TMI Blog1994 (1) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... ommission under Chapter XIX-A of the Income-tax Act, 1961. We have heard Dr. Gauri Shankar for the appellant and Miss Bina Gupta for the respondent. We may mention here that when called upon to argue, after the conclusion of submissions by Dr. Gauri Shankar, Miss Bina Gupta asked us to adjourn the matter to enable her to engage a senior counsel. We refused to do so since it was the first case in the list that day and the request was made after the commencement of the arguments. We then heard her fully. Relevant facts of the case : The respondent-assessee filed its return for the assessment year 1985-86 on July 22, 1985. A revised return was filed on February 26, 1988. It disclosed a loss of Rs. 32,80.700. The Assessing Officer, however, assessed the income at Rs. 1,27,95,570 by his order dated March 30, 1988. The Assessing Officer held that the transactions of sale and purchase of potatoes, iron scrap and shares, from which the assessee claimed to have suffered huge losses were not true but were bogus transactions fabricated for the purpose of evading the legitimate tax due on its income. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals), who di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eportedly had a merchandise division stated to be run from Calcutta". The activities of this division were reported to be in the purchase and sale of potatoes, metal scrap and shares. The assessments for the various years are pending with the Assessing Officer. Some of the past completed assessments have been reopened under section 147 of the Act. The details of the income/loss disclosed by the assessee for the four assessment years are stated in the annexure to the report. "Enquiries regarding the claims made by the company for losses on transactions in these years had commenced before the date of filing of the application by the company with the Settlement Commission and these enquiries had reached a final stage even before the petition was filed by the assessee." The Commissioner then set out the comprehensive and elaborate enquiries made by the Department into the claims made by the assessee company relating to its alleged dealings in potatoes, scrap and shares from which it claimed to have suffered substantial losses. He referred to the statements of parties, through whom the said transactions were said to have been put through, denying any such transactions. He pointed out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to be proceeded with under Chapter XIX-A. The two members of the Commission, Sri C. S. Jain and Sri D. C. Shukla, wrote two separate concurring orders. The main opinion is by Sri Jain. His reasoning, as condensed by us, runs thus: "At this stage, the burden lies upon the Commissioner to point out the material and the results of enquiries and investigation to show that concealment has been established or that enquiries have reached the stage where it can be said that concealment of income is likely to be established. The material referred to in the report of the Commission, as on the date of filing of the application, does not establish with certainty that the concealment has been established or is likely to be established. Many of the enquiries referred to in the report were made after the filing of the application under section 245C ; they cannot be taken into consideration for the purpose of taking a decision under section 245D. The enquiries made do not establish a complete chain of concealment or fraud on the part of the assessee. (He concluded)-"We, therefore, hold that it is a case where it cannot be said beyond dispute that concealment of income has been established o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that where any appeal or application for revision has been preferred after the expiry of the period specified for the filing of such appeal or application for revision under this Act and which has not been admitted, such appeal or revision shall not be deemed to be proceeding pending within the meaning of this clause ;' "Case" for the purpose of this Chapter thus means a proceeding relating to one or more assessment years. It takes in a proceeding for assessment or reassessment. Similarly, it may be a proceeding pending at the stage of assessment or in appeal or revision. Section 245B provides for constitution of the Income-tax Settlement Commission. Sub-section (3) provides specifically that the Chairman, Vice Chairman and other members of the Settlement Commission shall be appointed by the Central Government "from amongst persons of integrity and outstanding ability, having special knowledge of, and experience in, problems relating to direct taxes and business accounts". Section 245C provides for filing of an application by an assessee for settlement of his case. Sub-section (1) says that an assessee may "at any stage of a case relating to him" make an application in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer or before the appellate or revisional authority, is no bar to the filing of an application under section 245C so long as the application complies with the requirements of section 245C. Section 245D prescribes the procedure to be followed by the Commission on receipt of an application under section 245C. Sub-section (1) is relevant for our purpose. As originally enacted, the sub-section read as follows : "(1) On receipt of an application under section 245C, the Settlement Commission shall call for a report from the Commissioner and on the basis of the materials contained in such report and having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, the Settlement Commission may, by order, allow the application to be proceeded with or reject the application : Provided that an application shall not be rejected under this sub-section unless an opportunity has been given to the applicant of being heard: Provided further that an application shall not be proceeded with under this sub-section if the Commissioner objects to the application being proceeded with on the ground that concealment of particulars of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation. The decision whether to "allow the application to be proceeded with or reject the application" had to be taken (a) on the basis of the material contained in the Commissioner's report, and (b) having regard to the nature and circumstances of the case or the complexity of the investigation involved therein. The first proviso said that no such application shall be rejected unless an opportunity of hearing is afforded to the applicant. The second proviso to sub-section (1), however, provided that the Commission shall not proceed with the application filed under section 245C, if the Commissioner objected to the application being proceeded with on the ground that "concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act, has been established or is likely to be established by any income-tax authority, in relation to the case". If the Commissioner objected on the ground aforesaid, the Commission could not proceed with the application under section 245C. (It is not necessary to decide, for the purpose of this case, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set of words that present some difficulty are the words "has been established or is likely to be established by any income-tax authority in relation to the case" occurring in sub-section (1A) (as well as in the second proviso to sub-section (1) as originally enacted). For a proper appreciation of the meaning of these words, it is necessary to remind ourselves that an application under section 245C can be made only in respect of an income not disclosed by the assessee before the Assessing Officer. If so, what did Parliament mean when it said that the Commission shall not allow the application to be proceeded with if the Commissioner objects, on the ground that "concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable or imposable under the Indian Income-tax Act, 1922, or under this Act, has been established or likely to be established by any income-tax authority, in relation to the case ?" To appreciate the meaning of the said words, it is necessary to keep in mind the following facts : even though the assessee has not disclosed a particular income before the Assessing Officer, the latter is free t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, it cannot be said that he is acting voluntarily or in good faith. He should not be allowed to take advantage of the comparatively easy course of settlement. He must be allowed to face the normal channels of assessment/appeal, etc. Section 245C is meant for those assessees who seek to disclose income not disclosed before the officer including "the manner in which such income has been derived". If the Department already knows and has gathered particulars of such income and the manner in which it has been derived, there is no "disclosure" by the assessee. Let it be remembered that the words in question (in section 245C(1A) are not words of limitation nor are they meant to help unscrupulous assessees. Chapter XIX-A is a part of the Income-tax Act and must be construed consistent with the overall scheme and object. The chapter is meant for those assessees who want to disclose income not disclosed till then together with the manner in which the said income is derived. It is not meant for those who come after the event, i.e., after the discovery of the particulars of income and its source, or discovery of particulars of fraud perpetrated by the assessee, as the case may be-nor even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sought to set off against its other income. If the respondent's case was true, it would not have been liable to pay any tax for the reason that the entire income from property (and other income, if any) would have been swamped by the said losses. Indeed, the loss had to be carried forward to the next year. The case of the Revenue, however, was that all the alleged transactions (from which loss is said to have resulted) were bogus and fictitious ones, fabricated only for the purposes of evading the tax lawfully due on its income. In his application to the Commission, the respondent did not disclose any income not disclosed by him before the Assessing Officer nor did he disclose in his application the manner in which such income was derived. The assessee merely offered a part of the amount (claimed by him as losses) towards taxable income. Thus, his application, not being in compliance with the first and foremost requirement of section 245C(1), was not maintainable thereunder. It ought to have been rejected in limine. The Commission had no jurisdiction to entertain the said application. Secondly, this is a case where the income-tax authorities had made extensive investigation and ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
