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CASE NO.: Appeal (civil)  5334 of 1999

PETITIONER: C.I.T. Jalpaiguri                                                

RESPONDENT: Om Prakash Mittal                                                

DATE OF JUDGMENT: 22/02/2005

BENCH: RUMA PAL,ARIJIT PASAYAT & C.K. THAKKER

JUDGMENT: J U D G M E N T

ARIJIT PASAYAT, J.

       Challenge in this appeal is to the order passed by the Income Tax  Settlement Commission, Additional Bench Calcutta (in short the  ’Commission’). By the impugned order it was held that the prayer made  by the Commissioner of Income Tax, West Bengal-VIII, Calcutta (in short  ’CIT’) to declare the settlement order passed by the Commission on  18.9.1990 to be void and for withdrawing the benefits and immunities  granted to the respondent-assessee was not acceptable. The order dated  18.9.1990 was passed under Section 245D(4) of the Income Tax Act, 1961  (in short the ’Act’). The application by the CIT for declaration of the  said order to be void was made purportedly under Section 245D(6) of the  Act.   

The controversy in the present appeal has arisen in the following  factual background:

    A search was conducted in the premises of the respondent  (hereinafter referred to as the ’assessee’) on 8.2.1989 and 9.2.1989  and certain seizures were made.  The assessee filed an application for  settlement in terms of Section 245C of the Act on 13.1.1989.  It is  relevant to note that application for settlement was made was the  financial year 1985-86.  The Settlement Commission passed an order on  18.9.1990 in terms of Section 245D(4).  It is to be noted that in the  application for settlement before the Commission the assessee claimed  to have received Rs.1.5 crores from seven persons on 31.3.1985 in cash.  All these seven persons were claimed to be residents of Sikkim and that  the amounts were received by way of loan. The details of the receipts  are as follows:

(i)     Rs.20,00,000 From Shri Srinivas Agarwal, Singtam, Sikkim.  (ii)    Rs.20,00,000 From Shri Hari Krishan Agarwal, Singtam, Sikkim.  (iii)   Rs.20,00,000 From Shri Keshu Ram Agarwal, Melli,  Sikkim.  (iv)    Rs.20,00,000 From Shri Subhas Ch. Minda, Melli, Sikkim. (v)     Rs.20,00,000 From Shri Vinod Kr. Minda, Melli, Sikkim.  (vi)    Rs.25,00,000 From Shri Gauri Shankar Agarwal, Melli, Sikkim.  (vii)   Rs.25,00,000 From Shri Chandulal Agarwal, Melli, Sikkim.  

Certain documents were produced before the Commission to prove  the genuineness of the aforesaid loans. The Commission accepted the  stand of the assessee and did not cast any doubt on the credibility of  sum of Rs.1.5 crores to have been advanced as loans.  It appears that  enquiries were conducted by the Central Bureau of Investigation (in  short the ’CBI’) at the request of the revenue regarding the aforesaid  loans, at Jorthang, Melli and Singtam.  In the opinion of the CBI the  alleged lenders had no means or financial capacity to advance huge loan

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to the assessee and were mere name lenders.  When the investigating  officer contacted the so called lenders, they denied having advanced  any loan.  Some of the certificates purportedly issued were not  authentic. One of the persons i.e. the then Commissioner of Siliguri  municipality Mr. Rabin Paul admitted that he had no direct knowledge of  the transaction and, therefore, the assessee had obtained the  certificate by practising fraud. The further fact is that some of the  lenders i.e. S/Shri Gauri Shankar Agarwal, Subhas Ch. Minda and Vinod  Kr. Minda had made payment of tax to the Sikkim authorities after the  order of settlement. It was projected before the Commission at the  first instance as if they were tax payers.  Enquiries revealed that  Shri Subhas Ch. Minda  was not assessed to income tax up to the period  1985-86. Therefore, the submission made before the Commission that he  was assessed regularly before the Sikkim authorities was false.   

In the aforesaid background prayer was made by the CIT for  declaration of the order passed by the Commission to be void and for  withdrawal of the benefits granted. The motion was opposed by the  assessee according to whom the order of the Commission was final in  terms of Section 245I.  There was no power for any review of the  earlier order and in any event the Commission had analysed the factual  position. Fresh analysis would amount to sitting in judgment over the  earlier decision which power the Commission did not possess.   

By the impugned order the Commission held that the stand taken by  the assessee’s counsel was correct.  It was held that the department  had not established that settlement order under Section 245D (4) dated  18.9.1990 was obtained by the assessee by fraud and misrepresentation  of facts. It was further noted that under Section 245D(6) the  Commission was not considering whether the loans of Rs.1.5 crores  claimed to have been taken by the assessee from seven persons were  genuine or not. It was held that if the Commission would go into merit  regarding genuineness of the loans, that would amount to re-appraisal  and re-evaluation of the evidence which was already apprised by the  earlier Bench, and it would amount to sitting in judgment over the  findings arrived at by the earlier Bench which was not legally  permissible to the Commission to review its own decision.  Further it  was held that the CBI report did not merit acceptance as the alleged  lenders were genuine persons who were admittedly contacted by the CBI  officials. There was no statement recorded from them stating that they  had not given the loans. Therefore, the petition under Section 245D(6)  was rejected.

Mr. Mohan Parasaran, learned Additional Solicitor General  appearing for the appellant submitted that approach of the Commission  is legally not tenable. The Commission has not kept the scope and ambit  of the power exercisable under Section 245D (6) of the Act in its  proper perspective. The application filed by the appellant-revenue was  not really for review.  There was no question of any review involved.  There was also no question of the subsequent Bench sitting in appeal  over the earlier Bench’s decision. The jurisdiction under Section  245D(6) is exercisable when it is subsequently found by the Commission  that the settlement had been obtained by fraud or misrepresentation of  facts. The Commission after having held that the case of the appellant  was not covered by Section 245D(6) of the Act had given clean chit to  the assessee by abruptly concluding that the stand presented by the  assessee’s counsel was acceptable. It also lightly brushed aside the  evidentiary value of the materials placed on record to justify the  stand of the revenue that the settlement order had been obtained by  fraud or misrepresentation of facts. The fraud and/or misrepresentation  of facts are tell tale. The investigating officer had categorically  stated that the alleged lenders categorically denied to have advanced  any loan.  There was inherent improbability in the assessee’s stand  that seven persons would keep huge sums of money and would give money  on the same day by cash. Since there was no assessment question of

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furnishing certificates about assessment from unconnected persons is  sufficient to show misrepresentation of facts. No returns of income  were filed by the lenders upto relevant time. Therefore, it was  submitted that the order of the Commission needs to be set aside.

In response, Mr. C.S. Agarwal, learned counsel appearing for the  assessee submitted that finality is attached to the order passed under  Section 245D (4) in terms of Section 245I. It is only the Commission  which has the power to initiate proceedings to set aside the order  passed under Section 245D(4) if it on its own comes to the conclusion  that the order was obtained by fraud or misrepresentation of facts. The  revenue cannot initiate any proceedings in terms of Section 245D(6).  Further, all the relevant aspects were considered by the Commission  earlier. The CIT had ample opportunity to object to any statement made  in the application for settlement. The Commission while dealing with  the application had dealt with the aspects involved and had passed the  order. On mere unsubstantiated allegation regarding lack of capacity to  advance loans, alleged inherent improbabilities, or the authorities  giving a different version after having issued certificates, there is  no scope for coming to the conclusion that there was any fraud or  misrepresentation of facts.  Therefore, the Commission had rightly  refused to accept the prayer made by the CIT as it would have amounted  to review of the earlier order and in essence would have amounted to  the subsequent Bench sitting in appeal over the decision of the earlier  Bench.   

Sections 245A to 245V are covered by Chapter XIXA of the Act.                                

A new Chapter XIX-A was introduced by the Taxation Laws  (amendment) Act, 1975 (in short the ’Amendment Act’) w.e.f. 1.4.1976.  The Commission is constituted by the Central Government for the  settlement of cases under Chapter XIX-A. The expression "case" as  appearing in Section 245A(b) refers to any proceeding under the Act for  the assessment or re-assessment of income of any person in respect of  any year or years or by way of appeal or revision in connection with  such assessment or re-assessment which may be pending before any  income-tax authority on the date on which an application under sub- section (1) of Section 245C is made. It further provides that where any  appeal or application for revision has been preferred after the expiry  of the specified period and which has not been admitted then the same  shall not be deemed to be a proceeding pending within the meaning of  clause (b) of Section 245A. Scheme of Chapter XIX-A shows that the  filing of application by the assessee is a unilateral act, and the  department may not be aware of the same. It has to be noted that if an  application for settlement is filed under Section 245C, it is not  automatically admitted. Section 245D deals with procedure on receipt of  an application under Section 245C. Under sub-section (1) thereof, the  Commission after following the prescribed procedure can allow the  application to be proceeded with or rejected. Only after the Commission  allows the petition to be proceeded with, it exercises the power of  settlement.

One basic feature of Chapter XIXA is that it relates to income  which was not disclosed before the income-tax authorities. This is  evident from Section 245C which reads as follows:                  "Section 245C: Application for settlement of cases.

245C(1): An assessee may, at any stage of a case  relating to him, make an application in such form  and in such manner as may be prescribed, and  containing a full and true disclosure of his income  which has not been disclosed before the Assessing  Officer, the manner in which such income has been

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derived, the additional amount of income-tax payable  on such income and such other particulars as may be  prescribed, to the Settlement Commission to have the  case settled and any such application shall be  disposed of in the manner hereinafter provided: Provided   that no such application shall be made  unless, - (a)     the assessee has furnished the return of income  which he is or was required to furnish under any of  the provisions of this Act; and  (b)     the additional amount of income-tax payable on  the income disclosed in the application exceeds one  hundred thousand rupees. (1A) For the purposes of sub-section (1) of this  section and sub-sections (2A) to (2D) of section  245D, the additional amount of income-tax payable in  respect of the income disclosed in an application  made under sub-section (1) of this section shall be  the amount calculated in accordance with the  provisions of sub-sections (1B) to (1D). (1B) Where the income disclosed in the application  relates to only one previous year, - (i)     if the applicant has not furnished a return in  respect of the total income of that year (whether or  not an assessment has been made in respect of the  total income of that year), then, except in a case  covered by clause (iii), tax shall be calculated on  the income disclosed in the application as if such  income were the total income; (ii)    if the applicant has furnished a return in  respect of the total income of that year (whether or  not an assessment has been made in pursuance of such  return), tax shall be calculated on the aggregate of  the total income returned and the income disclosed  in the application as if such aggregate were the  total income; (iii) if the proceeding pending before the income-tax  authority is in the nature of a proceeding for  reassessment of the applicant under section 147 or  by way of appeal or revision in connection with such  reassessment, and the applicant has not furnished a  return in respect of the total income of that year  in the course of such proceeding for reassessment,  tax shall be calculated on the aggregate of the  total income as assessed in the earlier proceeding  for assessment under section 143 or section 144 or  section 147 and the income disclosed in the  application as if such aggregate were the total  income.   (1C) The additional amount of income-tax payable in  respect of the income disclosed in the application  relating to the previous year referred to in sub- section (1B) shall be, - (a)     in a case referred to in clause (i) of that  sub-section, the amount of tax calculated under that  clause;  (b)     in a case referred to in clause (ii) of that  sub-section, the amount of tax calculated under that  clause as reduced by the amount of tax calculated on  the total income returned for that year;  (iii) in a case referred to in clause (iii) of that  sub-section, the amount of tax calculated under that  clause as reduced by the amount of tax calculated on  the total income assessed in the earlier proceeding  for assessment under section 143 or section 144 or

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section 147".  

                       (Underlined for emphasis)

       Prior to substitution by Finance Act, 1987 w.e.f. 1.6.1987, the  proviso to sub-section (1) read as follows:

       "provided that no such application shall be  made unless the additional amount of income tax  payable on the income disclosed in the application  exceeds fifty thousand rupees."  

The word "fifty thousand rupees" in the earlier proviso has been  substituted by the expression "one hundred thousand rupees" by the  Finance Act, 1995 w.e.f. 1.7.1995. Some changes were introduced by  Finance Act, 1987 w.e.f. 1.6.1987 in sub section (1B) and (1C) which do  not have much importance for the present appeal.  

       The Commission is not bound to proceed with any application filed  under Section 245C as is clear from Section 245D. The special  provisions so far as relevant read as follows:

Section 245D: Procedure on receipt of an application  under section 245C.

"245D(1)- On receipt of an application under section  245C, the Settlement Commission shall call for a  report from the Commissioner and on the basis of the  materials contained in such report and having regard  to the nature and circumstances of the case or the  complexity of the investigation involved therein,  the Settlement Commission may, by order, allow the  application to be proceeded with or reject the  application : Provided that an application shall not be  rejected under this sub-section unless an  opportunity has been given to the applicant of being  heard: Provided further that the Commissioner shall  furnish the report within a period of forty-five  days of the receipt of communication from the  Settlement Commission in case of all applications  made under section 245C on or after the 1st day of  July, 1995 and if the Commissioner fails to furnish  the report within the said period, the Settlement  Commission may make the order without such report. (2)     x       x       x       x       x  (2A) Subject to the provisions of sub-section (2B),  the assessee shall within thirty-five days of the  receipt of a copy of the order under sub-section (1)  allowing the application to be proceeded with, pay  the additional amount of income-tax payable on the  income disclosed in the application and shall  furnish proof of such payment to the Settlement  Commission. (2B) If the Settlement Commission is satisfied, on  an application made in this behalf by the assessee,  that he is unable for good and sufficient reasons to  pay the additional amount of income-tax referred to  in sub-section (2A) within the time specified in  that sub-section, it may extend the time for payment  of the amount which remains unpaid or allow payment  thereof by instalments if the assessee furnishes  adequate security for the payment thereof.

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(2C) Where the additional amount of income-tax is  not paid within the time specified under sub-section  (2A), then, whether or not the Settlement Commission  has extended the time for payment of the amount  which remains unpaid or has allowed payment thereof  by instalments under sub-section (2B), the assessee  shall be liable to pay simple interest at fifteen  per cent per annum on the amount remaining unpaid  from the date of expiry of the period of thirty-five  days referred to in sub-section (2A). (2D)            x       x       x       x       x (3)     Where an application is allowed to be proceeded  with under sub-section (1), the Settlement  Commission may call for the relevant records from  the Commissioner and after examination of such  records, if the Settlement Commission is of the  opinion that any further enquiry or investigation in  the matter is necessary, it may direct the  Commissioner to make or cause to be made such  further enquiry or investigation and furnish a  report on the matters covered by the application and  any other matter relating to the case. (4) After examination of the records and the report  of the Commissioner, received under sub-section (1),  and the report, if any, of the Commissioner received  under sub-section (3), and after giving an  opportunity to the applicant and to the Commissioner  to be heard, either in person or through a  representative duly authorized in this behalf, and  after examining such further evidence as may be  placed before it or obtained by it, the Settlement  Commission may, in accordance with the provisions of  this Act, pass such order as it thinks fit on the  matters covered by the application and any other  matter relating to the case not covered by the  application, but referred to in the report of the  Commissioner under sub-section (1) or sub-section  (3). (5)     x       x       x       x       x (6)     Every order passed under sub-section (4) shall  provide for the terms of settlement including any  demand by way of tax, penalty or interest] the  manner in which any sum due under the settlement  shall be paid and all other matters to make the  settlement effective and shall also provide that the  settlement shall be void if it is subsequently found  by the Settlement Commission that it has been  obtained by fraud or misrepresentation of facts."

                       (underlined for emphasis)

Sub-section (1) of Section 245C makes it clear that at any stage of a  case relating to him an assessee may make an application to the  Commission disclosing fully and truly his income which has not been  disclosed before the Assessing Officer.  To put it differently, an  assessee cannot approach the Commission for settlement of his case in  respect of an income which has already been disclosed before the  Assessing Officer. The income disclosed as contemplated is in the  nature of voluntary disclosure of concerned income.  

       Section 245F dealing with powers and procedure of Settlement  Commission provides that in addition to the powers conferred on the  Settlement Commission under Chapter XIX-A, it has all the powers which  are vested in the income-tax authority under the Act. Sub-section (2)  is of vital importance and provides that where an application made

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under Section 245C has been allowed to be proceeded with under Section  245D, the Commission shall until an order is passed under sub-section  (4) of Section 245D, subject to the provisions of sub-section (3) of  that section have exclusive jurisdiction to exercise the powers and  perform the functions of the income-tax authority under the Act in  relation to the case. In essence, the Commission assumes jurisdiction  to deal with the matter after it decides to proceed with the  application and continues to have the jurisdiction till it makes an  order under Section 245D. Section 245D(4) is the charging section and  sub-section (6) prescribes the modalities to be adopted to give effect  to the order. It has to be noted that the language used in Section 245D  is "order" and not "assessment". The order is not described as the  original assessment or regular assessment or re-assessment. In that  sense, the Commission exercises a plenary jurisdiction.  

The Commission’s power of settlement has to be exercised in  accordance with the provisions of the Act. Though the Commission has  sufficient elbowroom in assessing the income of the applicant and it  cannot make any order with a term of settlement which would be in  conflict with the mandatory provisions of the Act like in the quantum  and payment of tax and the interest. The object of the legislature, in  introducing Section 245C is to see that protracted proceedings before  the authorities or in Courts are avoided by resorting to settlement of  cases. In this process an assessee cannot expect any reduction in  amounts statutorily payable under the Act.                                    A bare reading of Section 245D(6) shows that every order passed  under sub-section (4) has to provide the terms of the settlement and  also to provide that the settlement shall be void if it is found  subsequently by the Commission that it has been obtained by fraud or by  misrepresentation of facts.  The plea of the assessee that the  initiation of proceeding to find out as to whether the order has been  obtained by fraud or misrepresentation of facts has to be initiated by  the Commission suo motu is not spelt out in the said sub-section. It is  a statutory requirement that a condition has to be incorporated in the  order passed under sub-section (4) specifying that settlement shall be  void if it is subsequently found by the Commission that it has been  obtained by fraud or misrepresentation of facts.  The decision whether  the order has been obtained by fraud or misrepresentation of facts is  that of the Commission. But it is not a requirement that the Commission  must suo motu initiate the action. If the revenue has material to show  that the order was obtained by fraud or misrepresentation of facts it  certainly can move the Commission for decision on that issue.  Otherwise, even if in a given case there is material in abundance to  establish that the order was obtained by fraud or misrepresentation of  facts, yet the void order would continue to be operative because of the  fortuitous circumstance that the Commission does not suo motu initiate  the proceeding. Merely because Section 245I provides that the order of  Settlement is conclusive it does not take away the power of the  Commission to decide whether the settlement order had been obtained by  fraud or misrepresentation of facts. Any other interpretation would  render sub-section (6) otiose. The Commission had really missed the  true scope and ambit of Section 245D(6). If the CIT was able to  establish that the earlier decision was void because of  misrepresentation of the facts, certainly it was open to the Commission  to decide that issue. It cannot be called by any stretch of imagination  to be review of the earlier judgment or the subsequent Bench sitting in  appeal over the earlier Bench’s decision. Further the conclusions of  the Commission regarding the genuineness of the loan transactions were  arrived at without indicating reasons. It only referred to the  respective stands and the submissions of the assessee’s  counsel.  That  was not the proper way to deal with the matter.   

The foundation for settlement is an application which assessee  can file at any stage of a case relating to him in such form and in

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such manner as is prescribed. The statutory mandate is that the  application shall contain "full and true disclosure" of the income  which has not been disclosed before the assessing officer, the manner  in which such income has been derived. The fundamental requirement of  the application under Section 245C is that full and true disclosure of  the income has to be made, along with the manner in which such income  was derived. On receipt of the application, the Commission calls for  report from the Commissioner and on the basis of the material contained  in the report and having regard to the nature and circumstances of the  case or complexity of the investigation involved therein, it can either  reject the application or allow the application to be proceeded with as  provided in Section 245D(1). It has to be noted that the Commission exercises power in respect  of income which was not disclosed before the authorities in any  proceeding, but are disclosed in the petition under Section 245C.  It  is not that any amount of undisclosed income can be brought to the  notice of the Commission in the said petition. Commission exercises  jurisdiction if the additional amount of tax on such undisclosed income  is more than a particular figure (which at different points of time  exceeded rupees fifty thousand or rupees one hundred thousand, as the  case may be).  The assessee must have in addition furnished the return  of income which he is or was required to furnish under any of the  provisions of the Act. In essence the requirement is that there must be  an income disclosed in a return furnished and undisclosed income  disclosed to the Commission by a petition under Section 245C.   There is a purpose why the legislature has prescribed the  condition relating to declaration of the order void when it is obtained  by fraud or misrepresentation of facts.  It cannot be said that there  has been a true and fair declaration of income which is the pre- requisite for settlement by the Commission.  If an order is obtained by  fraud or misrepresentation of facts, it cannot be said that there was  true and fair disclosure.  It was noted here that unlike Section 139 of  the Act which provides for filing of revised return, there is no  provision for revision of an application made in terms of Section 245C.  That shows clear legislative intent that the applicant for settlement  has to make a true and fair declaration from the threshold. It is on  the basis of the application received that the Commissioner calls for  report to decide whether the application is to be rejected or permitted  to be continued.  The declaration contemplated in Section 245C is in  the nature of voluntary disclosure of concealed income, but as noted  above it must be true and fair disclosure.  Voluntary disclosure and  making a full and true disclosure of the income are necessary pre- conditions for invoking the Commission’s jurisdiction.           

       In the aforesaid background it would be proper to direct the  Commission to re-hear the matter.  It shall be open to the parties to  place any further material which they may choose to place for  consideration in support of their respective stands.  The Commission  shall decide the matter afresh keeping in view the observations made  above. It is, however, made clear that we have not expressed any  opinion on the facts of the case.  

The appeal is accordingly disposed of.  Costs made easy.               

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