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TMI Blog2019 (6) TMI 999X X X X Extracts X X X X X X X X Extracts X X X X ..... application under section 245C of the Act before the Settlement Commission. The application of the petitioner was admitted and the Settlement Commission passed an order dated 12.01.2015 under section 245D(4) of the Act. 3. Thereafter, the respondent issued the impugned notice under section 148 of the Act seeking to reopen the assessment for assessment year 2011-12. Upon receipt of the notice, the petitioner requested the respondent to supply the reasons for reopening, pursuant to which, such reasons came to be furnished on 28.05.2018. By a letter dated 03.07.2018, the petitioner raised various objections on merits and requested the respondent to drop the reassessment proceedings. By an order dated 20.07.2018, the respondent disposed of the objections by rejecting the objections raised by the petitioner. Being aggrieved, the petitioner has filed the present petition. 4. Mr. B.S. Soparkar, learned advocate for the petitioner, submitted that the reasons recorded suffer from various infirmities. It was submitted that reasonable belief, as contemplated under section 147 of the Act, must be that of an honest and reasonable person based upon a reasonable ground and it should not be ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (268) ITR 332, for the proposition that reasons recorded by the Assessing Officer cannot be supplemented by filing an affidavit or by making oral submissions, otherwise, the reasons, which were lacking in material particulars, would get supplemented by the time the matter reaches to the Court on the strength of affidavit or oral submissions advanced. 4.4 Reliance was also placed upon another decision of Bombay High Court in Prashant S. Joshi; Dattaram Shridhar Bhosale v. Income Tax Officer; Union of India, 2010 (324) ITR 154, wherein the court held that the reasons which are recorded by the Assessing Officer for reopening an assessment are the only reasons which can be considered when the formation of the belief is impugned. The recording of reasons distinguishes an objective from a subjective exercise of power. The requirement of recording reasons is a check against arbitrary exercise of power. For, it is on the basis of the reasons recorded and on those reasons alone that the validity of the order reopening the assessment is to be decided. The reasons recorded while reopening the assessment cannot be allowed to grow with age and ingenuity, by devising new grounds in replies an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re mysterious. Clearly the source for all these conclusions, one after the other, is the Investigation report of the DIT. Nothing from that report is set out to enable the reader to appreciate how the conclusions flow therefrom. 23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing. 24. The reopening of assessment under Section 147 is a potent power not to be lightly exercised. It certainly cannot be invoked casually or mechanically. The heart of the provision is the formation of belief by the AO that income has escaped assessment. The reasons so recorded have to be based on some tangible material and that should be evident from reading the reasons. It cannot be supplied subsequently either during the proceedings when objections to the reopening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Bombay High Court in Mandhana Industries Ltd. v. Principal Commissioner of Incometax Central1, [2019] 103 taxmann.com 301 (Bom), wherein the court has held that the Act does not envisage a return of an assessee to be split into two parts; one for consideration before the Settlement Commission by way of settlement and another for normal assessment at the hands of the Assessing Officer or the appellate or the revisional authority. In other words, if an application for settlement is allowed and the case is settled, the entire assessment for the assessment years in question would stand settled. 4.11 Reliance was also placed upon the decision of the Delhi High Court in Omaxe Ltd. v. Assistant Commissioner of Income Tax, [2012] 25 taxmann.com 190 (Delhi), wherein the court held that a harmonious reading of the provisions of the statute would show that it does not postulate the existence of two orders, each of a different incometax authority, determining the total income of an assessee for the same assessment year. The court held that if the contention of the Revenue is accepted, not only will the finality of the order of settlement be disturbed, but it will also re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l drew the attention of the court to the provisions of section 245I of the Act to submit that the same provides that the order of the Settlement Commission passed under subsection (4) of section 245D of the Act shall be conclusive as to the matters stated therein and no matter covered by such order shall be reopened in any proceeding under the Act. It was submitted that therefore, what is conclusive is the matter stated in the order of the Settlement Commission, whereas the income, which is stated to have escaped assessment in the present case, was not a matter before the Settlement Commission, and hence, the order of the Settlement Commission would not be conclusive in respect of matters in relation to which the assessment is sought to be reopened by the Assessing Officer, as there was no consideration of the said issue by the Settlement Commission. Therefore, the reopening of assessment is valid and legal. 5.3 It was further submitted that subsection (5) of section 245D of the Act provides that subject to the provisions of section 245BA of the Act, the materials brought on record before the Settlement Commission shall be considered by the Members of the concerned Bench before p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der under section 245D(4) of the Act, which has become final and conclusive and, therefore, the Assessing Officer has no jurisdiction to reopen the assessment. Secondly, on merits, on the reasons recorded, the Assessing Officer could not have formed the belief that income chargeable to tax has escaped assessment. 7. Insofar as the first question is concerned, it may be germane to refer to the decisions relied upon by the learned counsel for the respective parties. In Omaxe Ltd. v. Assistant Commissioner of Incometax (supra), the Delhi High Court was considering a case where the assessment was sought to be reopened by issuing a notice under section 148 of the Act. The court held that a harmonious reading of the provisions of the statute would show that it does not postulate the existence of two orders, each of a different incometax authority, determining the total income of an assessee for the same assessment year. It was held that if the contention of the Revenue is accepted, not only will the finality of the order of settlement be disturbed, but it will also result in different orders relating to the same assessment year and relating to the same assessee being allowed to stand. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee's claim for deduction was not the subject matter of the order passed by the Settlement Commission under section 245D(4) of the Act. 7.1 In Mandhana Industries Ltd. v. Principal Commissioner of Incometax Central1 (supra), the Bombay High Court held that the provisions of section 245D read with section 245H, 245I and 245F of the Act make it abundantly clear that a case could either be dealt with by the concerned income tax authority or the Settlement Commission, but not both. The court held that the Act envisages only one order concerning a case of the assessee, it may either be an order of settlement passed by the Settlement Commission or an order of assessment passed by the Assessing Officer, but not both. The court further referred to the relevant provisions contained in Chapter XIXA of the Act and came to the conclusion that once an application for settlement of a case is filed before the Settlement Commission and is allowed to pass through various stages under section 245D of the Act, it is only the Settlement Commission which can pass any order concerning such a case. At all stages, the Act refers to a case for which an application for settlement can be filed, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne reads Section 245D( 6) with Section 245I, it becomes clear that every order of settlement passed under Section 245D( 4) shall be final and conclusive as to the matters contained therein and that the same shall not be reopened except in the case of fraud and misrepresentation. Under Section 245F( 1), in addition to the powers conferred on the Settlement Commission under Chapter XIXA, 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 XIXA (see Section 245D). Under Section 245F( 4), it is clarified that nothing in Chapter XIXA shall affect the operation of any other provision of the Act requiring the applicant to pay tax on the basis of selfassessment in relation to matters before the Settlement Commission." "25. Our detailed analysis shows that though Chapter XIXA is a selfcontained code, the procedure to be followed by the Settlement Commission under Sections 245C and 245D in the matter of computation of undisclosed income; in the matter of computation of additional inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 147 lose their existence as under Sections 245C( 1A) and (1B) it is only the income disclosed in the return of income before the AO alone which survives for consideration by the Settlement Commission for settling the amount of income which is not disclosed in the return." "37. As held hereinabove, under Section 245C( 1) read with Section 245C( 1B)( ii) and Section 245C( 1C)( b), the additional amount of income tax payable is to be calculated on the aggregate of total income returned and the income disclosed in the settlement application as if such aggregate is the total income. Thus, the scheme of the said sections is based on computation of total income and in that sense we have stated that such application for settlement is akin to a return of income. The said provision deals with "total income". Thus, as stated above, Sections 234A, B and C are applicable up to the stage of Section 245D( 1) order passed by the Settlement Commission. However, Parliament has not extended the provisions and the liability to pay interest beyond the date of application for settlement. This is the position even after the Finance Act of 2007." "39. Moreover, as stated above, under the Act, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween assessment in law [regular assessment or assessment under section 143(1)] and assessment by settlement under Chapter XIXA. The order under section 245D(4) of the Act is not an order of regular assessment. It is neither an order under section 143(1) or section 143(3) or section 144 of the Act. Under sections 139 to 158, the process of assessment involves the filing of return under sections 139 or 142 of the Act; inquiry by the Assessing Officer under sections 142 and 143 and making of the order of assessment by the Assessing Officer under sections 143(3) or 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 proceedings under Chapter XIXA. The said Chapter contemplates the taxability determined with respect to undisclosed income only by the process of settlement/arbitration. Thus, the nature of the orders under sections 143(1), 143(3) and 144 is different from the orders of the Settlement Commission under section 245D(4) of the Act. 7.5 Moreover, the Supreme Court, in the above decision has hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be matters in respect of the very assessment year which do not touch the determination of the total income of the assessee, like nonpayment of advance tax or the like, which have no direct connection with the determination of the total income for that assessment year, which would not stand concluded by the order of the Settlement Commission. However, when section 245C of the Act requires the assessee to make a full and true disclosure of his income for the period in respect of which he has made such application, the order under section 245D(4) of the Act would relate to the determination of the total income of the assessee for that assessment year and such order is conclusive and cannot be reopened except as provided in that Chapter. 7.8 As to how the proceeding can be reopened is provided under section 245D(6) of the Act, which says that every order passed under section 245D(4) of the Act shall 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 shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the terms of settlement, which should inter alia provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation. Section 245D(7) of the Act provides that where the settlement becomes void, as provided in subsection (6) of section 245D, the proceedings in respect of 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. The remedy, therefore, is not under section 147 of the Act, but under section 245D(6) read with section 245D(7) of the Act. 7.11 In the facts of the present case, since the Settlement Commission has passed an order under section 245D(4) of the Act in respect of the assessment year in relation to which the assessment is sought to be reopened, the Assessing Officer has no jurisdiction to invoke the provisions of section 147 of the Act and reopen an assessment, which has become conclusive. Such concluded assessment can only be reopened in case of fraud or misrepresentation of facts, as contemplated under subsection (6) of section 245D of the Act. The assump ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of belief that income chargeable to tax has escaped assessment is the evidence found during the course of search in the case of SCS and the appraisal report. The search had been conducted in the case of Barter Group and Shri Pradip Birewar. Search had also been conducted in case of the main beneficiaries of accommodation entries, one being SCS [Shirish Chandrakant Shah]. The material on record shows that Shri Pradip Birewar had paid Rs. 70 crores in cash to SCS. Such cash payment was made to arrange LTCG/Loss entries in the scrip of (i) Shri Ganesh Spinners Ltd. and (ii) Praneta Industries Ltd. The modus operandi is discussed in detail in the appraisal report. The material on record shows that bogus LTCG entries were made to the beneficiaries to whom shares were allotted through private placement of convertible shares recorded as 'PHY' in the 'pradeep abad sheet'. 'PHY' refers to the transactions where shares of SGSL (Shri Ganesh Spinners Ltd.) have been acquired by the beneficiary clients in physical certificate form. That in this case, the shares are not purchased through exchange. A perusal of the entries recorded shows that the assessee has received payout of Rs. 68,33,460/fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and should show that on the reasons recorded, he could have formed the belief that income chargeable to tax has escaped assessment. 8.5 Therefore, while the reasons recorded should reflect the basis for forming the opinion that income chargeable to tax has escaped assessment on the material relied upon, such reasons can be elaborated in the affidavitinreply. In the present case, along with the affidavitinreply, the respondent has placed on record the appraisal report, which finds reference in the reasons recorded. The appraisal report is detailed and elaborate and gives a clear picture of the modus operandi by which accommodation entries were provided to convert unaccounted money into white money, however, the reasons recorded are not so elaborate and rightly so, inasmuch as the reasons have to satisfy that there was sufficient material for the Assessing Officer to form the belief that income chargeable to tax has escaped assessment. Evidently, the reasons would not set out the entire modus operandi as recorded in the appraisal report, but would briefly set out the gist of the facts and material which led the Assessing Officer to form the requisite belief that income chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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