Pre conditions for revision of other orders under section 264 by Principal Commissioner or Commissioner

An assessee aggrieved by an order passed by the Assessing Officer may file an appeal against the same to the CIT(A). As an alternative remedy the assessee may prefer an application to the Principal Commissioner or Commissioner for revising the orders passed by the Assessing Officer. A remedy under section 264 is contemplated by the Legislature only to meet a situation faced by an aggrieved assessee who is unable to approach the appellate authorities for relief and has no other alternative remedy under the Act. Even those orders which are not appealable before the CIT(A), may be referred by the assessee to the Principal Commissioner or Commissioner  for seeking revision or modification.

Pre conditions for revision of other orders

This is alternate remedy available with the Assessee, however various conditions are required to be fulfilled before making an application to the Principal Commissioner or Commissioner for revision of the order. The conditions are-

(i)           Applicable to any order other than an order to which section 263 applies

• Applies to any order :

(a) other than an order to which section 263 applies

(b) Passed by an authority subordinate to the Principal Commissioner or Commissioner

(ii)         Principal Commissioner or Commissioner may act suo moto or on application made by the assessee.

Principal Commissioner or Commissioner can on his own motion revise any order and such revision can be done within one year from the date of order. Hence, similar to the provisions of section 263, which favors revenue, provisions of section 264 is incorporated to favor assessee.

(iii)       Principal Commissioner or Commissioner may call for the record of any proceedings under the Act in which such order has been passed.

(iv)       Order may be passed not being prejudicial to the assessee. However an order declining to interfere is not an order prejudicial to the assessee.

(v)     In case any order pass by any authority subordinate to assessing officer (other than order passed under section 263), any authority subordinate to assessing officer, may on himself or on application filed by assessee, call for any information & pass revision order, after relevant inquiry & collecting information.

(vi)    After revision under section 263, revision under section 264 is not possible. However, after revision under section 264, revision under section 263 is possible.

(vii)   Revision under section 264 is not possible on any issue, if an appeal has been filed to CIT(Appeals).

(viii)  Application is made within one year from the date of service of order to be revised or from the date on which the assessee came to know of the order, whichever is earlier – (discretion is given to condone the delay in filing the application if assessee prevented by sufficient cause)

(ix)    The order under this section shall be passed within 1 year from end of financial year, in which application under section 264 is filed by assessee.

(x)     Fees of Rs. 500/- to be paid alongwith filing the application.

 

Assessee seeking CIT blessing under section 264 can not be surprised with revisionary order under section 263

Section 264 debars Commissioner from passing any order which is prejudicial to assessee and, therefore, once assessee approaches Commissioner for getting relief under section 264, Commissioner can not pass an order by invoking provisions of section 263.

 

Intimation under Section 143(1) is regarded as an order for the purpose of Section 264 and therefore an application under Section 264 is maintainable against such an intimation

The Delhi High Court in the case of Vijay Gupta had held that an intimation under Section 143(1) of the Act is regarded as an ‘order’ for the purpose of Section 264 of the Act. However, the Assessing Officer relying on the Supreme Court decision in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. has been contending that an intimation under Section 143(1) of the Act could not be treated as an ‘order’. Therefore, no petition under Section 264 of the Act could be maintained against such ‘intimation’. The Delhi High Court permitted the taxpayer to rectify its tax return by virtue of revision powers under Section 264 of the Act against an intimation under Section 143(1) to claim benefit of lower tax rate on FTS by applying Most Favored Nation (MFN) clause under the tax treaty. - [Vijay Gupta v. CIT (2016) 386 ITR 643 : 238 Taxman 505 : 68 taxmann.com 131 (Del)]

 

Whether section 264 debars Commissioner from passing any order which is prejudicial to assessee and, therefore, once assessee approaches Commissioner for getting relief under section 264, Commissioner can not pass an order by invoking provisions of section 263 - Held, yes [Para 11] [In favour of assessee]

11. From the above, it is evident that under Section 264, the CIT can revise any order passed by any authority subordinate to him on his own motion or on the application made by the assessee. He can pass the order as he thinks fit not being an order prejudicial to the assessee. Thus, it is very clear that under Section 264, the CIT cannot pass any order which is prejudicial to the assessee. Now, in the case under appeal before us, it is evident that the assessee moved revision petition under Section 264 before the CIT, Central-II for quashing the penalty order. On the other hand, the CIT, Central-II initiated proceedings under Section 263 of the Income-tax Act and passed order thereon which was prejudicial to the interests of the assessee. That Section 264 of the Income-tax Act debars the CIT from passing any order which is prejudicial to the assessee. Therefore, in our opinion, when the CIT cannot pass the order prejudicial to the assessee under Section 264, once the assessee approached him for getting relief under Section 264, if he is allowed to pass order under Section 263 prejudicial to the assessee, it would make prohibition under Section 264 that the CIT cannot pass the order prejudicial to the assessee as nullity. Therefore, in our opinion, on the facts of the assessee's case, the order under Section 263 cannot be sustained. (Related Assessment years : 2005-06 & 2006-07) – [Vineet Sharma v. CIT (2014) 148 ITD 619 : 41 taxmann.com 141 (ITAT Delhi)]

 

Commissioner – Revision of other order – Set aside assessment – Power of Assessing Officer

Where the Commissioner exercising its revisional authority under section 264 of the Act, directed the Assessing Officer to adjudicate and examine a specific issues. However, the assessment was framed by the Assessing Officer on a higher income by assuming more powers than that of revisional authority. The action of the Assessing Officer was held patently illegal and without jurisdiction. (Related Assessment years : 1989-90 to 1999-2000) – [N. Seetharaman v. CIT (2008) 298 ITR 210 : 216 CTR 238 : 6 DTR 238 (Mad.)]

 

Order under section 264 cannot be prejudicial to the assessee

As per the provisions of Section 264(1), the order passed by the CIT under section 264, cannot be prejudicial to the assessee. An order by the CIT declining to interfere shall not be deemed to be an order prejudicial to the assessee, according to Explanation - 1 to Section 264.

 

Order passed by the CIT under section 264 should not be prejudicial to the assessee even indirectly

In this case, on a petition under section 264 by the assessee the CIT set aside the assessment, with a direction to make a fresh assessment. The Assessing Officer completed the fresh assessment without any change in total income and tax originally assessed. The Assessing Officer also initiated penalty proceedings under section 271(1)(c), though no such penalty proceedings were initiated in the original order of the Assessing Officer. The Tribunal held that order under section 264 of the CIT, had indirectly resulted in the levy of penalty under section 271(1)(c) and as such was prejudicial to the interest of the assessee. The cancellation of order under section 271(1)(c) was accordingly held to be justified. – [ACIT v.  M.V. Kenlucky (1997) 60 ITD 492 (ITAT Pune)]

 

Even an order passed in violation of principles of natural justice can be corrected under section 264

Even an order wherein the principles of natural justice have been ignored, can be corrected in exercise of revisional powers under section 264. (Related Assessment year : 1964-65) - [Mohammadi Begum v. CIT (1986) 158 ITR 622 (AP)]

 

CIT has the power under section 264 to issue directions to  Assessing Officer

Section 264 is not a provision of law dealing with the question of imposition of liability on the assessee. It is only a part of machinery section. It cannot be construed in a narrow manner. The CIT has the power under section 264, to issue directions to the Assessing Officer. (Related Assessment year : 1964-65) – [Mohammadi Begum v. CIT (1986) 158 ITR 622 (AP)]

 

New ground can be entertained by the CIT

The revisional powers conferred by Section 264 on the CIT are very wide. It is open to the CIT to entertain even a new ground, not urged before the lower authorities, while exercising revisional powers. – [C. Parikh & Co v. CIT (1982) 138 ITR 689 (All)]

 

A new claim for deduction made by the assessee in revision petition is to be examined on merits. (Related Assessment year : 1975-76) – [Rashtriya Vikas Ltd. v. CIT 99 CTR 68(All)]

 

Assessee can file a revision petition against an addition erroneously accepted by him

The CIT cannot reject a petition for revision on the ground that the assessee itself had returned income which it claims in the revision petition as not its income. In such a situation the CIT is bound to apply his mind to the question whether the assessee is liable to be taxed in respect of that income. — [Pt. Sheonath Prasad Sharma v. CIT (1967) 66 ITR 647 (All)]

 

Even those orders which are not appealable before the Dy CIT(A) or CIT(A), may be referred by the assessee to the CIT for seeking revision or modification. – [Dwarka Nath v. ITO (1965) 57 ITR 349(SC)]

 

 

 

 

Pre-conditions for invoking Section 263

 

Section 263 of the Act confers the power upon the Principal Commissioner or Commissioner to call for and examine the records of a proceeding under the Act and revise any order if he considers the same to be erroneous and prejudicial to the interests of the revenue. 

Analysis of the provision

Sub-Section (1) to Section 263 starts with the words “the Principal Commissioner or Commissioner may call for any record and examine the record of any proceeding”. There are 3 essential ingredients of this part.

Firstly, that “the Principal Commissioner or Commissioner may call for”. Therefore it is the absolute discretion of the Principal Commissioner or Commissioner to revise an order passed by the Assessing Officer. He need not take the permission of any authority/court for exercising his powers. The condition precedent is that he has to apply his own mind and come to a definite conclusion, which has to be an independent act and not act on the directions of the CBDT or any other authority. – [See Sirpur Paper Mill Ltd. v CWT (77 ITR 6) (SC) and CIT, Shimla v. Green world Corporation (2009) 314 ITR 81 : 7 SCC 69 (SC)]

Secondly, “record” has been given a wide connotation to mean not only the record before the Assessing Officer during scrutiny proceedings, but also any such material/information coming into the possession of the CIT even after the passing of the Assessing Officer’s order, if such record/information conclusively proves the Assessing Officer’s order is erroneous in so far as prejudicial to the interest of the revenue.

Thirdly, he can exercise such discretion in relation to “any order” passed by the Assessing Officer. Such order has been construed as not necessarily an order passed under section 143(3). Example an order rejecting the registration of a firm or; dropping the assessment proceedings even though a return has not been filed. Once an order passed by the Assessing Officer has attained finality meaning thereby it affects the rights of an assessee, the Principal Commissioner or Commissioner has the authority to revise any such order.

Requirement for assuming revisional jurisdiction under section 263

The Principal Commissioner or Commissioner can exercise power of revision under section 263 if the following factors are present :

(1)    there are any proceedings under the Act,

(2)    the assessing officer has passed an order in such proceedings, and

(3)    the Principal Commissioner or Commissioner is of the opinion that such order is erroneous and

         prejudicial to the interest of the revenue.

 

There must exist an written order, which is sought to be revised by the Commissioner.

 

[1]  There are any proceedings under the Act

The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the  Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. 

 

Any issue, which Assessing Officer has not considered in the assessment under section 143 (3) r.w.s. 147, can be brought to life by Commissioner in exercise of his powers under section 263. – [Spencer & Co. Ltd. v. ACIT (2012) 137 ITD 141 (ITAT Chennai)]

[2]    The assessing officer has passed an order in such proceedings

Section 263 is not limited to exercising revisional powers qua order of assessment only; it would take within its sweep even orders wherein either proceedings are dropped or proceedings are filed

Gujarat High Court in case of New Jagat Textile Mills (P) Ltd. v. CIT, held as under:

(a) Section 263 of the Income-tax Act, 1961, empowers the Commissioner to take up for consideration 'any order passed' in any proceedings under the Act. In these circumstances, it is not possible to read the provisions as being limited to exercising revisional powers qua order of assessment only. It would take within its sweep even the orders wherein either the proceedings are dropped or the proceedings are filed.

 

(b) Therefore, once the twin conditions for exercise of jurisdiction under section 263 of the Act were shown to be fulfilled, the Commissioner was perfectly justified in taking action under the said provisions and exercising his revisional powers." – [New Jagat Textile Mills (P) Ltd. v. CIT (2006) 282 ITR 399 (Guj)]

 

Words 'any order’ under section 154 vs. 'the order’ under section 263

The words 'any order' in section 154(1)(a) would mean even the reassessment order under section 147. It cannot be stated that both the expressions, 'any order' and 'the order', as occur in sections 154 and 263 respectively, would have the same meaning. The word 'the' clearly denotes the specific order, while the word 'any' would mean any order passed by the Income-tax Authority. – [Rastriya Ispat Nigam Ltd. v. ACIT (2015) 377 ITR 420 (AP)]

The order passed by the authority, which is subordinate to the Commissioner, to give effect to the orders of the Tribunal is covered under the phrase “any order”. Thus, invoking of power of revision under Section 263 by the Commissioner is within the permissible limits of the law. – [Pentamedia Graphics Ltd. v. ACIT (2012) 17 ITR 302 (ITAT Chennai)]

The word 'order' mentioned in section 263 which can be the subject-matter of revision by the Commissioner would mean an order determining the rights and liabilities of the assessee under the Act. – [Smt. Bhartiben M. Kelawala v. CIT (2011) 128 ITD 4 (ITAT Ahmedabad)]

 

 

There cannot be revision of a non-existing order and where there is no order either for levy or waiver of interest under section 158BFA(I) or section 234A, 234B or 234C of Act in existence, Commissioner can have no jurisdiction to invoke provisions of section 263 for directing Assessing Officer to charge interest under section 158BFA(1) – [Anand Kumar Agarwal (HUF) v. ACIT (2005) 92 TTJ 81 (ITAT Agra)]

 

[3]   Provisions of section 263 can be invoked only when the twin conditions are satisfied i.e. order should be both erroneous and prejudicial to the interest of the Revenue

It is a well settled law that to invoke the provisions of section 263 both the conditions that the order must be erroneous and prejudicial to the interest of Revenue must be satisfied.

Provisions of section 263 reads –

“(1) The Principal Commissioner or Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the revenue.

 

Twin conditions

The Commissioner gets power of revision under Section 263 where the assessment order is erroneous and prejudicial to the interest of revenue. The twin conditions are required to be satisfied simultaneously. – [S. Murugan v. ITO (2012) 135 ITD 527 (ITAT Chennai), J. K. Construction Co. v. ITO (2007) 162 Taxman 46 (ITAT Jodhpur)]

 

It was held that the Commissioner would assume jurisdiction under section 263 only when both the conditions, namely, the order passed by the assessing officer was erroneous and the same was prejudicial to the interest of the revenue were fulfilled and if the order was not prejudicial, the powers under section 263 could not be invoked. – [Surender Kumar Madan, Prop. Diamond Service Station v. ITO (2004) 179 Taxation 19 (ITAT Jabalpur)]

 

Commissioner required to decide the issue before determining the assessment order as erroneous and unsustainable in law – Order of Commissioner set aside 

Commissioner invoked revisionary jurisdiction under Section 263 of the Act setting aside the assessment and directed Assessing Officer to make a fresh assessment as he did not make an enquiry about the AIR information received regarding cash deposits made in the bank account of the assessee. Tribunal found that Commissioner had not concluded on the issue of inadequacy of cash in hand but required the Assessing Officer to do so. Tribunal held that Commissioner required to decide the aspect one way or the other before he could determine that the assessment order was erroneous. The initiation of proceedings under Section 263 of the Act were inconsistent with the requirement of Section 263(1) of the Act and therefore set aside by the Tribunal. (Related Assessment year : 2009-10) – [Adishwar K. Jain v. CIT (2019) 201 TTJ 77 : 181 DTR 29 : 52 CCH 606 (ITAT Mumbai)]

Conditions precedent - Where order under section 263 passed by CIT suffers from one of twin conditions, that order was prejudicial but not erroneous, the same could not give CIT power to invoke jurisdiction under section 263 as order of Assessing Officer must be prejudicial as well as erroneous both

Assessment of assessee was completed under section 143(3) where under total income of assessee was determined. CIT on examining relevant record opined that assessment made by Assessing Officer was erroneous and prejudicial to the interests of Revenue. CIT felt that Assessing Officer did not scrutinize reasons for reduction of assessee's income which got down by 50 per cent, compared to immediately preceding assessment year and did not examine arrangement of leasing out of godowns to two trusts. Tribunal held that CIT failed to bring out specifically any material into record disclosing any error in assessment order of Assessing Officer prejudicial to interests of revenue. Held: While exercising jurisdiction suo motu under section 263 CIT had to be satisfied with two conditions, namely, (i) that order of Assessing Officer sought to be revised was (i) erroneous; and (ii) it was also prejudicial to the interest of revenue. Foremost requirement that order must be erroneous for invoking revisional jurisdiction under section 263 by CIT, had not been satisfied in the instant case. Once order was not found erroneous, CIT was denuded of his power to invoke section 263 to revise assessment order. – [CIT v. V. Dhana Reddy & Co. (2018) 407 ITR 96 (AP)]

 

The ITAT in the case of Khatiza S. Oomerbhoy v. ITO, analysed in details various authoritative pronouncements including the decision of the hon'ble Supreme Court in the case of Malabar Industries Co. Ltd. v. CIT (2000) 243 ITR 83 (SC) and propounded the following broader tests :

(i)      The Commissioner of Income-tax must record satisfaction that the order of the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. Both conditions must be fulfilled.

(ii)     Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer and it was only when an order is erroneous that the section will be attracted.

(iii)   An incorrect assumption of facts or an incorrect application of law will suffice the requirement of order being erroneous.

(iv)    If the order is passed without application of mind, such order will fall under the category of erroneous order.

(v)     Every loss of revenue cannot be treated as prejudicial to the interests of the Revenue and if the Assessing Officer has adopted one of the courses permissible under law or where two views are possible and the Assessing Officer has taken one view with which the Commissioner of Income-tax does not agree. It cannot be treated as an erroneous order, unless the view taken by the Assessing Officer is unsustainable under law.

(vi)    If while making the assessment, the Assessing Officer examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determine the income, the Commissioner of Income-tax, while exercising his power under section 263 is not permitted to substitute his estimate of income in place of the income estimated by the Assessing Officer.

(vii)  The Assessing Officer exercises quasi judicial power vested in his and if he exercises such power in accordance with law and arrive at a conclusion, such conclusion cannot be termed to be erroneous simply because the Commissioner of Income-tax does not fee stratified with the conclusion.

(viii) The Commissioner of Income-tax, before exercising his jurisdiction under section 263 must have material on record to arrive at a satisfaction.

(ix)    If the Assessing Officer has made enquiries during the course of assessment proceedings on the relevant issues and the assessee has given detailed explanation by a letter in writing and the Assessing Officer allows the claim on being satisfied with the explanation of the assessee, the decision of the Assessing Officer cannot be held to be erroneous simply because in his order he does not make an elaborate discussion in that regard. – [Khatiza S. Oomerbhoy v. ITO (2006) 100 ITD 173 (ITAT Mumbai)]

 

Section 263 CIT must show that view taken by Assessing Officer is wholly unsustainable in law

Revisional Commissioner is expected show that the view taken by the Assessing Officer is wholly unsustainable in law before embarking upon exercise of revisionary powers. The revisional powers cannot be exercised for directing a fuller inquiry to merely find out if the earlier view taken is erroneous particularly when a view was already taken after inquiry.

 

If such course of action as interpreted by the Revisional Commissioner in the light of the Explanation 2 is permitted, Revisional Commissioner can possibly find fault with each and every assessment order without himself making any inquiry or verification and without establishing that assessment order is not sustainable in law.

This would inevitably mean that every order of the lower authority would thus become susceptible to Section 263 of the Act and, in turn, will cause serious unintended hardship to the tax payer concerned for no fault on his part. Apparently, this is not intended by the Explanation.

Howsoever wide the scope of Explanation 2(a) may be, its limits are implicit in it. It is only in a very gross case of inadequacy in inquiry or where inquiry is per se mandated on the basis of record available before the Assessing Officer and such inquiry was not conducted, the revisional power so conferred can be exercised to invalidate the action of Assessing Officer. The Assessing Officer in the present case has not accepted the submissions of the assessee on various issues summarily but has shown appetite for inquiry and verifications.

The Assessing Officer has passed the order in great detail after making several allowances and disallowances on the issues involved impliedly after due application of mind. Therefore, the Explanation 2 to Section 263 of the Act do not, in our view, thwart the assessment process in the facts and the context of the case. Consequently, we find that the foundation for exercise of revisional jurisdiction is sorely missing in the present case.

Resultantly, the order of the PCIT passed under section 263 of the Act is set aside and cancelled and the order of the Assessing Officer under 143(3) is restored. (Related Assessment Year : 2014-15) - [Torrent Pharmaceuticals Ltd v. DCIT - Date of Judgement : 08.08.2018 (ITAT Ahmedabad)]

 

Before taking any action under section 263, Commissioner must record his satisfaction; issuance of notice on basis of proposal made by ITO is void ab-initio

It was held that The CIT had not applied his mind but the matter was referred by the Assessing Officer for initiating the proceeding under section 263 of the Act.  It is noticed that the notice under section 263 of the Act was issued only on receipt of the proposal under section 263 of the Act from the ITO. and the assessee explained, vide written submission which has been reproduced. It is well-settled that the learned CIT while exercising the revisionary powers under section 263 of the Act may call for and examine the records of any proceedings and thereafter if he considers that any order passed therein is erroneous insofar as it is prejudicial to the interest of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify. Therefore, before taking any action, learned CIT himself shall apply his mind after examining the record of any proceedings and his satisfaction is must. However, the satisfaction was of the Assessing Officer who proposed action under section 263 of the Act, but not of the learned CIT. Therefore, issuance of notice under section 263 of the Act on the basis of the proposal made by the ITO was void ab initio; therefore, the matter was set aside. (Related Assessment year 2008 09) – [Dharmendra Kumar Bansal v. CIT (2014) 161 TTJ 801 : (2015) 152 ITD 406 : 48 taxmann.com 53 (ITAT Jaipur)]

 

Revision of orders prejudicial to revenue – Restricted to directions given – Assessing Officer cannot go beyond the direction

Commissioner exercised its revisional jurisdiction and directed Assessing Officer to determine income from one of assessee’s business. Held, since revision order was confined to one of the businesses of the assessee and bereft of any discussion regarding the other business, the Assessing Officer was not justified in conducting enquires about such other business. On writ the court held that Assessing Officer annot go beyond the direction. (Related Assessment year : 2006-07) – [Shobha Govil (Smt.) v. Addl. CIT (2013) 354 ITR 668 : 218 Taxman 30 (Mag.)(All)]

 

Commissioner cannot simply remand the matter back to the Assessing Officer

The CIT cannot remand the matter to the Assessing Officer for further enquiries or to decide whether the findings recorded are erroneous without a finding that the order is erroneous and how that is so. A mere remand to the Assessing Officer implies that the CIT has not decided whether the order is erroneous but has directed the Assessing Officer to decide the aspect which is not permissible. – [ITO v. DG Housing Projects (2012) 343 ITR 329 (Del)]

 

In absence of any finding that there is loss of revenue, interference under section 263 is not justified

The finding of the Commissioner that the deductions were required to be given on account of the impurities and change of fashion, it is clear that even he did not regard the market rate as one that was required to be adopted. He has not found that the rate actually adopted is less than the one that should have been adopted. In the absence of any finding that there is loss of revenue, interference under Section 263 of the Act was not justified. – [CIT v. G. R. Thangamaligai (2003) 259 ITR 129 : 185 CTR 560 (Mad)]

 

Order for which revision is taken up should be in existence and served

An order passed by the Assessing Officer must be in existence. The Commissioner is not empowered under section 263 to direct the Assessing Officer to pass an order. – [P.P. Dinwala v. CIT (1995) 78 Taxman 421 (Cal.)]

 Order under section 263 should be speaking order

The assessee, M/s. Kashi Nath & Co., is a partnership firm. The firm was doing sarafa and pawning business. For the assessment year 1975-76, the Income-tax Officer determined its income at Rs. 77,599, There was no appeal to the Appellate Assistant Commissioner but the Commissioner of Income-tax in exercise of his power under Section 263 of the Income-tax Act set aside the assessment order and directed the . Income-tax Officer to redo the assessment. But the appeal against the said order of the Commissioner has been allowed by the Tribunal. The Tribunal has observed that the Commissioner has not given his reasons for his conclusion that the order of assessment was prejudicial to the interests of the Revenue. In our opinion, the conclusion of the Tribunal is unassailable.

 

It will be seen from the above order that the Commissioner did not examine the various cash credits said to be appearing in the names of different ladies which were said to have escaped the attention of the Income-tax Officer. He only complained of the order of the Income-tax Officer for not examining the details of the credits appearing in various names. What those details required to be examined were have not been set out. There is thus absolutely no reason in support of the conclusion of the Commissioner that the assessment order was erroneous and prejudicial to the interests of the Revenue.

 

The power of the Commissioner under Section 263 is quasi-judicial in character. He must give reasons in support of his conclusion that the assessment order is erroneous in so far as it is prejudicial to the interests of the Revenue. If he does not give reasons, the order would be vitiated. This was the view taken by this court in the case of J. P. Srivastava & Sons Ltd. v. CIT (1978) 111 ITR 326 (All) and CIT v. Sunder Lal (1974) 96 ITR 310 (All). In the instant case, since the Commissioner has not applied his mind to the relevant material on record and has not given reasons for his conclusions that the assessment order was prejudicial to the interest of the Revenue, the Tribunal was justified in reversing that order. (Related Assessment year : 1975-76) – [CIT v. Kashi Nath & Co. (1988) 170 ITR 28 (1987) 64 CTR 177 : 33 TAXMAN 577 (All)]

Order could not be said to exist unless communicated to the party

An order passed by the Assessing Officer is not effective till it is served on the assessee. Therefore, where the assessment order was passed but was not served it could not be made the subject of proceedings under section 263. – [Smt. Jijeebai Shinde v. Commissioner of Gift-Tax (1986) 157 ITR 122 (MP)]

 

Eligibility criteria for filing of application before Income Tax Settlement Commission

 

An applicant can approach the Income Tax Settlement Commission in respect of a particular assessment year only if no assessment order is passed by the concerned income tax authority and the statutory time-limit for passing of assessment order for that year has not lapsed. The proceedings are considered to be pending from the first day of the assessment year and it is not needed that a return of income is filed or a notice for scrutiny is issued before failing of application.

An applicant have to disclose an additional amount of income tax before the Commission which is at least Rupees ten lakhs. This does not include the amount of interest chargeable on such tax. For cases involving Search and seizure assessment proceedings, the additional amount of income tax to be disclosed is at least Rupees fifty lakhs.

 

Settlement Commission and Appeal

The application for settlement can be made only during the pendency of the assessment proceedings, whereas an appeal can be filed only after conclusion of assessment proceedings, against an order of assessment. For approaching the settlement commission, an applicant is required to disclose income which he has not disclosed before the Income Tax Department and also to pay applicable tax and interest on it before filing the application. No such conditions are needed for filing an appeal.

 

Who can file application

The assessee desirous of settling his case is required to make an application under section 245C(1) in form No. 34B prescribed under Rule 44C(3) of the Income-tax Rules, 1962, duly signed and verified as prescribed therein. This application is to be made in quintuplicate and has to be accompanied by a fee of Rs. 500/-. The fee has to be paid (with a Challan) in a branch of an authorised bank or a branch of State Bank of India or a branch of Reserve Bank of India. Cheques, Drafts, Hundies or other negotiable instruments sent directly to the Commission, are not acceptable.

 

Application to Settlement Commission

Application to Settlement Commission can be made for following:

1. proceeding for assessment/reassessment/recomputation under section 147

2. proceeding for making fresh assessment under section 254 or under section 263 or under section 564

3.  proceeding for assessment / reassessment for any assessment year immediately preceding the year in which search was conducted in case of person referred under section 153A or under section 153C

4.  proceeding for the assessment year relevant to previous year in which search was conducted or books were requisitioned under section 132A in case of person referred under section 153A or under section 153C

5. Proceeding for assessment for any assessment year other than the proceeding of assessment or reassessment referred to in above clause 1 to 4.

KEY NOTE : application can be made if any intimation under section 143(1) is received as the me limit for issue of notice under section 143(2) has been expired or not is not material.

 

Eligibility

An applicant can approach Income-tax Settlement Commission, if the following conditions are satisfied

[1]  Pendency of assessment proceedings [Section 245C(1)]

The Pre-condition for the Commission to receive an application is that a case as defined under Section 245A(b) should be pending as on the date of its presentation.

An applicant can approach the Income Tax Settlement Commission in respect of a particular assessment year only if there is assessment proceedings is pending against him before an Assessing Officer on the date of filing of application, i.e. no assessment order is passed by the Assessing Officer and the statutory time-limit for passing of assessment order for that year has not lapsed.

The various situations, when the assessment proceedings are deemed to be initiated / pending have been provided in Section 245A(b) and are summarized below:

 

S. No.	Section		Assessment Proceedings	Deemed to be initiated from
1	147	Income Escaping Assessment	Assessment or Reassessment or Re-computation	Date of issue of notice under section 148
2	254	Case before Appellate Tribunal		Date of Order
3	263/264	Revision of assessments by Principal  Commissioner or Commissioner	Fresh Assessment	setting aside or cancelling previous assessment
4	153A	Assessment in case of search or requisition / related persons	Assessment or Reassessment for years mentioned under section 153A(1)(b)	Date of issue of notice under section 153(1)(A)
5		Any other than above	Assessment or Reassessment	First day of the assessment year

 

Filing of return of income before filing application for settlement is not necessary

Under the old scheme, proviso to Section 245C(1) provided that application for settlement could be filed only if assessee has filed return of income which was due. It was subject to lot of criticism and the proviso has been done away with and it is no more necessary that assessee has filed return of income before he is eligible to file application for settlement. As pendency of proceedings is from first day of assessment year, an assessee may instead of filing return of income due u/s. 139(1) and even before such time expires, directly file an application for settlement.

 

For purpose of maintainability of a settlement application, a case would be pending only as long as order of assessment is not passed and date of dispatch of service of order on assessee would not be material for such purpose

On 07.01.2014, a search was conducted on the assessee. Thereafter, a notice under Section 153A of the Act was issued on 02.07.2014. The assessee filed the return of income in response to such notice on 27.11.2014. The Assessing Officer passed the assessment orders for five assessment years in question on 15.03.2016 and the same were sent for service personally, by deputing an Inspector of his office, to the partners of the assessee firm at its office on 15.03.2016. However, the partners refused to receive the orders. A report to this effect was made by the Inspector and placed before the Assessing Officer, a copy of which was produced along with an affidavit. On 16.03.2016, the assessee filed application for settlement before the Settlement Commission. Before the settlement bare facts were that the order of assessment dated 15.03.2016 was served on the assessee on 21.03.2016. Thus, according to the assessee, the application for settlement having already been filed on 16.03.2016 even before the orders of assessment were served, such application before the Settlement Commission would be maintainable. Even if such orders were passed on 15.03.2016, as contended by the Department, since the same were not served on the assessee, the assessment proceedings would be deemed to be pending and, therefore, application for settlement would be maintainable. However, according to the Department, as soon as the orders of assessment were passed. Irrespective of dispatch of the orders of assessment or service thereof on the assessee, application for settlement would not be maintainable. The High Court held that for the purpose of application under Section 245C(1) of the Act, a case would be pending only as long as the order of assessment is not passed. Once the assessment is made by the Assessing Officer by passing the order of assessment, the case can no longer be stated to be pending. Application for settlement would be maintainable only if filed before the said date. Date of dispatch of service of the order on the assessee would not be material for such purpose. High Court dismissed the petitions filed by the assesse. (Related Assessment years : 2010-11 to 2014-15) – [Shalibhadra Developers v. Secretary & Ors. (2017) 291 CTR 87 : 245 Taxman 160 : (2016) 143 DTR 1 : (Guj.), Shanti Buildcon v. Secretary & Ors. (2017) 291 CTR 87 : 245 Taxman 160 (2016) 143 DTR 1 : (Guj.)]

Pendency of assessment proceedings - Time to make assessment on return filed by assessee for assessment years 2007-08 to 2009-10 was barred by limitation when settlement application was filed - Assessment proceedings were not pending before Assessing Officer - Dismissal of application by settlement commission was valid -Writ petition of assessee was dismissed

The exclusion clause in section 245A(b) comes into play only on the issue of a notice under section 148 which was admittedly not done up to March 7, 2013, when the application for settlement was filed by the assessee with the Settlement Commission. However, the proceedings under section 147 / 148 by their very nature would only lie where the earlier assessment proceedings were not pending. This is self-evident as the jurisdictional requirement under section 147 / 148 is that income chargeable to tax has escaped assessment. Therefore, where the assessment was still pending (in case where returns have been filed) no occasion of income escaping assessment can arise. The assessment will cease to be pending when the assessment proceedings are terminated. This termination can be either when the assessment is made or when the time to make the assessment comes to an end under section 153. Thus, the period within which assessment could be made for the assessment years 2007-08 to 2009-10 had admittedly expired under section 153. The time limit to make an assessment order in regular proceedings for the assessment years 2007-08 to 2009-10 had already long expired before March 7, 2013, when the application for settlement was made by the assessee to the Settlement Commission. Therefore, on the date of filing of the application, i.e., March 7, 2013, before the Settlement Commission there were no assessment proceedings pending with the Assessing Officer as they stood terminated by efflux of time. Writ petition of assessee was dismissed. (Related Assessment years : 2007-08, 2008-09, 2009-10) – [Shriniwas Machine Craft (P) Ltd. v. ITSC (2014) 361 ITR 313 : 265 CTR 113 : 98 DTR 161 (Bom.)]

 

Assessment was completed under section 143(1) – Assessment was held to be not pending – Application was held to be not maintainable

Assessee filed an application before settlement commission for the Assessment Years 2005-06 to 2011-12. Revenue contended that for the Assessment Years 2005-06 to 2008-09 the returns were processed under section 143(1) and no further proceedings were pending hence the application was not maintainable. Settlement Commission rejected the objections and held that the application was maintainable. Revenue file the writ petition. The Court held that the assessments had become timebarred without any notice under section 143(2) or even final time-limit for passing orders, even if such notices were issued, had expired by the time assessee filed his application for settlement before Settlement Commission, application for settlement qua these years was not maintainable. Writ petition of revenue was allowed. (Related Assessment years : 2005-06 to 2008-09) – [CIT v. ITSC (2013) 259 CTR 329 : 218 Taxman 49 (Guj.)]

 

Application – Maintainability – When there is no pendency of proceedings, application is not maintainable  

The assessee had filed returns in respect of Assessment Years 2004-05, 2005-06, 2007-08 and 2008-09. On 05.08.2011 the assessee filed an application before Settlement Commission seeking a settlement of its cases. The revenue opposed application contending that application was not maintainable as no case was pending before any Income-tax Forum. The settlement commission overruled objection of revenue and decided to entertain the settlement application. The revenue filed the writ petition and raised the question. “Whether proceedings are to be deemed to remain ‘pending’ for the purposes of section 245A(b) when the time-limit for completion of assessment under section 143 or section 144 has expired”. The Court held that since no proceedings under Income-tax Act were pending at time of filing of application, Settlement Commission was not right in admitting assessee’s application. Where by application of section 153, an assessment order can no longer be made, proceeding, for purposes of section 245A, would have to be construed as terminated. (Related Assessment years : 2004-05, 2005-06, 2007-08, 2008-09) – [CIT v. ITSC (2013) 259 CTR 318 : 212 Taxman 511 : 87 DTR 178 (Del)]

 

Case – Pendency of assessment – Circular – Notice – Limitation – Application filed before expiry of period to complete the assessment under section 153 was held to be valid

The assessee has filed application before the settlement commission for the AY. 2010-11 on 14th November 2012. When application was filed the period to complete the assessment under section 153 had not expired however the period to issue notice under section 143(2) had expired. Revenue contended that the Settlement Commission had no jurisdiction to entertain the application as no case was pending. The Court held that in view of Circular no 3 of 2008 dated 12th March, 2008, the Settlement Commission had rightly accepted the assessee’s application for settlement. Circular is binding on revenue and the revenue has not till date withdrawn the circular to the extent it clarifies that it is immaterial for the purpose of filing an application before Settlement Commission whether the time limit for issuing notice under section 143(2) has expired or not. A beneficial interpretation to the word ‘case‘ in section 245A(b) given by the Circular dated 12th March 2008 issued by the CBDT is understandable so as to mitigate / lessen the rigour of the definition of the word ‘case’. Settlement Commission rightly accepted the assessee’s application for settlement. Petition of revenue was dismissed. (Related Assessment year : 2010-11) – [CIT v. ITSC (2013) 262 CTR 28 : 92 DTR 409 (Bom.)]

 

In Varinder K. Arora, In re, it was held that assessment proceedings would be treated to be pending till the assessment order is served on the applicant. In the said case, the assessment order had been served on the applicant on 02.04.2009 after the application was filed on 31.03.2009. It was that the proceeding for assessment were pending on 31.03.2009 as per clarification issued by the CBDT in the Circular No.3 of 2008 dated 12.03.2008 and as such the assessee’s application deserved to be admitted under section 245D(1). – [Varinder K. Arora, In re (2009) 180 Taxman 412 (ITSC Mumbai)]

 

Income Tax assessment completes on date of order, irrespective of service, CBDT rectifies 6 year old mistake

CIRCULAR NO. 16/2014, dated 17.11.2014

Subject:- Clarification in respect of Circular No.3 of 2008 dated 12.03.2008 of CBDT    – regarding

Chapter XIX-A of the Income-tax Act, 1961 contains provisions relating to settlement of cases by the Income-tax Settlement Commission (ITSC). The provisions contained in the said chapter were amended by Finance Act, 2007 and a Revised Settlement Scheme was put in place. Explanatory Circular No. 3/2008 dated 12.03.2008 issued by CBDT vide para 61 (comprising sub paras 61.1 to 61.17) deals with Revised Settlement Scheme.

2. Para 61.2 of Circular No.3 of 2008 reads:-

    “61.2 under the existing provisions, an assessee may make an application to the Commission at any stage of the proceedings in his case pending before any Income-tax Authorities. After 31st May, 2007, an assessee can make an application to the Commission only during the pendency of the proceedings before the Assessing Officer. It is further clarified that (a) since intimation under section 143(1) is not an assessment order, there will be no bar in filing an application for settlement subsequent to receipt of an intimation under section 143(1). It is not material whether time-limit for issue of notice under section 143(2) has expired or not; (b) the assessment shall be deemed to have been completed only on the date of service of assessment order to the applicant”.

3. It has been inadvertently stated in para 61.2 of Circular No.3 of 2008 that the assessment shall be deemed to have been completed only on the date of service of assessment order to the applicant. This statement is not in consonance with the provisions contained in Explanation to clause (b) of section 245A of the Income-tax Act which, inter alia, provides that a proceeding for assessment of any assessment year shall be deemed to have concluded on the date on which the assessment is made.

4. In view of the above, para 61.2 of Circular No.3 of 2008 is replaced with the following with effect from the 1st day of June, 2007:-

    “61.2 Under the existing provisions, an assessee may make an application to the Commission at any stage of the proceedings in his case pending before any Income-tax Authorities. After 31st May, 2007, an assessee can make an application to the Commission only during the pendency of the proceedings before the Assessing Officer. It is further clarified that (a) since intimation under section 143(1) is not an assessment order, there will be no bar in filing an application for settlement subsequent to receipt of an intimation under section 143(1). It is not material whether time-limit for issue of notice under section 143(2) has expired or not; (b) the assessment shall be deemed to have been completed on the date on which the assessment order is passed.”

 

[2]  Minimum amount of additional income tax on the income [Proviso to section 245C(1)]

The additional tax payable on additional income offered must exceed Rs. 10,00,000/-. If the case is in pursuance of notice under section 153A or 153C, the additional tax payable has to exceed Rs. 50,00,000/-. If however, despite being a case in pursuance of notice under section 153A or 153C, if the case is connected to a case for which application has been filed, and such connection is as prescribed under the Act, than the additional tax payable has to exceed Rs. 10,00,000/-. The mode of computation of additional tax is provided by sub-section (1A) to (1D) of section 245C.

If the application is for more than one assessment year, than additional tax shall be determined as prescribed for each of the assessment year and the aggregate thereof shall be treated as additional tax payable as per the application.

Such tax & interest thereon shall be paid before filing of application. Proof shall be attached.

 

Minimum Additional Income Tax [Proviso (i) to Section 245C(1)]

Additional income-tax paid while making settlement application must exceed threshold stated in the provisions i.e.

Before 31.05.2007	Provision from 01.06.2007 amended by Finance Act 2007	Provision from 01.06.2010 amended by Finance Act 2010
Rs. 1,00,000	Rs. 3,00,000	(i) In case of specified person in whose case notice under section 153A/153C have been issued as a consequence of search - The additional tax payable on additional income offered must exceed Rs. 50,00,000/-
		(ii) In case of other assessee’s who are related to the specified person who has preferred settlement application as lead case and have been issued notices under section 153A/ 153C of the Act - The additional tax payable on additional income offered must exceed Rs. 10,00,000/-
		(iii) In any other cases - The additional tax payable on additional income offered must exceed Rs. 10,00,000/-

      

Applicant must pay additional amount of income-tax on the additional income disclosed in settlement application along with interest u/s 234A,234B, 234C and 234D thereon at the time of filing of Settlement Application and furnish proof of making payment thereof in the settlement application.

 

Settlement of cases - Conditions - Settlement Commission can admit application for settlement when additional income and additional tax liability is disclosed for some years and there is no additional income/additional tax for remaining years as long as additional tax payable on income disclosed in application exceeds threshold limits specified in proviso to section 245C(1)

The Special Bench of the Settlement Commission was to consider a question ‘whether in an application for settlement under section 245C(1) covering more than one assessment year, the applicant must mandatorily disclose additional income not disclosed before the Assessing Officer, for each assessment year covered by the application and on such additional income there must be a liability to pay tax for each such year especially in view of amendments brought about in proviso to section 245C(1), read with section 245A(b) by Finance Acts 2007 and 2010, thereby rendering decision of Special Bench in Airtech (P) Ltd. v. Income Tax Settlement Commission (1994) 20 ITR (AT) 21 (ITSC), no longer good law?’. The Bench, by a majority view, concluded that Settlement Commission can admit an application for settlement when additional income and additional tax liability is disclosed for some years and there is no additional income/additional tax for remaining years as long as additional tax payable on income disclosed in application exceeds threshold limits specified in proviso to section 245C (1). The Bench held that there is no specific condition laid down in law that there should be additional income disclosed in every assessment year or that there should be additional tax liability on such additional income disclosed in every year, covered by the application and that the amendments made in proviso to section 245C (1), read with section 245A (b) by Finance Act 2007 and 2010, have no direct bearing on the above conclusions. – [Neptune Developers & Construction (P) Ltd., In re (ITSC-Mumbai) (2017) 248 Taxman 500 : 55 ITR 484 (Mum) (Trib) (SB) (ITSC)]

 

[3]  Full & true disclosure with manner of income not disclosed before the Assessing Officer [Section 245 H(1)]

Section 245C(1) requires that the application must contain a full and true disclosure of income, not disclosed before the Assessing officer. This is one of the important conditions for a valid application for settlement.

What does full and true disclosure mean

What constitutes full and true disclosure can be determined on facts of each case. One can say that requirement of section 245C(1) are fulfilled if:

(i)  All material facts are disclosed, and

(ii) Computation of income offered on the basis of such primary material facts is bonafide , fair and reasonable .

 

Condition of full and true disclosure prescribed twice – section 245C and 245H

The need to make full and true disclosure in an application for settlement cannot be over emphasized. Though an assessee has to make full and disclosure even in return of income as required by section 139, the said condition in Chapter XIX A is prescribed twice. Section 245C prescribes conditions for a valid application and one of the main conditions is full and true disclosure of income. The same condition is again prescribed in Section 245H. Section 245H prescribes immunities that may granted by the ITSC and the conditions on satisfaction of which the said immunities may be granted. One of the prescribed conditions in section 245H is that applicant has made full and true disclosure of income.

 

As per Section 245H(1), the Settlement commission has power to give immunity from penalty/ prosecution provision, if the following conditions are satisfied

(a)    co-operates with the proceedings of the commission

(b)   makes true and full disclosure of his income,

(c)    the manner in which such income has been derived. There is no need to substantiate the manner  of earnings, which is a requirement for lower rate of penalty under section 271AAB of the Act.

        

  Filing of Return [Proviso (i) to Section 245C(1)]

Before 31.05.2007	Provision from 01.06.2007 amended by Finance Act 2007	Provision from 01.06.2010 amended by Finance Act 2010
The assessee should have furnished the return of income	No such specific requirement	No such specific requirement

 

 [4]  Applicant must pay additional amount of income-tax on the additional income disclosed in settlement application along with interest

Applicant must pay additional amount of income-tax on the additional income disclosed in settlement application along with interest under section 234A,234B, 234C and 234D thereon at the time of filing of Settlement Application and furnish proof of making payment thereof in the settlement application.

 

Payment of Additional Income Tax [Proviso (ii) to Section 245C(1)]

Before 31.05.2007	Provision from 01.06.2007 amended by Finance Act 2007	Provision from 01.06.2010 amended by Finance Act 2010
Should be paid within 35 days of receipt of admission order	Additional Income Tax and Interest should have been paid prior to filing of application	Additional Income Tax and Interest should have been paid prior to filing of application

 

 

Calculation of Additional Tax payable

For the purpose of proviso to section 245C (1), Additional Tax-payable shall be calculated as follows :-

(a)     In case the applicant has not furnished return prior to date of application, tax shall be calculated on the income disclosed in the application as if it is the total income and such tax shall be the additional amount of income tax payable.

 

(b)   In case applicant has furnished a return prior to date of application, additional income shall be calculated as under :

 

S. No.	Particulars	Amount (in Rs.)
(i)	Total Income returned	10,00,000
(ii)	Add: Income disclosed in settlement application	80,00,000
(iii)	TOTAL  = (i) + (ii)	90,00,000
(iv)	Additional amount of Income-tax (iii) – (i) + (ii)	xxx

 

 

Adjustment of asset seized under section 132 or requisitioned under section 132A

With effect from 01.06.2015, the asset seized under section 132 or requisitioned under section 132A may also be adjusted against the amount of liability arising on an application made before the Settlement Commission under sub-section (1) of section 245C.

 

While computing income on which tax is payable under section 245C, carried forward losses are to be set off

It was held that the computation of additional tax would have to be done after allowing set off of the unabsorbed depreciation against the income disclosed in the application for settlement. In other words, while computing income on which tax is payable u/s.245C, carried forward losses are to be set off. – [Gobind Builders & Developers v. ITSC (2009) 309 ITR 167 : (2008) 216 CTR 75 (Bom)]

 

The said judgment was differed by the Hon’ble Gujarat High Court in Unipon (India) Ltd. v. ITSC, order dated 09- 16.04.2014 and a different view has been upheld:

 

“26. Under the circumstances, the contention of the counsel for the petitioner that the term “total income” should be construed as defined under section 5 of the Act for the purpose of calculation additional tax of an applicant for settlement of a case cannot be accepted. This is for multiple reasons. Firstly, as discussed earlier clause (ii) of sub section (1B) of section 245C of the Act gives rise to deeming fiction where total income has to be considered as if the aggregate of the total income returned and the income disclosed would be the total income. Such deeming fiction must be allowed its full effect. Secondly, the very same clause uses the term “total income” returned in a different context and the aggregate of the total income returned and the income disclosed which would partake the character of a total income for this limited purpose. Thirdly, such deeming fiction cannot be discarded by bringing into consideration such term used elsewhere by the legislature. It is well known the legislature provides for definition of various terms frequently used in the statutes. The definition section usually comes with the expression “unless the context otherwise provides” or “unless there is anything repugnant to”. Such definition section defines various terms repeatedly used in a statute which would carry the meaning as contained in the definition. It is also well known that the statute defines often times terms for the special purpose of a section or even for a subsection. Examples are replete in the Act itself where the definitions are provided only for the purposes of a particular section or even a subsection. In the present case, this formula which contains a special definition for a special purpose would, therefore, have its effect only for section 245C. Being a special provision it would prevail over any other general term of a concept contained in the Act. Section 245C(1) of the Act also requires the applicant to provide besides other details, true and full disclosure of his income which has not be disclosed before the Assessing Officer and amount of income tax payable on “such income”. Reference to “such income” thus is the income disclosed in the settlement application which was not disclosed before the Assessing Officer.

27. The reason for the legislature to provide a simple formula is not far to seek. As noted, the different stages before the settlement commission once an application is made by the assessee for settlement of his case, comes with time frame. Even the final order which the settlement commission may pass has a deadline beyond which if no order is passed, the proceedings would abate. At a stage where the settlement commission is required to ascertain where an assessee applicant has paid the additional tax with interest thereon only upon which application can be allowed to proceed further, no complex exercise or verification is envisaged. If the concept of total income contained in the Act is imported at such a stage, it can give rise to multiple disputes and lengthy debates with respect to the total income of an assessee and whether full tax on such income has been paid or not. At such a stage, the legislature does not envisage the commission to go into a complex exercise of ascertaining the total income of the assessee and further ascertaining his tax liability on such income. The legislature has, therefore, provided for a simple formula possible of a simple arithmetical application. It may be that in a given case the assesse may be entitled to a refund once the Settlement Commission passes its final order. Such isolated case, however, would not govern the interpretation of sub sections (1B) and (1C) of Section 245C. Any such interpretation would give rise to complex consideration by the Settlement Commission of the assessee’s total income not as defined in sub section (1B) to but as otherwise understood and referred to in Section 5 of the Act. Likewise, the computation of the tax on such total income and the resultant liability of the assessee for paying additional tax also would become a complex exercise. In income tax proceedings multiple claims, of deductions and exemptions give rise to often times complex considerations. Often the liability itself is fluctuating due to court pronouncements. Sometimes a legal question or interpretation of a provision may be in the virgin field not covered by any Court judgment. The legislature never intended that at the stage of ascertaining whether the assessee has deposited the additional tax on an application made for settlement of the case, such complex exercise should be undertaken by the Settlement Commission. Further, in our opinion, accepting any such interpretation would defeat the very purpose of introducing the simplicity of computation of “total income” of an assessee for the purpose of the said provision and his liability to pay additional tax with interest thereon.

28. The Bombay High Court in case of Gobind Builders and Developers vs. Income Tax Settlement Commission and Ors. (supra) has adopted somewhat different approach. The court has held that what is payable under sub section (1) of section 245C is the tax on total income which would mean whatever allowance or disallowance that the assessee was entitled to the same would also be available. We are unable to persuade ourselves to adopt this interpretation. In our opinion bringing the concept of total income for computing the assessee’s liability to deposit additional tax while making application for settlement would amount to ignoring the deeming fiction created by the legislature in Clause (ii) of sub section (1B) of Section 245C. For the computation of such additional tax payable the total income would be the total returned income added by the disclosed income by the assessee.” – [Unipon (India) Ltd. v. ITSC, order dated 09- 16.04.2014 (Guj)]

 

[5] Fee for Settlement Application [Section 245C(2)]

Every application made under section 245C(1) shall be accompanied by such fees as may be prescribed. (Fees of Rs. 500/- are payable as settlement fees) and the paid challan has to be enclosed with the application as proof of payment. Fees payable are per application irrespective of number of assessment years for which application is preferred.

 

[6] Once in life time [Section 245K(2)]

In respect of application made on or after 01.06.2007, if application is allowed to be proceeded with under section 245D(1), assessee shall not be entitled to make an application ever again. The scope of this section is further widen w.e.f. 01.06.2015 that any person related to the person who has already approached the Settlement Commissions once, also cannot approach settlement commissions subsequently. The definition of related persons has also been expanded.

 

Paper Book

If the applicant submits any documents or statements or other papers, to rely on, He shall submit in the form of Paper Book. 

(a)    Such documents & papers shall be - Printed or type-written in double space,

(b)   Attested : by the applicant as true copy. .

(c)    Paper Book containing such papers shall be properly

(d)   Indexed : giving brief description & the authority before whom filed,

(e)    Numbered : in continuation to the previous paper book, if any,

(f)    Binded : the preferred binding is spiral. .

(g)    Such paper book shall be submitted in seven copies. [Rule 7]

 

Preparation of paper books, etc. [Rule 7 of Income-Tax Settlement Commission (Procedure) Rules, 1997]

Text of Rule 7

PREPARATION OF PAPER BOOKS, etc. –

(1) If the applicant proposed to refer to or rely upon any documents or statements or other papers, during the course of hearing under sub-section (4) of Section 245D of the Act, he may submit seven copies of a paper books containing such papers duly indexed and numbered, within thirty days of the receipt of an order under sub-section (2C) of Section 245D, or within thirty days of the date by which the application was required to be declared invalid but has not been so declared:

 

PROVIDED that the Commission may, in appropriate cases, condone the delay and admit the paper book.

(2) If the Commissioner proposes to refer to or rely upon any documents or statements or other papers during the course of hearing under sub-section (4) of Section 245D of the Act, he may submit seven copies of a paper book containing such papers duly indexed and numbered along with his report referred in rule 9.

(3) The papers referred to in sub-rules (1) and (2) must be legibly written or type-written in double space or printed and each paper shall be certified as a true copy by the party filing the same, or his authorised representative and indexed in such a manner as to give a brief description of the documents, with page numbers and the authority before whom it was filed.

Filing of affidavit [Rule 8 of Income-Tax Settlement Commission (Procedure) Rules, 1997]

Where a fact, which is not borne out by or is contrary to the record relating to the case, is alleged in the settlement application (including the annexure and the statement or other documents accompanying such annexure), it shall be stated clearly and concisely and supported by a duly sworn affidavit.