TMI Blog1997 (6) TMI 339X X X X Extracts X X X X X X X X Extracts X X X X ..... ? (ii) While calculating the additional amount of tax payable according to the provisions of section 245C(1B) to (1D), how do the returns filed under section 158BC(a) have to be treated in the absence of any specific reference to such returns in the above provisions ? (iii) Does the time limit prescribed under section 158BE apply to the proceedings before the Settlement Commission? If so, is it proper to get over this issue by the practical expedient of delaying the admission order till the passage of the order by the Assessing Officer? Thereafter, on the basis of the peculiar facts arising in another case before the Chennai Bench, the same Special Bench was also ordered to go into the following further questions in relation to that case. The issues so raised were : In respect of a case where applications under section 245C(1) for some of the years have been filed and the case has been admitted under section 245D(1) and thereafter, a search under section 132 has taken place and a separate application has been filed covering the assessment of the undisclosed income for the block period : (a) How will the presently pending proceeding under section 245D(1) be continued and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Income-tax Department questioned the jurisdiction of the Settlement Commission to entertain applications in respect of cases governed by the procedure prescribed in Chapter XIV-B of the Act. In fact, the Department has filed a special leave petition before the Supreme Court against the order of the Commission admitting an application in the case of I. J. K. Exporters, Tirupur. He, therefore, desired that even though the Chennai Bench of the Settlement Commission may have decided to admit applications even in respect of cases covered by Chapter XIV-B, the question whether the Settlement Commission has jurisdiction to entertain such applications in view of the non obstante clause contained in section 158BA(1) of the Act should also be decided by the Special Bench. Having regard to the importance of the issue, it was decided that the Bench would also hear arguments on whether in view of the provisions of section 158BA(1) to the effect that Notwithstanding anything contained in any other provisions of this Act, where after June 30, 1995, a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8BC, 158BD and 158BE and accordingly all other provisions of the Act shall apply to the assessments made under this Chapter. In this context, he submitted that Chapter XIX-A gives a right to every assessee to approach the Settlement Commission with an application filed under section 245C requesting it to have the case settled in the manner provided in that Chapter. The conditions prescribed for filing an application are that : (i) the case should be pending before the income-tax authority ; (ii) there should be some income which has not been disclosed before the Assessing Officer ; (iii) the application should contain a full and true disclosure of such undisclosed income and the manner in which the same has been derived ; (iv) the assessee must have furnished the return of income which it is or was required to furnish under any of the provisions of this Act ; and (v) the additional amount of income-tax payable on the income disclosed in the application should exceed Rs. 1,00,000. He submitted, with reference to the definition of the word case occurring in section 245A(b), that the case would include a proceeding under Chapter XIV-B of the Act since even under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment has already filed a special leave application in the Supreme Court against the order under section 245D(1) of the Settlement Commission, Chennai Bench, admitting the settlement application relating to a proceeding under section 158BC in respect of a different case. He was not in a position to clarify whether the special leave petition has been admitted or not. He further submitted that apart from the non obstante clause in section 158BA(1), the provisions of section 158BE which lay down a time limit of one year for the completion of the proceedings by the Assessing Officer, implicitly bar the Settlement Commission from entertaining the application. It was his submission that if a proceeding governed by Chapter XIV-B is admitted by the Commission, even the Commission may have to comply with section 158BE and this will be an impracticable proposition. He also submitted that the provisions of section 158BG which require the prior approval of the Commissioner of Income-tax for making an order of assessment under section 158BE would also by implication exclude the jurisdiction of the Commission. He further submitted that even the definition of the word case could not be constr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , such considerations could be very important and, in conceivable circumstances, might even become decisive. (5) When the entire levy, imposition and collection of a tax was held to be illegal by the Supreme Court and a trader wanted to recover the tax already paid by him in ignorance of the invalidity or illegality of the impost through ordinary civil courts, the court held that the bar created by section 20 of the Bombay Sales Tax Act could not be pleaded, where the validity of section 20 itself was challenged. But once it was held that section 20 was constitutionally valid, it constituted an absolute bar against the institution of the civil suit and the suit must fail. Shri Anandaram submitted that in the light of this decision, the provisions of Chapter XIX-A had no application to cases falling under Chapter XIV-B. We have carefully considered the rival submissions. We have also requested the Department to obtain the opinion of their standing counsel in the matter. We are dealing with the arguments based on the time limit for completion of the proceedings under Chapter XIV-B and the manner of computing the additional tax in such cases separately in relation to the specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that a later enactment repeals an earlier enactment is to be resorted to only if the two enactments are too inconsistent with or repugnant to each other that they cannot stand together. We have to construe the Act as it stands today and a harmonious construction of all the provisions in the Act is called for in this context. Any construction which renders any provision of the Act nugatory and defeats the object of that provision, must, if it is possible, be avoided. CIT v. S. Teja Singh [1959] 35 ITR 408 (SC). Further, as we would demonstrate while dealing with the specific issues framed for consideration, it is possible, at every stage, to make a purposive and harmonious construction of the provisions contained in both these Chapters, so as to allow the assesses who have been subjected to searches initiated after June 30, 1995, to approach the Settlement Commission as the door is still open to errant taxpayers for a compromise and settlement as desired by the Wanchoo Committee. Even if two views are possible, we opine that we should prefer the view which will allow the applicability of the simplified procedure laid down in Chapter XIX-A to all assessees including the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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 (1) 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 ; (c) in a case referred to in clause (iii) of that sub-section, the amount of tax calculated under that clause as reduced by the amount of tax calculated on the total income assessed in the earlier proceeding for assessment under section 143 or section 144 or section 147. (1D) Where the income disclosed in the application relates to more than one previous year, the additional amount of income-tax payable in respect of the income disclosed for each of the years shall first be calculated in accordance with the provisions of sub-sections (1B) and (1C) and the aggregate of the amount so arrived at in respect of each of the years for which the application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to apply the rates prescribed in section 113 of the Act for determining the additional amount of tax payable. These arguments were adopted by counsel representing the other applicants. The Commissioner of Income-tax (DR) also submitted that while the Departmental view is that the provisions of Chapter XIX-A are not at all applicable to cases arising from a search conducted after June 30, 1995 if it was eventually held that such applications can be admitted, computation of additional taxes will be only in accordance with the rates laid down in section 113 of the Act. Thus, on this issue, there is no further controversy. We accordingly hold that since, by definition, a case arising under Chapter XIV-B shall be for a block period which, as defined in section 158B(a), means the period of 10 previous years preceding the previous year in which the search was conducted and includes the part of the previous year in which the search took place commencing from April 1, and ending with the date of commencement of search, the relevant provision for consideration will be only section 245C(1D). The application of section 245C(1D) does not present any complexity of interpretation by itse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 158BE to the proceedings before the Commission. Shri Jagadisan, opening the submissions, stated that section 245D(8) does not, in terms, refer to section 158BE. But that does not imply that the time-limit prescribed in section 158BE would apply to the proceedings before the Commission. Section 245D(8) itself starts with the words For the removal of doubts . In fact section 245D(8) was inserted in the Act only with effect from October 1, 1984. However, the Settlement Commission was functional from April 1, 1976, and was passing orders under section 245D(4) even before October 1, 1984. Some of the orders passed by the Commission might relate to cases where the time-limits prescribed under section 153 had expired before the orders under section 245D(4) were passed. It would not mean that those orders were invalid or a nullity merely on the ground that the clarificatory sub-section (8) of section 245D was inserted in the Act only on October 1, 1984. Just as there was no sub-section (8) to section 245D till October 1, 1984, it is not obligatory that in the present sub-section the words section 158BE should be added after the words section 158 to enable the Commission to pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed out that the provisions of Chapter XIV-B have been amended with effect from January 1, 1997, and after this amendment, an application to the Commission may be made not only before the order under section 158BE is passed but also thereafter but before the final disposal of the appeal against that order by the first appellate authority, namely, the Commissioner (Appeals) or the Deputy Commissioner (Appeals). If the Commission were to take the view that the limitation prescribed by section 158BE would apply even to the proceedings admitted by it, then it may have to follow two different benchmarks for passing an order under section 245D(4) depending on the stage of pendency of the case at the time of filing the application. He submitted that such a situation would be unthinkable and an interpretation of law which would lead to such absurd dichotomy in processing cases and passing final orders should be avoided. Reacting to these views, the Commissioner of Income-tax (DR) submitted that if the Settlement Commission admits an application made after the return called for under section 158BC(a) was furnished but before the passing of the order under section 158BC(c) then it has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther prolonged disputes and delays. It is recognised that the proceedings before the Commission lead to an expeditious culmination of complex tax proceedings. The finality attached to the Commission s order, as per section 245-I ensures that after the passing of an order under section 245D(4), the entire proceedings reach a finality. The genesis of Chapter XIV-B perhaps was that Parliament felt that there was a necessity to expedite proceedings in respect of all assessees who had been subjected to search and seizure operations and whose tax proceedings were getting prolonged and highly contentious. The special procedure of Chapter XIV-B was laid down obviously to plug some procedural loopholes in the expeditious processing of such cases by the Assessing Officers. This procedure is applicable to all assessees who fall in a well-recognisable class, namely, the class of assessees who have concealed their incomes and in whose cases proceedings under section 132 or 132A had been taken to discover their true incomes. In such cases it was necessary to simplify the procedural requirements regarding issue of notices, computation of taxes, etc. The imposition of the time-limit under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6-97 and part of the assessment year 1997-98 commencing from April 1, 1996, and ending November 6, 1996. In the return filed under section 158BC of the Act, the applicant has not disclosed before the Assessing Officer any undisclosed incomes. Even the additional incomes offered before the Commission for the ten assessment years 1987-88 to 1996-97 as concealed incomes have not been disclosed in the return filed in Form No. 2B. In his application under section 245C(1) covering the block period he has offered before us, as the additional undisclosed income , the entire additional income disclosed in the earlier application and some more income. For the purpose of this discussion we can assume that he has offered before the Commission higher concealed incomes than what he had disclosed in the earlier application which was admitted under section 245D(1) thus fulfilling the requirements of section 245C(1). However, pending a decision on the maintainability and admission of the second application, we cannot at this stage indicate the nature or quantum of additional income disclosed before us. Under these circumstances, the following three questions have been formulated for the consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if this special leave petition is admitted and allowed then the questions posed for consideration as (b) and (c) would not arise. Even in relation to question (a) the Departmental view is that the admitted application should be closed as infructuous in view of the fact that there will be an order under section 158BC of the Act by the Assessing Officer within the time-limit laid down under section 158BE and once the total income is computed on the basis of the seized materials the issues raised in the application would not survive for further consideration as the incomes offered before the Commission would stand taxed. The Commissioner has not however given any view on how the matter should be proceeded with in case the proposed special leave petition, on being filed, is dismissed by the Supreme Court either in limine or on the merits. In the instant case the search took place between the date of filing of the application under section 245C(1) and the date of admission thereof. But there are other cases where the settlement applications had been admitted before the date of action under section 132 but still because of the definition of the term block period in section 158B(a) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situations that could arise in the type of cases considered by the Commission. The first situation is that the assessee may be able to and may also choose to come forward with a fresh application covering the block period. The second possibility is that the applicant may not do so in respect of the proceedings for the block period. In this case, he has chosen to follow the first alternative and has also disclosed further additional incomes thus fulfilling the prescribed conditions for the maintainability of the application. Thus in this case the answer is simple ; admit this fresh application as well, process all the applications together ; determine the incomes taxable in Chapter XIV-B proceedings : deduct therefrom only the incomes already returned or assessed ignoring the additional incomes disclosed in the earlier applications and dispose of both the applications by a common order determining the taxes by applying the rate prescribed in section 113 of the Act, without any penalty or interest. He did not venture to answer the manner in which the case could be proceeded with, if an applicant did not choose the first alternative and thus was amenable to the jurisdiction of only t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to that extent ceases to be undisclosed income for the purpose of Chapter XIV-B. Since Chapter XIV-B deals with assessment of only undisclosed income, the proceedings for the taxation of the disclosed income will have to continue and, therefore, an order under section 245D(4) will have to be made in respect of the application made before the date of search and which was admitted by the Commission. This view derives support from sub-section (3) of section 158BB which casts on the assessee the burden of proving, to the satisfaction of the Assessing Officer, that any undisclosed income had already been disclosed by him before the commencement of the search. Even though this subsection refers only to the disclosure in any return of income, in the context of a case covered by Chapter XIX-A, this sub-section has to be read as including the income disclosed in the settlement application as even such disclosure is made for the purposes of this Act referred to in section 158B(b). He, therefore, submitted that perhaps in the case before us even the applicant s second settlement application filed with reference to the proceedings under section 158BC would require a closer scrutiny to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such an inconsistency, we may note that no clause of section 158BB(1) has provided for the possibility that an honest assessee, for example a salaried employee, might have failed to file returns for some assessment years in which he had no income other than the salaries, since the tax deduction at source in his case fully covered the taxes due. Technically he may be considered a defaulter but in essence he would not have earned any income on which he wanted to evade the payment of tax. Commonsense dictates that the salaries earned for those years on which the tax has been paid by deduction at source should not be regarded as undisclosed income . However, as the section stands at present, his salary on which the tax has been fully charged would still be liable to be treated as the undisclosed income under section 158BB if we confine our attention to section 158BB(1) alone. In this connection, it is also necessary to recall that sub-section (1A) of section 139 itself provided that a salaried employee need not file a return if his income did not exceed Rs. 24,000 and during the subsistence of this provision such a salaried employee would not be a defaulter even technically. Mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome which has not been or would not have been disclosed for the purposes of the Act. If a person has approached the Settlement Commission with the disclosure of his income not disclosed to the Assessing Officer before the date of search, could that person be described as a person who would not have disclosed such income for the purposes of this Act ? The fact that he has filed an application to the Commission knowing full well that he cannot withdraw the application and also knowing that if the application is admitted he would have to pay the additional tax on the additional income disclosed therein would per se show that he is a person who either has or, at any rate, would have disclosed that part of the income for the purposes of this Act. We cannot treat the income disclosed before the Settlement Commission in an application made before the date of search, and which has been admitted, as not one which has not been disclosed for the purposes of the Act within the meaning of section 158B(b). It is relevant to note in this context that no application which has already been admitted by the Commission can be withdrawn by the applicant. Even the Commission cannot permit such wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on would defeat the clear intention manifest in section 245C(3) and is, therefore, rejected. At the same time, we should caution that nothing should be done to truncate the operation of the specific provisions of Chapter XIV-B. A view has been expressed on behalf of the Southern India Regional Council of the Institute of Chartered Accountants that in view of the Supreme Court decision in CIT v. Paharpur Cooling Towers Pvt. Ltd. [1996] 219 ITR 618, the Settlement Commission should invoke the powers under section 245E, after taking into consideration the fresh material found during the search, to reopen concluded proceedings in respect of which no application has been made by the assessee. We feel that while the admitted proceedings should proceed in the same manner in which they would have proceeded had there been no subsequent search, the material found and seized during the course of search should be allowed to be fully used by the Assessing Officer for determining the concealed income of the assesse for the relevant block period and, if this is done, there may be no need for action under section 245E for any other year. This would lead to harmonious actions both under Chapter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputing the additional tax payable under section 245D(2A) and for satisfying the fulfilment of the proviso (b) to section 245C(1) in respect of the fresh application filed by the assessee, covering the proceedings under section 158BC, the additional income disclosed in the earlier application will not be treated as undisclosed income disclosed for the first time before the Commission. The undisclosed income for this purpose should be found only with reference to the additional income offered in the statement of facts accompanying the fresh application filed under section 245C(1) in respect of the case pertaining to the block period apart from the undisclosed income returned by the applicant in the return filed in response to the notice under section 158BC(a). In the light of the discussion in the preceding paragraph the questions posed for the consideration of the Special Bench are answered below seriatim. Questions Answers 1. Does the Settlement Commission have jurisdiction to entertain an application made under section 245C(1) in respect of a case covered by Chapter XIV-B in view of the non obstante clause contained in section 158BA(1) ? For the reasons given in parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 132 has taken place and a separate application has been filed covering the block assessment : (a) How will the presently pending proceeding under section 245D(1) be continued and disposed of under section 245D(4) ? For the reasons discussed in paragraphs 17.1 to 17.5 (pages 28-32) the pending proceedings under section 245D(1) in respect of the previous years comprised in the block period will be processed and disposed of by an order under section 245D(4) with reference to the disclosures contained in the application and the evidence submitted by the applicant and the Department. (b) Once we have assumed jurisdiction over the proceedings pertaining to certain assessment years and thereafter an action under section 132 is taken, since the block The Assessing Officer will have jurisdiction to complete the proceedings under Chapter XIV-B. On completion of the proceedings under section 245D(4) by the Commission, the period contemplated in Chapter XIV-B would also include the years covered by the proceedings pending before the Commission, how will the conflict of jurisdiction between the Assessing Officer and the Commission be resolved incomes determined by the Commission shall ..... X X X X Extracts X X X X X X X X Extracts X X X X
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