COMMISSIONER OF INCOME-TAX VS EXPRESS NEWSPAPERS LTD.
1994 P T D 1303
[206 I T R 443]
[Supreme Court of India]
Present: J.S. Verma Yogeshwar Dayal and B.P. Jeevan Reddy, JJ
COMMISSIONER OF INCOME-TAX
Versus
EXPRESS NEWSPAPERS LTD.
Civil Appeals Nos. 2841 to 2844 of 1993, decided on 11/01/1994.
(Appeal by special leave from the order, dated 31st May 1990, of the Income Tax Settlement Commission. Madras, in Settlement Application No.21/V/26/ 89-IT).
Income-tax---
----Settlement of case---Object of provisions for settlement of cases-- Application for settlement of income-tax case for certain years---Income not disclosed earlier not disclosed by applicant---Application not maintainable-- Objection by Commissioner---Jurisdiction of commission to reject objection-- Commissioner's report can be based on material obtained after date of -application for settlement---Commission can look into material obtained even after report---Indian Income Tax Act, 1961, Ss.245C & 245D(1), (1A).
In an application under section 245C of the Income Tax Act, 1961, for settlement of the applicant's income-tax case, there should be a disclosure of income not earlier disclosed before the Assessing Officer. If the Assessing Officer for the income-tax authority) has already discovered it and either has gathered the material to establish the particulars of such income or fraud fully or is at a stage of investigation/enquiries where the material gathered by him is likely to establish the particulars of such income or fraud, the assessee cannot be allowed to defeat or forestall, as the case may be, the entire exercise of the income-tax authorities just by approaching the Settlement Commission. In such a 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 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.
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 that 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--not even to those who come to the Settlement Commission to forestall the investigation/enquiries which have reached a stage where the Department is in possession of material which, though not sufficient to establish concealment or fraud, is such that it is likely to establish it---may be some more material is required to establish it fully.
The Settlement Commission cannot say that any material collected by the income-tax authorities after the date of the filing of the application under section 245C for settlement cannot be relied on by the Commissioner in his report containing his objection to the application. Even if the income-tax authorities were aware of the filing of the application for settlement, the mere filing of the application does not mean that they should fold their hands and stop their investigation and enquiries in their tracks. They are entitled to rely upon the evidence and material collected by them till the date of the submission of the report by the Commissioner. Nothing prevents the Settlement Commission from looking into material collected even subsequent to the submission of report by the Commissioner, if it thinks such a course is called for in the interests of justice.
The respondent-company owned substantial house properties in three cities and derived rental income therefrom. For the assessment year 1985-86, in its revised return the respondent disclosed a loss of Rs.32,80,700 after claiming deduction of huge losses in the purchase and sale of potatoes, metal scrap and shares. The Assessing Officer held that the transactions of sale, and purchase of potatoes, scrap and shares were bogus transactions fabricated for the purpose of evading legitimate tax due on its income, and assessed the income at Rs.1,27,95,570. The respondent preferred an appeal to the Commissioner (Appeals), who confirmed the assessment order. Pending this appeal, the respondent preferred an application under section 245C of the Income Tax Act, 1961, to the Settlement Commission for settlement of its income-tax case for the assessment years 1985-86 to 1988-89, claiming that it was offering an additional income of Rs.1,32,27,969 over and above the income offered for assessment for those years and prayed for immunity from penalty and prosecution and for waiver of interest. The Commissioner submitted his report and raised objection to acceptance of the application. In the report, details were given to show that the Department had in its possession documents and material leading to the view that the respondent had fraudulently claimed losses on various accounts for the assessment years 1985-86 to 1987-88 and that the Department had conducted its own enquiries and had disallowed the claim. The Settlement Commission, by its order, allowed the application to be proceeded with, the main reason for rejecting the objection of the Commissioner being that only the material as on the date of the filing of the application, which did not establish concealment, could be taken into account, whereas many of the enquiries referred to in the report were made after the filing of the application and the result of these enquiries could not be taken into consideration. On appeal to the Supreme Court:
Held setting aside the order of the Settlement Commission, (i) that the respondent had merely offered a part of the losses claimed by it for the assessment years towards taxable income. In its application the respondent had not disclosed any income not disclosed before the Assessing Officer; nor did it disclose the manner in which such income was derived. The application was not in compliance with the first and foremost requirement of section 245C and ought, therefore, to have been rejected in limine.
(ii) That this was a case where the income-tax authorities had made extensive investigation and enquiries wherein they had collected voluminous material which, according to them, established concealment on the part of the respondent.
(iii) That the Settlement Commission was also not right in holding that, in deciding whether the Commission should allow the application to be proceeded with under section 245C, it would not look into the materials collected after the date of the filing of the application.
[The Supreme Court (a) allowed the respondent to file its appeal to the Appellate Tribunal in respect of the assessment year 1985-86 within one month and directed that if the appeal were so filed it should be treated as filed within time; and (b) clarified that their order was confined only to the question of jurisdiction of the Settlement Commission and validity of its order taking seisin of the case and that the Court did not express or intend to express any opinion on the merits of the case.
Dr. V. Gauri Shankar, Senior Advocate (K.V. Verma, Ranbir Chandra, D.S. Mahra and Ms. A. Subhashini, Advocates with him) for Appellant.
Ms. Bina Gupta, Ms. Monika Mohil, Ms. Madhavi Khera and Ms. Priya Gupta, Advocates for Respondent.
JUDGMENT
B.P. JEEVAN REDDY, J: --These appeals are preferred by the Revenue against the order of the Settlement Commission in the case of the respondent, Express Newspapers Ltd., Madras, relating to the assessment years 1985-86, 1986-87 and 1987-88. It raises certain important questions with respect to the jurisdiction of the Settlement Commission 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 dismissed the same by his order, dated March 31, 1989. During the pendency of the said appeal, the assessee approached the Commission on December 16, 1988, with respect to four assessment years, namely, 1985-86-, 1986-87,1987-88 and 1988-89. On that date, the assessments relating to the three later years were pending before the Assessing Officer. The application to the Commission made by the assessee is in Form No.34B. In column 10, the assessee stated that the case involved substantial issues and amounts, that the transactions of the assessee were large and diverse and that the case calls for judicial approach and appreciation of the facts. It requested the Commission to determine the tax payable for the aforesaid four assessment years, to confer immunity upon it from the levy of penalty and prosecution, and waiver of interest chargeable under the provisions of the Act. Through this application, the respondent-assessee offered for tax "an additional income of Rs.1,32,27,969 over and above the income offered for assessment in the returns for the assessment years 1985-86 to. 1988-89, on which the tax payable worked out to Rs.14,35,720". The respondent further complained that he Department "has conducted a hostile and unfair investigation, has concluded the assessments and has raised large demands based on disallowances and additions without providing any opportunity whatsoever". The respondent requested the Commission to grant "an ad interim order restraining the Assessing Officer from going ahead with further proceedings in regard to the assessment years sought to be settled hereby so that the application is not rendered otiose by any action of the Department during the interrogation". In short, the respondent did not disclose any income not disclosed before the Assessing Officer but merely offered a small part of the losses claimed by it for the said assessment years to tax. According to the respondent, it was doing so to buy peace with the Department. A copy of the application filed by the assessee was sent to the Commissioner. The Commissioner submitted his report on July 6, 1989. In this report, the Commissioner stated the following facts and objections:
The respondent-assessee owns substantial house properties in Bombay, Madras and New Delhi. The gross rental income derived therefrom is about rupees two crore. Apart from the above, the assessee "reportedly 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 with reference to the books of the assessee and other relevant persons that the several alleged payments were not real and that the several transactions disclosed by the assessee were mere make-believe and that all those entries were fabricated. Some of the parties who made statements adverse to the assessee's interest were also cross-examined by the assessee. We do not think it necessary to refer to or set out the particulars of the investigation and enquiries made or the material gathered, referred to in the report. It sets out the material separately with respect to alleged dealings in. potatoes, scrap and shares. It would suffice to set out the concluding paragraphs of the said report. They read:
"The discussion above would, therefore, conclusively establish the fact that the Department has in its possession documents and materials to lead to the view that the assessee had fraudulently claimed losses on various accounts for the assessment years 1985-86, 1986-87 and 1987 88.. The Department has acted on these, had conducted its own enquiries and had disallowed the claims and treated them as part of the assessee's income. For the assessment year 1985-86, a complaint under sections 276C, 277, 278 and 278B of the Income Tax Act, 1961, has been filed before the Additional Chief Metropolitan Magistrate, Egmore. Therefore, for the assessment years 1985-86, 1986-87 and 1987-88, the petition filed by the company before the Settlement Commission is not a correct statement of fact. As far as the assessment year 1988-89 is concerned, the assessee-company filed its return of income on July 11, 1988, accompanied by a copy of the profit and loss account and balance-sheet as at March 31, 1988. Notices issued under section 143(2) of the Act in October, 1988 and March, 1989, did not elicit any response from the company.
For reasons stated above, it is claimed that the Department had in its possession adequate information prior to December 16, 1988 to warrant a conclusion that the assessee had concealed details of its true income and furnished inaccurate particulars thereof. In such circumstances, under section 245D of the Act, objection is taken by the Department to the company's petition being 'entertained by the Commission, more particularly for the assessment years 1985-86, 1986-87 and 1987-88."
The Commission heard the parties and allowed the applications of the assessee 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 2451). 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 or is likely to be established. Section 2451)(1) of the Income Tax Act describes situations in which the application can be allowed to be proceeded with, where the objection of the Commissioner is not upheld. The Settlement Commission has to consider the material contained in the report of the Commissioner, the nature and circumstances of the case or complexity of investigation involved therein. In the instant case, we have considered the materials contained in the Commissioner's report. The nature and circumstances of the case are such that the case be allowed to be proceeded with. The main question involved in the case is whether the losses claimed in the merchandise division for various years are genuine. Without widespread enquiries and investigations, this task cannot be fulfilled. It may involve lots of enquiries, proceedings and possibly prolonged litigation. The facts in relation to the merchandise division have been discussed in detail in earlier paragraphs of this order. The facts and circumstances of the case also involve the complexity of the investigation. We, therefore, allow the application to be proceeded with for the assessment years 1985-86 to 1988-89."
The other member, Sri Shukla, also proceeded on the footing that the material gathered by the Department after the date of filing of the statement is not relevant and cannot be looked into for the purpose of taking a decision under section 2451)(1). He too held that on the date of the filing of the application "conclusive material is lacking on the basis of which the objection of the Commissioner can be sustained."
Relevant provisions of law and their meaning:
Chapter XIX-A providing for settlement of cases was introduced in the Income Tax Act, 1961, pursuant to the recommendations of the Direct Taxes Inquiry Committee headed by Justice Wanchoo. It is necessary to notice a few provisions relevant herein. Section 245A defines certain expressions occurring in the chapter.. Clause (b) defines the expression "case" in the following words:
"(b) `case' means any proceeding under this Act for the assessment or reassessment of any person in respect of any year or years, or by way of appeal or revision in connection with such assessment or reassessment, which may be pending before an income-tax authority on the date on which an application under subsection (1) of section 245C is made:
Provided 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 a 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. Subsection (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. Subsection (1) says that an assessee may "at any stage of a case relating to him" make an application in the prescribed form and manner, "containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed" to settle his case. There are certain other requirements which he must fulfill before making such an application but which it is not necessary to notice here.
For a proper delineation of the jurisdiction of the Commission, it is necessary to bear in mind, the language of subsection (1) of section 245C. It provides that at any stage of a case relating to him, an assessee may make an application to the Commission disclosing fully and truly income which has not been disclosed before the Assessing Officer. He must also disclose how the said income has been derived by him besides certain other particulars. This means that an assessee cannot approach the Commission for settlement of his case with respect to income already disclosed before the Assessing Officer. An application under section 245C is maintainable only if it discloses income which has not been disclosed before the Assessing Officer. The disclosure contemplated by section 245C is thus in the nature of voluntary disclosure of concealed income. Unless the income so disclosed exceeds Rs.50,000 the application under section 2450 is not maintainable. It is equally evident that once an application made under section 245C is admitted for consideration (after giving notice to and considering the report of the Commissioner of income-tax as provided by section 245D) the Commission shall have to withdraw the case relating to that assessment year (or years, as the case may be) from the assessing/appellate/revising authority and deal with the case, as a whole, by itself. In other words, the proceedings before the Commission are not confined to the income disclosed before it alone. Once the application is allowed to be proceeded with by the Commission, the proceedings pending before any authority under the Act relating to that assessment year have to be transferred to the Commission and the entire case for that assessment year will be dealt with by the Commission itself. The words "at any stage of a case relating to him" only make it clear that the pendency of proceedings relating to that assessment year, whether before 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 pre9cribcs the 'procedure to be followed by the Commission on receipt of an application under section 245C. Subsection (1) is relevant for our purpose. As originally enacted, the subsection 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 bass 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 subsection unless an opportunity has been given to the applicant of being heard:
Provided further that an application shall not be proceeded with under this subsection if the Commissioner objects to the application being proceeded with on the ground that concealment of particulars of income on the part of the applicant of 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."
By the Finance Act, 1979, the second proviso was omitted and subsection (lA) was inserted, with effect from April 1, 1979. Subsection (1A) read as follows:
"(lA) Notwithstanding anything contained in subsection (1), an application .shall not be proceeded with under that subsection, if the Commissioner objects 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:
Provided that where the Settlement Commission is not satisfied with the correctness of the objection raised by the Commissioner, the Settlement Commission may, after giving the Commissioner an opportunity of being heard, by order, allow the application to be proceeded with under subsection (1) and send a copy of its order to the Commissioner."
It is this subsection read with subsection (1) which is relevant for the purposes of this case. We may, however, mention that subsection (1A) has since been deleted and a proviso introduced in subsection (1) as the second proviso, which reads as follows:
"Provided further that the Commissioner shall furnish the report within a period of one hundred and twenty days of the receipt of communication from the Settlement Commission in case of all applications made under section 245C on or after the date on which the Finance (No.2) Act, 1991, receives the assent of the President and if the Commissioner fails to furnish the report within the said period, the Settlement Commission may make the order without such report."
It is not necessary to notice the effect of the above legislative change brought about in 1991.
As originally enacted the main limb of subsection (1) provided that on receipt of an application under section 245C, the Commission shall call for a report from the Commissioner with respect to the application. 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 subsection (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, whether the mere objection of the Commissioner sufficed and whether the Commission had no power to examine the correctness of the said objection). By the Finance Act, 1979, the second proviso was deleted. The main limb of subsection (1) and the first proviso, however, remained untouched. In place of the second proviso, subsection (lA) was introduced. The effect of this amendment was that the Commissioner's objection ceased to be final and conclusive. The proviso to subsection (lA) empowered the Commission to examine whether the objection of the Commissioner was correct or not. After hearing the Commissioner, if the Commission was satisfied that the objection of the Commissioner was not correct, it- could proceed with the application.
Subsection (LA) has to be read in harmony with the main limb of subsection (1). The said subsection says that the Commission shall decide whether to allow the application to be proceeded with before it or to reject it (a) on' the basis of the material contained in the report of the Commissioner, and (b) having regard to the nature and circumstances of the case or the complexity of the investigation involved therein. What do these words mean? They are words of a general import. What did Parliament mean thereby? For ascertaining their meaning and purport, one has to turn to the purposes underlying the enactment as a whole. It is neither possible nor advisable to seek to lay down exhaustively the several situations in which the Commission would decide to allow the application to be proceeded with or in which the application has to be rejected. A case may be complex one; it may involve prolonged or cumbersome investigation. Another situation may be where having regard to the nature of the case and other circumstances, the Commission may feel in the interest of the Revenue and. in the interest of justice that it is better to give a quietus to the case once for all instead of allowing it to be fought through the usual channels. The decision has to be taken by the Commission having regard to all the facts and circumstances before it, in the light of the object, purpose and scheme of the enactment. It is precisely because such wide discretion is given to the Commission that the Act requires that it should be manned by men of integrity and outstanding ability, having special knowledge of direct taxes and business accounts.
The next 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 subsection (1A) (as well as in the second proviso to subsection (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 to and is empowered to unearth it by making or causing such investigation and enquiries as he thinks appropriate. He may gather and receive information for that purpose. We may take two illustrative cases: One, where the Assessing Officer has discovered some income, which was not disclosed by the assessee, and has added it to the assessee's income. The latter challenges the same and the proceedings are pending either before the Assessing Officer or before an appellate or revisional authority. Second, a case where the income-tax authorities are gathering information/material, which is likely to establish that the assessee has concealed the particulars of a particular income. If, in the first case, the assessee applies to the Commission under section 245C, the Commissioner can object on the ground that concealment of particulars of income has been established. Similarly, if the assessee in the second case applies to the Commission, the Commissioner can equally object on the, ground that the investigation/enquiries made by them already---or the information received or gathered by them already---is likely to establish the concealment of particulars of income and, therefore, the Commission should not allow the application to be proceeded with. On the same lines, there may be cases where the income-tax authorities have either established or are likely to establish that the assessee has perpetrated a fraud for evading the tax or other sum chargeable or imposable under the 1922 Act or the present Act. It is the correctness of these objections that the Commission is supposed to look into by the proviso to subsection (1A). Its further course of action depends upon its satisfaction one way or the other.
The idea underlying the said words (in the main limb of subsection (1-A) is self-evident. The: disclosure under section 245C must be of an income not disclosed before the Assessing Officer, If the Assessing Officer (or the income-tax authority) has already discovered it and has either gathered the material to establish the particulars of such income or fraud fully or is at a stage of investigation/enquiries where the material gathered by him is likely to establish the particulars of such income or fraud, the assessee cannot be allowed to defeat or forestall, as the ease may be, the entire exercise of the income*tax authorities just by approaching the Commission. In such a 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(lA) 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 or income and its source,-or discovery of particulars of fraud perpetrated by the assessee, as the case may be---nor even to those who come to the Commission to forestall the investigation/enquiries which have reached a stage where the Department is in possession of material which though not sufficient to establish such concealment or fraud, is such that it is likely to establish it---may be some more material is required to establish it fully. The Commission has to keep all this in mind while deciding whether to allow the application to be proceeded with before it or to reject it.
This discussion also shows that the Commission cannot say that any material collected by the Commissioner after the date of filing of the application under section 245C is not relevant for the purposes of section 2451)(1). The filing of an application by the assessee is a unilateral act. The Department may not be aware of the same. The proper line--ordinarily speaking---is to be drawn with reference to the date of submission of the report by the Commissioner. This does not, however, prevent the Commission from looking into material collected by the income-tax authorities even subsequent to the submitting of the report by the Commissioner, if it thinks such a course is called for in the interests of justice.
Subsection (4) of section 2451) provides for passing of final orders by the Commission. It is not necessary to refer to the other provisions in the Chapter except to mention that the Commission is empowered to direct the waiver of penalty as well as interest and to direct that the tax payable shall be paid in prescribed instalments. It is further empowered to direct that the assessee whose case has been decided by it shall not be proceeded with or prosecuted under the Income ax Act or under the Indian Penal Code or under any other Central Act for the time being in force with respect to the case covered by the settlement. The orders of the Commission are final, subject of course to Constitutional remedies.
Merits of the case:
If we look at the facts of the case in the light of the legal position adumbrated hereinabove, it would be clear that the application filed by the respondent before the Commission. was not maintainable and could not have been allowed to be proceeded with. Firstly, the respondent did-not disclose, in its application under section 245C, any income which was not disclosed before the Assessing Officer. This was a case where the respondent was claiming certain losses, which 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 ands 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 enquiries wherein they had collected voluminous material, which, according to them, established the particulars of concealment of income on the part of the respondent assessee. It was so held by the Assessing Officer---with whom the first appellate authority agreed, no doubt, subsequently to the filing of the application under section 245C but before the passing of the impugned order.
The Commission was also not right in holding that while deciding whether to allow the application to be proceeded with before it under section 245C(1), they will not look into the material collected after the date of filing of the application under section 245C. It has not been found, by the Commission that the income-tax authorities were aware of the filing of the application on December 16, 1988. Even if they were aware, the mere filing of the application did not mean that they should fold their hands and stop their investigation and enquiries in their tracks. They were, in fact, entitled to rely upon the evidence and material collected by them till the date of submission of the report .to the Commission. The decision of the Commission is thus vitiated by misdirection in law. It took cognizance of a matter which it could not have. The impugned order is equally vitiated by a misapprehension as to the true legal position on the part of the Commission.
The appeals are allowed accordingly: The order of the Settlement Commission under appeal is set aside. The assessments relating to all the four assessment years shall now proceed according to law. Having regard to the facts of the case, we direct that it shall be open to the respondent to file an appeal before the Tribunal against the order, dated March 31,1989, within one month from today. If so filed, it shall be treated as filed within time and shall be dealt with as such. We make it clear that this order is confined to the jurisdiction of the Commission and the, validity of its order taking seisin of the case: We have not expressed nor did we intend to express any opinion on the merits of the same. It. is for the appropriate authorities to go into the same in accordance with law.
The respondent shall pay the costs of the appellant in this appeal which we assess at Rs.10,000.
M.BA./408/T.F.Appeals allowed.