TMI Blog1996 (3) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... of cooling towers and their parts. For the assessment years 1970-71 to 1974-75 (five years), it had filed its returns. (The accounting year was the year ending 31st October). For the assessment year 1975-76, the assessee had filed its return. It was pending. While so, on October 27, 1976, and on the following dates, searches were conducted by the Director of Inspection and his officers in the premises of the assessee at Calcutta, Bombay and Delhi. The assessee's factories and the residential premises of the managing director, sales manager, directors and their associates were also searched simultaneously. A number of documents were seized. On June 24, 1977, the assessee approached the Settlement Commission (commission) with an application under section 245C of the Act. The application was made in the prescribed proforma. Against column No. 5 "assessment years in connection with which the application for settlement is made", the assessee stated, "assessment year 1975-76 and any other proceeding that may be decided by the Settlement Commission (now pending before the Income-tax Officer)". Against column No. 8, "particulars of the matters to be settled", the assessee stated, "asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made regarding the other item of disclosure, viz., certain capital expenditure claimed in the return as revenue expenditure, but which the assessee now conceded may be treated as a capital expenditure. The assessee also requested that all further proceedings with respect to the assessment year 1975-76 as well as those relating to the said earlier assessment years be stayed. The commission called upon the Commissioner to file his response to the aforesaid "statement of facts" filed by the assessee. In hit response/report dated January 3, 1978, the Commissioner stated, inter alia, "the applicant .. asked for settlement in respect of the assessment year 1975-76, but in the statement of facts now submitted, it is stated that the amount now offered for settlement will have effect on earlier five years' assessments ... all these assessments have long been completed and in none of these years, the undervaluation of stock, as now offered, was considered for assessment/reassessment . . . There is absolutely no material in the file in support of this contention of the applicant". The Commissioner further submitted that since the assessee's original application was for settlement in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent already detected by the Income-tax Officer and not relating to incomes considered in the settlement application". (emphasis added). Contentions urged by the parties : In these appeals, the main submission. of Sri J. Ramamurthy, learned counsel for the Revenue, is with respect to the jurisdiction of the commission to drop the penalty proceedings relating to the assessment years 1970-71 to 1974-75. Counsel submitted that the application for settlement pertained only to the assessment year 1975-76 and not to the said earlier assessment years. The assessee did disclose certain additional income for the assessment year 1975-76 requesting at the same time that the said additional income be spread over all the six assessment years 1970-71 to 1975-76. The assessee had so requested and had given its consent for reopening the said earlier assessment years for the limited purpose of spreading over/distributing the said additional income over the six years, which was a request made in his own self-interest. He did not want the entire additional income to be added to his income in the assessment year 1975-76 which would have enhanced his tax liability. The request to reopen the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n's power. Even though the penalty proceedings relating to the said earlier assessment years pertained to certain other alleged concealments by the assessee [other than the two items concerned in the settlement application] the commission had the power, in law, to direct the dropping of those penalty proceedings also, once it reopened the assessments relating to the said earlier assessment years. The majority opinion of the commission is, therefore, the correct one both on facts and in law. The scheme and the object underlying Chapter XIX-A supports the said interpretation. Learned counsel submitted further that the penalty proceedings are corelated to the amount of concealment. Once the amount concealed undergoes a change by virtue of additions made in the said earlier assessment years on account of spreading over [of the value of opening stock] in each of the relevant accounting years, the penalty proceedings become automatically unsustainable in law. They cannot proceed further. Fresh penalty proceedings have to be initiated on the basis of the revised figure of concealment and that can be done only by the commission and not by the Income-tax Officer. Relevant provisions of l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the application for settlement had been made by the applicant under that section covered such proceeding also : Provided that no proceeding shall be reopened by the Settlement Commission under this section after the expiry of a period of eight years from the end of the assessment year to which such proceeding relates." Sub-section (1) of section 245F provides that "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". Sub-section (2) provides that "where an application made 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 subsection (3) of that section, exclusive jurisdiction to exercise the powers and perform the functions of an income-tax authority under this Act in relation to the case". Section 245H empowers the commission to grant immunity from prosecution under the Indian Penal Code or any other Central Act to an applicant if it is satisfied that he has made a full disclosure of his income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing case--the commission takes over all the proceedings relating to that case which may be pending before any authority under the Act. But this power is confined to the case before the commission, which means the case relating to the assessment year for which the application for settlement is filed and admitted for settlement--to wit, assessment year 1975-76 in this case. Section 245E, which is the sheet anchor of the majority opinion, empowers the commission to reopen any completed proceedings connected with the case before it but this power is circumscribed by the requirement expressly stated in the section that such reopening of completed proceedings should be necessary or expedient for the proper disposal of the case pending before it. There are two other limitations upon this power, viz., that this reopening of the completed proceedings can be done, even for the aforesaid limited purpose, only with the concurrence of the assessee and secondly that this power cannot extend to a period beyond eight years from the end of the assessment year to which such proceeding relates. These two features make it abundantly clear that the section contemplates reopening of the completed procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with in respect of the assessment year 1975-76 vide Commissioner's report dated July 6, 1977. Thereafter, the assessee filed, what he called, "a brief statement of facts". In this statement, he requested that the enhanced value of the opening stock disclosed by him should not be added in the assessment of the assessment year 1975-76 alone but should be appropriately spread over all the six assessment years, viz., assessment years 1970-71 to 1975-76. This he requested because, doing so would have reduced his overall tax liability. It is for this purpose that he gave his consent/concurrence for reopening the assessments of the earlier assessment years. It was, therefore, not a situation contemplated by section 245E. This was not a case where the commission wanted to reopen the concluded assessments because it was found necessary or expedient to do so for the proper disposal of the case pending before it ; it was a case where the assessee was requesting for a benefit and for the purpose of obtaining that benefit, he was requesting the reopening of the earlier assessments. Even this request of the assessee was for a limited purpose, viz., for spreading over the enhanced value of openi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee wanted to be spread over all the six assessment years 1970-71 to 1975-76] wholly different and distinct from the concealments on account of which the said penalty proceedings were initiated. We are, therefore, of the opinion that the commission exceeded its jurisdiction in directing that the said penalty proceedings [relating to the assessment years 1970-71 to 1974-75] should be dropped or that penalties be waived in respect of the said assessment years. The interpretation placed by the chairman upon section 245E is the correct one and not the interpretation placed by the majority. We are also not impressed by the argument of Sri Poddar, learned counsel for the assessee, that inasmuch as the quantum of penalty depends upon the quantum of the income assessed and because the income assessed for the said earlier assessment years was bound to undergo a change on account of the "spreading over" aforesaid, the earlier penalty proceedings fall to the ground automatically and that, thereafter penalties, if any, can be levied only by the Settlement Commission. There is a clear fallacy in the said submission. The penalty proceedings related to certain other concealments, i.e., oth ..... X X X X Extracts X X X X X X X X Extracts X X X X
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