143(1)] and assessment by settlement under Chapter XIX-A. The order under section 245D(4) of the Act is not an order of regular assessment. It is neither an order under section 143(1) or section 143(3) or section 144 of the Act. Under sections 139 to 158, the process of assessment involves the filing of return under sections 139 or 142 of the Act; inquiry by the Assessing Officer under sections 142 and 143 and making of the order of C/SCA/14883/2018 JUDGMENT assessment by the Assessing Officer under sections 143(3) or 144 and issuing of notice of demand under section 156 on the basis of the assessment order. The making of the order of assessment is an integral part of the process of assessment. No such steps are required to be followed in the case of proceedings under Chapter XIX-A. The said Chapter contemplates the taxability determined with respect to undisclosed incomeonlybytheprocessof settlement/arbitration. Thus, the nature of the orders under sections 143(1), 143(3) and 144 is different from the orders of the Settlement Commission under section 245D(4) of the Act. C/SCA/14883/2018 JUDGMENT assessment by the Assessing Officer under sections 143(3) or 144 and issuing of notice of demand under section 156 on the basis of the assessment order. The making of the order of assessment is an integral part of the process of assessment. No such steps are required to be followed in the case of proceedings under Chapter XIX-A. The said Chapter contemplates the taxability determined with respect to undisclosed incomeonlybytheprocessof settlement/arbitration. Thus, the nature of the orders under sections 143(1), 143(3) and 144 is different from the orders of the Settlement Commission under section 245D(4) of the Act. 7.5Moreover, the Supreme Court, in the above decision has held that the scheme of the said section is based on computation of total income and in that sense it has stated that such application for settlement is akin to a return of income. The said provision deals with ‘total income’. Therefore, when section 245C deals with total income, all matters falling within the ambit of total income would stand concluded once the Settlement Commission settles a case and passes an order under section 245D(4) of the Act. The order of the Settlement Commission would be finalandconclusivesubjecttotwo qualifications, viz. fraud or misrepresentation. Moreover, when the settlement becomes void under section 245D(7) of the Act, the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission. 7.6Section 245-I of the Act, which bears the heading “Order of settlement to be conclusive”, postulates that every order of settlement passed under sub-section (4) of section 245D shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in that Chapter, be reopened in any proceeding under the Act or under any other law for the time being in force. 7.7An application under section 245C of the Act is akin to a return of income, wherein the assessee is required to make a full and true disclosure of his income and the order under section 245D(4) of the Act is in the nature of an assessment order. Therefore, assessment of the total income of the assessee for the assessment year in relation to which the Settlement Commission has passed the order under section 245D(4) of the Act stands concluded and in terms of section 245I of the Act, such order shall be C/SCA/14883/2018 JUDGMENT 7.7An application under section 245C of the Act is akin to a return of income, wherein the assessee is required to make a full and true disclosure of his income and the order under section 245D(4) of the Act is in the nature of an assessment order. Therefore, assessment of the total income of the assessee for the assessment year in relation to which the Settlement Commission has passed the order under section 245D(4) of the Act stands concluded and in terms of section 245I of the Act, such order shall be C/SCA/14883/2018 JUDGMENT conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in Chapter XIX-A, be reopened in any proceeding under the Act or under any other law for the time being in force. Therefore, once an order is passed by the Settlement Commission under section 245D(4) of the Act, the same is conclusive insofar as the assessment year involved is concerned. When the section refers to matters not covered by such order, it refers to matters other than that covered under the assessment, viz. other than determination of the total income of the assessee for that assessment year. There may be matters in respect of the very assessment year w