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INCOME TAX SETTLEMENT COMMISSION IS HAVING NO POWER TO DIRECT SPECIAL AUDIT

Income Tax - Direct Tax Code - DTC - By: - Mr. M. GOVINDARAJAN - Dated:- 7-7-2016 - Settlement of disputes Settlement of disputes relating to Income Tax is based on the objective of dispute resolution alternate. It is in the nature of mediation or arbitration. The Settlement orders passed by the Income Tax Settlement Commission are final and conclusive in nature. The application for settlement can be made only during the pendency of the assessment proceedings, whereas an appeal can be filed only .....

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Tax Authority. There is no statutory time limit for disposal of an appeal. The Settlement Commission provides quick and easy settlement of tax disputes of high revenue stake. This will save time and energy of both the litigant and the Department adding to the proverb time saved is money saved . Powers of Settlement Commission Section 245F of the Income Tax Act,1961 deals with the powers and procedures of the Settlement Commission. Section 245F(1) provides that in addition to the powers conferre .....

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the powers and perform the functions of an income tax authority under the Act. In Canara Jewellers V. Settlement Commission - 2009 (7) TMI 93 - MADRAS HIGH COURT the High Court held that so far as Section 245F is concerned, though the Settlement Commission is empowered to have all powers which are vested in an income tax authority under the Act, in addition to the power conferred under Chapter XIX-A, but such power can be exercised for the purpose of procedure of settlement of application under .....

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t. This has been discussed in the following case law: In Agson Global Private Limited and others V. Income Tax Settlement Commission and others - 2016 (1) TMI 256 - DELHI HIGH COURT the petitioners No. 1 to 7 filed a settlement application before the Income Tax Settlement Commission ( Commission for short) on 22.12.2011 and the petitioners No. 8 to 10 filed their application before the Commission on 22.12.2011. Both the applications were admitted by the Commission. On June 21, 2012 the Commissio .....

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Assistant Commissioner and himself were of the opinion that the accounts were complex in nature and therefore they had to be got audited under Section 142 (2A) of the Act for determining the correct income of the petitioner groups. The Commissioner of Income Tax requested the Commission to direct a special audit of the accounts of the petitioner groups. The Commission, after considering the material record, including the supplementary report, set a letter to the petitioners providing them an opp .....

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e tax authority. This power includes the powers to direct audit under Section 142(2A) of the Act. On 26.04.2013 the Commission directed that the special audit be carried out. Aggrieved against the order of the Commission the petitioners filed the present petitions challenging the order of the Commission. The petitioners put forth the following contentions before the High Court: The requirement of special audit is spelt out in Section 142(2A) of the Act which falls within the ambit of inquiry bef .....

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erred under Section 245F ought to be construed keeping in mind the distinction between an assessment and a settlement. The petitioners relied on the following decisions: 1. Commissioner of Income Tax V. Om Prakash Mittal - 2005 (2) TMI 16 - SUPREME Court; 2. Brij Lal V Commissioner of Income Tax - 2010 (10) TMI 8 - SUPREME COURT The Department put forth the following contentions before the High Court: The Settlement Commission by virtue of the provisions of Section 245F of the Income Tax Act acq .....

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as to determine the income as is done by the Assessing Officer under Section 143 (3) of the Act; 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 interests of the Revenue, the Settlement Commission, which also has to determine the total income and thereby make an assessment, can, when it has exclusive jurisdiction over the case certainly direct that .....

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ture 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 Chief Commissioner or Commissioner direct the assessee to get the accounts audited by an accountant prescribed under the 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 particulars as the Assessi .....

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and parcel of the assessment proceedings with the object and purpose of enabling the assessment made to be made under the Act by the Assessing Officer. The High Court then analyzed the provisions relating to Settlement Commission. It is apparent that the settlement application passes through several stages before the final order providing for the terms of settlement is passed by the Settlement Commission. The first stage is under Section 245D(1). This is followed by the next step under Section 2 .....

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ission shall, until an order is passed, have subject to the provisions of Section 245D(3), exclusive jurisdiction to exercise the powers and perform the functions of an income tax authority under the Act in relation to the case. The High Court held that the additional power entrusted with the Settlement Commission has to be read in the context of and the scope of settlement proceedings. It does not entail that the power of regular assessment which are vested in an income tax authority can be exe .....

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settlement proceedings which does not include the making of an assessment under the Act. The High Court is of the view that the exclusivity of jurisdiction which is contemplated in Section 245F 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 Settlement Commission from that date steps into the shoes of income tax authority. The High Court held that in terms of prov .....

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efore it. Since the requirement of a special audit falls under the procedure for assessment which is distinct and different from settlement proceedings, the Settlement Commission would not, in the view of the High Court, have jurisdiction to direct a special audit as it does not have any nexus with the settlement proceedings. All that the Settlement Commission is required to do in the court of the settlement proceedings is to ensure that the assessee who has made the application for settlement o .....

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e purposes of making assessment. The High Court examined the decisions of Supreme Court in the case laws relied on by the petitioners. In Commissioner of Income Tax V. Om Prakash Mittal - 2005 (2) TMI 16 - SUPREME Court (supra) the Supreme Court held that the Settlement Commission assumes jurisdiction to deal with the matter after it decided to proceed with the application and continues to have the jurisdiction till it makes an order under Section 245D. Section 245D(4) is the charging section an .....

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egular assessment or assessment under Section 143 (1) and assessment by settlement under Chapter XIX-A of the Act. The order under Section 245D (4) is not an order of regular assessment. It is neither an order under Section 143 (1) or Section 143 (3) or Section 144. Under Section 139 to 158, the process of assessment involves the filing of return under Section 139 or under Section 143; inquiry by the Assessing officer under Sections 142 and 143 and Section 143 (3) or under Section 144 and issuin .....

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