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Agson Global Pvt Ltd & Others Versus Income Tax Settlement Commission And Others

2016 (1) TMI 256 - DELHI HIGH COURT

Powers of income tax settlement commission - whether the income tax settlement commission has the power to direct a special audit under section 142 (2A) in exercise of its power vested in section 245F of the Income Tax Act, 1961? - Held that:- The exclusive jurisdiction of the settlement commission to exercise the powers and perform the functions of an income tax authority, in terms of section 245F(2) of the said Act, is to be exercised and performed for the purpose of settlement of the case und .....

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A), which is in aid of assessment, would also be beyond the scope of settlement proceedings. The other decisions referred to by the learned counsel for the revenue do not militate against the view we have taken.

In sum, we hold that the income tax settlement commission does not have the power to direct a special audit under section 142(2A) in the course of settlement proceedings under Chapter XIX-A of the said Act. Consequently, the impugned order dated 26.04.2013, to the extent it di .....

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Mr M. S. Syali, Sr Advocate with Ms Gayatri Verma, Ms Husnal Syali, Mr Mayank Nagi and Mr Harkunal Singh For the Respondents : Ms Suruchi Aggarwal, Adv. with Ms Lakshmi Gurung, Ms Radhika Gupta and Mr Abhishek Sharma JUDGMENT Badar Durrez Ahmed, J 1. The only issue which arises for consideration in this writ petition is whether the income tax settlement commission has the power to direct a special audit under section 142 (2A) in exercise of its power vested in section 245F of the Income Tax Act, .....

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the application made by petitioner nos. 1 to 7 for settlement before it. Similarly, on 28.12.2011, the principal bench of the income tax settlement commission passed an order under section 245D (1) of the said act admitting the applications made by petitioner nos. 8 to 10 for settlement before it. On 21.06.2012, the Commissioner of income tax, Delhi furnished his consolidated report as required by the income tax settlement commission. The petitioners submitted their reply to the said consolidate .....

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f the opinion that the accounts were very complex in nature and that the same ought to be audited under section 142 (2A) of the said act for determining the correct income of the petitioner group. The Commissioner indicated that he was also of the opinion that owing to the complexity in the maintenance of accounts, to arrive at the correct income of the assessee group for all the assessment years for which settlement applications have been filed and admitted by the settlement commission, the acc .....

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ccounts should not be subjected to the said special audit. Arguments were heard on this aspect by the settlement commission on 25.04.2013. It was inter alia argued on behalf of the petitioners that a special audit under section 142 (2A) of the said act could only be directed at the stage of assessment and cannot be conducted in the course of settlement proceedings. This argument was rejected by the settlement commission in the following manner: - (V) The powers of the settlement commission u/s 2 .....

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as of the view that the accounts were complex and that it was in the interest of the revenue that the special audit be ordered. Consequently, by virtue of the impugned order dated 26.04.2013, the settlement commission directed that the special audit be carried out. Being aggrieved by this, the petitioners have filed the present petition seeking the quashing of the impugned order dated 26.04.2013. 6. On behalf of the petitioners it was argued that there is a clear distinction between a settlement .....

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cerned with settlement of cases would not have the jurisdiction to direct a special audit. It was also contended that merely because section 245F confers powers on the settlement commission which are vested in an income tax authority, does not mean that all the powers of an income tax authority under the said act vest in the income tax settlement commission. It was submitted that the powers conferred under section 245F ought to be construed keeping in mind the distinction between an assessment a .....

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iswal Pvt. Ltd: (2010) 172 DLT 593 (DB). 7. The learned counsel for the revenue supported the view taken by the income tax settlement commission. It was contended that the settlement commission by virtue of the provisions of section 245F of the said act acquires exclusive jurisdiction in respect of a case when an application under section 245C is made before it and such jurisdiction comes to an end if an order under section 245D(1) is made whereby the settlement application is not proceeded with .....

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ing authority under section 139 of the said act. It was submitted that the settlement commission has to determine the income as is done by the assessing officer under section 143(3) of the said act. Thus, according to the learned counsel for the revenue, just as the assessing officer has a right to make any enquiry for proper assessment and can direct a special audit having regard to the nature and complexity of the accounts and keeping in mind the interest of the revenue, the settlement commiss .....

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} as it stood on the date of the impugned order: 142. Enquiry before assessment.-(1) For the purpose of making an assessment under this Act, the Assessing Officer may serve on any person who has made a return under Section 115-WD or Section 139 or in whose case the time allowed under sub-section (1) of Section 139 for furnishing the return has expired a notice requiring him, on a date to be therein specified,- (i) where such person has not made a return within the time allowed under sub-section .....

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y of April, 1990 to a person who has not made a return within the time allowed under sub-section (1) of Section 139 or before the end of the relevant assessment year, any such notice issued to him shall be deemed to have been served in accordance with the provisions of this sub-section. (ii) to produce, or cause to be produced, such accounts or documents as the Assessing Officer may require, or (iii) to furnish in writing and verified in the prescribed manner information in such form and on such .....

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vious year. (2) For the purpose of obtaining full information in respect of the income or loss of any person, the Assessing Officer may make such enquiry as he considers necessary. (2-A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts of the assessee and the interests of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner or Commissioner, direct .....

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counts so audited unless the assessee has been given a reasonable opportunity of being heard. xxxx xxxx xxxx xxxx xxxx (underlining added) B. Provisions of Chapter XIX-A {Settlement of Cases}: 245-A. Definitions.-In this Chapter, unless the context otherwise requires,- xxxxx xxxxx xxxxx xxxxx xxxxx (b) case means any proceeding for assessment under this Act, of any person in respect of any assessment year or assessment years which may be pending before an Assessing Officer on the date on which a .....

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nt or reassessment or recomputation referred to in clause (i) of the proviso shall be deemed to have commenced from the date on which a notice under Section 148 is issued; (ii) [* * *]; (iii) a proceeding for making fresh assessment referred to in clause (iv) of the proviso shall be deemed to have commenced from the date on which the order under Section 254 or Section 263 or Section 264, setting aside or cancelling an assessment was passed; (iii-a) a proceeding for assessment or reassessment for .....

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of the Explanation], shall be deemed to have commenced from the 1st day of the assessment year and concluded on the date on which the assessment is made; xxxx xxxx xxxx xxxx 245-C. Application for settlement of cases.-(1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income .....

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tion (1) of Section 153-B in case of a person referred to in Section 153-A or Section 153-C have been initiated, the additional amount of Income Tax payable on the income disclosed in the application exceeds fifty lakh rupees, (i-a) in a case where- (A) the applicant is related to the person referred to in clause (i) who has filed an application (hereafter in this sub-section referred to as specified person ); and (B) the proceedings for assessment or re-assessment for any of the assessment year .....

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thereon, which would have been paid under the provisions of this Act had the income disclosed in the application been declared in the return of income before the Assessing Officer on the date of application, has been paid on or before the date of making the application and the proof of such payment is attached with the application. Explanation.-For the purposes of clause (i-a),- (a) the applicant, in relation to the specified person referred to in clause (i-a), means,- (i) where the specified p .....

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ndu undivided family having a substantial interest in the business or profession of the specified person or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member; (v) a company, firm, association of persons or Hindu undivided family of which a director, partner or member, as the case may be, has a substantial interest in the business or profession of the specified person; or any director, partner or member of such compan .....

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r family, or any relative of such director, partner or member, has a substantial interest in the business or profession of that person; (b) a person shall be deemed to have a substantial interest in a business or profession, if- (A) in a case where the business or profession is carried on by a company, such person is, on the date of search, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend, whether with or without a right to participate in profits) carrying no .....

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B) to (1-D). (1-B) Where the income disclosed in the application relates to only one previous year,- (i) if the applicant has not furnished a return in respect of the total income of that year, then, tax shall be calculated on the income disclosed in the application as if such income were the total income; (ii) if the applicant has furnished a return in respect of the total income of that year, tax shall be calculated on the aggregate of the total income returned and the income disclosed in the .....

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e total income returned for that year; (c) [* * *] (1-D) 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 (1-B) and (1-C) and the aggregate of the amount so arrived at in respect of each of the years for which the application has been made under sub-section (1) shall be the additional .....

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on to the said Commission. 245-D. Procedure on receipt of an application under Section 245-C.- (1) On receipt of an application under Section 245-C, the Settlement Commission shall, within seven days from the date of receipt of the application, issue a notice to the applicant requiring him to explain as to why the application made by him be allowed to be proceeded with, and on hearing the applicant, the Settlement Commission shall, within a period of fourteen days from the date of the applicatio .....

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ns of sub-section (1) of this section, as they stood immediately before their amendment by the Finance Act, 2007, has not been made before the 1st day of June, 2007, such application shall be deemed to have been allowed to be proceeded with if the additional tax on the income disclosed in such application and the interest thereon is paid on or before the 31st day of July, 2007. Explanation.-In respect of the application referred to in this sub-section, the 31st day of July, 2007 shall be deemed .....

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t, 2007, call for a report from the Commissioner, and the Commissioner shall furnish the report within a period of thirty days of the receipt of communication from the Settlement Commission. (2-C) Where a report of the Commissioner called for under sub-section (2-B) has been furnished within the period specified therein, the Settlement Commission may, on the basis of the report and within a period of fifteen days of the receipt of the report, by an order in writing, declare the application in qu .....

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45-C before the 1st day of June, 2007 and an order under the provisions of sub-section (1) of this section, as they stood immediately before their amendment by the Finance Act, 2007, allowing the application to have been proceeded with, has been passed before the 1st day of June, 2007, but an order under the provisions of sub-section (4), as they stood immediately before their amendment by the Finance Act, 2007, was not passed before the 1st day of June, 2007, such application shall not be allow .....

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r that sub-section, may call for the records from the Commissioner and after examination of such records, if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the Commissioner to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case, and the Commissioner shall furnish the report within a period of ninety da .....

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nce Act, 2007, and after giving an opportunity to the applicant and to the Commissioner to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but ref .....

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he 1st day of June, 2010, within eighteen months from the end of the month in which the application was made. (5) Subject to the provisions of Section 245-BA, the materials brought on record before the Settlement Commission shall be considered by the Members of the Bench concerned before passing any order under sub-section (4) and, in relation to the passing of such order, the provisions of Section 245-BD shall apply. (6) Every order passed under sub-section (4) shall provide for the terms of se .....

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receipt of a copy of the order by him, then whether or not the Settlement Commission has extended the time for payment of such tax or has allowed payment thereof by instalments, the assessee shall be liable to pay simple interest at 5[one and one-fourth per cent for every month or part of a month] on the amount remaining unpaid from the date of expiry of the period of thirty-five days aforesaid. (6-B) The Settlement Commission may, at any time within a period of six months from the date of the .....

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under sub-section (6), the proceedings with respect to the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission and the income tax authority concerned, may, notwithstanding anything contained in any other provision of this Act, complete such proceedings at any time before the expiry of two years from the end of the financial year in which the settlement became void. (8) For the .....

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ttlement Commission.-(1) In addition to the powers conferred on the Settlement Commission under this Chapter, it shall have all the powers which are vested in an income tax authority under this Act. (2) Where an application made under Section 245-C has been allowed to be proceeded with under Section 245-D, the Settlement Commission shall, until an order is passed under sub-section (4) of Section 245-D, have, subject to the provisions of sub-section (3) of that section, exclusive jurisdiction to .....

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n is not allowed to be proceeded with under sub-section (2-A) of Section 245-D, or, as the case may be, is declared invalid under sub-section (2-C) of that section; or (iii) an application is not allowed to be further proceeded with under sub-section (2-D) of Section 245-D, the Settlement Commission, in respect of such application shall have such exclusive jurisdiction up to the date on which the application is rejected, or, not allowed to be proceeded with, or, declared invalid, or, not allowed .....

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any express direction by the Settlement Commission to the contrary, nothing in this Chapter shall affect the operation of the provisions of this Act in so far as they relate to any matters other than those before the Settlement Commission. (5) [Omitted] (6) [Omitted] (7) The Settlement Commission shall, subject to the provisions of this Chapter, have power to regulate its own procedure and the procedure of Benches thereof in all matters arising out of the exercise of its powers or of the dischar .....

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he nature and complexity of the accounts of the assessee and the interest of the revenue, is of the opinion that it is necessary so to do, he may, with the previous approval of the Chief Commissioner of Commissioner, direct the assessee to get the accounts audited by an accountant as prescribed under the said act and to furnish a report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed and such other particula .....

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aken thereunder are part and parcel of the assessment proceedings with the object and purpose of enabling the assessment to be made under the said act by the assessing officer. 10. We shall now examine the provisions pertaining to settlement of cases. These provisions have been examined in detail in Commissioner of Income Tax v. Income Tax Settlement Commission & Ors.: MANU/DE/1816/2013 [=[2014]360ITR407(Delhi)] and it would be apposite to reproduce the same: - 6. We shall now briefly examin .....

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ayable on such income; and (iv) such other particulars as may be prescribed. Furthermore the assessee is also required to pay the additional amount of tax and interest thereon, on or before the date of making the application and the proof of such payment should be attached with the application. Section 245C(1) stipulates that when such an application is received by the Settlement Commission for having the case settled, the same is to be disposed of in the manner as indicated in the said Act. 7. .....

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nt, the Settlement Commission is required to, within a period of 14 days from the date of the application, by an order in writing, reject the application or allow the application to be proceeded with. The proviso to Section 245D(1) stipulates that where no order is passed within the above mentioned period by the Settlement Commission, either allowing the application or rejecting the application, the application shall be deemed to have been allowed to be proceeded with. 8. Sub-section (2B) of Sec .....

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riod of 15 days of receipt of the report, by an order in writing, declare the application in question as invalid and in such eventuality, the Settlement Commission is enjoined to send a copy of such order to the applicant and the Commissioner. The first proviso to Section 245D (2C) ensures that an application shall not be declared invalid by the Settlement Commission unless an opportunity has been given to the applicant of being heard. The second proviso thereto stipulates that where the Commiss .....

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y or investigation in the matter is necessary, it may direct the Commissioner to make or cause to be made such further enquiry or investigation and to furnish a report on the matters covered by the application and any other matter relating to the case. The Commissioner is required to furnish the report within a period of 90 days of receipt of the communication from the Settlement Commission. It is further provided that where the Commissioner does not furnish a report within the said period of 90 .....

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ters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner. 11. Section 245D(6) is also of some importance. It provides that every order passed under sub-section (4) of Section 245D is to provide for the terms of settlement including any demand by way of tax, penalty or interest, the manner in which any sum due under the settlement is to be paid and all other matters to make the settlement effective. .....

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application was allowed to be proceeded with by the Settlement Commission and the income tax authority concerned, may, notwithstanding anything contained in any other provision of the said Act, complete such proceedings at any time before the expiry of two years from the end of the financial year in which the settlement became void. 12. From the above provisions, it is apparent that the settlement application passes through several stages before the final order providing for the terms of settle .....

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in addition to the powers conferred on the Settlement Commission under the said Act, it would also have all the powers which are vested in an income tax authority under the said Act. Sub-section (2) of Section 245F further stipulates that where an application under Section 245C has been allowed to be proceeded with under Section 245D, the Settlement Commission shall, until an order is passed under sub-section (4) of Section 245D, have, subject to the provisions of sub-section (3) of that section .....

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also be appropriate for us to refer to the second proviso to Section 245F(2) of the said Act which, inter alia, makes it clear that where an application which has been made on or after the first day of June, 2007 is rejected under Section 245D(1) or is declared invalid under Section 245D(2C), the Settlement Commission, inspite of such an application, would have exclusive jurisdiction upto the date on which the application is rejected or declared invalid as the case may be. ……&hell .....

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true" disclosure of the particulars of undisclosed income and "the manner" in which such income was derived and, therefore, unless the Settlement Commission records its satisfaction on this aspect, it will not have the jurisdiction to pass any order on the matter covered by the application. 11. Section 245F of the said act calls for closer scrutiny as that is the provision which has been invoked by the settlement commission as also the learned counsel for the revenue for supportin .....

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cised by the settlement commission. What we mean to say is that the settlement commission does not engage itself in the process of assessment and cannot make an assessment order. The order that the settlement commission makes under section 245D(4) is not in the nature of an assessment but by way of a settlement and contains the terms of settlement. Thus, we reiterate that the powers which are vested in an income tax authority and could be exercised by the settlement commission are such which hav .....

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ns of sub-section (3) of section 245D, exclusive jurisdiction to exercise the powers and perform the functions of an income tax authority under the said act in relation to the case from the date on which the application was made. In our view, the exclusivity of jurisdiction which is contemplated by the said provision is that once an application for settlement is made before the settlement commission, no income tax authority would have jurisdiction to deal with the case. It does not mean that the .....

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d perform the functions of an income tax authority under the said act in relation to the case. Does it mean that the settlement commission could continue with the assessment proceedings which were before the assessing officer and pass an assessment order under section 143(3) by way of regular assessment as an assessing officer would have done? We do not think so. The settlement commission does not carry out the function of assessment and does not make an assessment order. It settles the case in .....

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t have a nexus with the settlement proceedings before it. 13. We also note that the exclusive jurisdiction of the settlement commission in terms of sub-section (2) of section 245F of the said act is subject to the provisions of section 245D(3) of the said act. That provision entails that the settlement commission, in respect of, inter alia, an application which has not been declared invalid under section 245D(2C), may call for the records from the Commissioner and after examination of such recor .....

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e or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case. 14. It is, therefore, clear that the powers and functions of an income tax authority which are to be exclusively exercised by the settlement commission (subject to the provisions of section 245D (3)) must be in the context of and have a nexus with the settlement proceedings. That being the case, since the requirement of a special au .....

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s hitherto undisclosed income and the manner in which it was derived. The method of computation of the tax liability of the applicant is set out in section 245C and in particular in sub-sections (1A) to (1D) thereof. If the settlement commission is of the view that an assessee has not made a full and true declaration of the undisclosed income then the application is liable to be rejected. In other words, if the accounts put forth by the assessee before the settlement commission are found by the .....

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the decisions cited at the bar. In CIT v. Om Prakash Mittal: (2005) 2 SCC 751 the Supreme Court observed as under: 13. Section 245-F dealing with powers and procedure of the Settlement Commission provides that in addition to the powers conferred on the Settlement Commission under Chapter XIX-A, it has all the powers which are vested in the Income Tax Authority under the Act. Sub-section (2) is of vital importance and provides that where an application made under Section 245-C has been allowed t .....

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te on which the application is made. and continues to have the jurisdiction till it makes an order under Section 245-D. Section 245-D(4) is the charging section and sub-section (6) prescribes the modalities to be adopted to give effect to the order. It has to be noted that the language used in Section 245-D is order and not assessment . The order is not described as the original assessment or regular assessment or reassessment. In that sense, the Commission exercises a plenary jurisdiction. (emp .....

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n addition to the powers conferred on the Settlement Commission under Chapter XIX-A, it shall also have all the powers which are vested in the Income Tax Authority under the Act. In this connection, however, we need to keep in mind the difference between procedure for assessment under Chapter XIV and procedure for settlement under Chapter XIX-A (see Section 245-D). Under Section 245-F(4), it is clarified that nothing in Chapter XIX-A shall affect the operation of any other provision of the Act r .....

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r Sections 139 to 158, the process of assessment involves the filing of the return under Section 139 or under Section 142; inquiry by the AO under Sections 142 and 143 and making of the order of assessment by the AO under Section 143(3) or under Section 144 and issuing of notice of demand under Section 156 on the basis of the assessment order. The making of the order of assessment is an integral part of the process of assessment. No such steps are required to be followed in the case of proceedin .....

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ar assessment or assessment under Section 143(1) or under Section 143(3) or under Section 144 of the Act. In that sense, it is a code by itself. It does not begin with the filing of the return but by filing the application for settlement. As stated above, under the Act, the procedure for assessment falls in Chapter XIV (in which Section 154 falls) which is different from the procedure for settlement in Chapter XIX-A in which Sections 245-C and 245-D fall. Provision for levy of interest for defau .....

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d) 17. The Supreme Court, in Brij lal (supra), made a clear distinction between assessment in law (regular assessment under Chapter XIV) and assessment by way of settlement. It clearly held that there is a difference between procedure for assessment under Chapter XIV and procedure for settlement under Chapter XIX-A. In fact, it reiterated that under the said Act, there is a clear difference between assessment in law [regular assessment or assessment under Section 143(1)] and assessment by settle .....

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e case of proceedings under Chapter XIX-A there is no provision for an assessment order and the said chapter only contemplates the taxability determined with respect to undisclosed income by the process of settlement/arbitration. Elaborating on this aspect, the Supreme Court held that the Chapter XIX-A provisions contemplate assessment by settlement and not by way of regular assessment or assessment under Section 143(1) or under Section 143(3) or under Section 144 of the Act and that the said Ch .....

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l income tax payable on such income with interest thereon; the filing of settlement application indicating the amount of income returned in the return of income and the additional income tax payable on the undisclosed income to be aggregated as total income shows that Chapter XIX-A indicates aggregation of incomes so as to constitute total income which indicates that the special procedure under Chapter XIX-A has an in-built mechanism of computing total income which is nothing but assessment (com .....

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ament uses the words as if such aggregate would constitute total income , it presupposes that under the special procedure the aggregation of the returned income plus income disclosed would result in computation of total income which is the basis for the levy of tax on the undisclosed income which is nothing but assessment . Similarly, Section 245-C(1-C) provides for deductions from the total income computed in terms of Section 245-C(1-B). 27. Thus, the special procedure under Sections 245-C and .....

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4-B(4).] (emphasis supplied) 19. On the strength of the observations quoted above it was contended by the learned counsel for the revenue that the proceedings under Chapter XIX-A also entail assessment. The corollary to this being that the direction for the conducting of a special audit was legitimate. We cannot agree with this contention of the learned counsel for the revenue. Wherever the Supreme Court spoke of assessment in the context of settlement proceedings under Chapter XIX-A, it qualifi .....

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hapter XIX-A is a code by itself. 20. In view of the above analysis, we need not examine the decisions in Picasso Overseas (supra), Ashwani Tobacco (supra), Dharampal (supra) and Murarilal Harishchandra Jaiswal (supra), which, though they support the contentions on behalf of the petitioners, have been rendered either under the Central Excise Act, 1944 or the Customs Act, 1962. We may, however, notice the decision of a division bench of the Madras High Court in Canara Jewellers v. Settlement Comm .....

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