Commissioner of Income Tax vs Income Tax Settlement Commission

Akil Abdul Hamid Kureshi, J.—Department has preferred this petition challenging the order dated 06.11.2002 passed by the Income Tax Settlement Commission, Additional Bench, Mumbai. A copy of the order is produced at Annexure "4" to the petition. By such an order, the Settlement Commission permitted application for settlement to proceed with. Briefly stated, the facts are that respondent No. 2 was engaged in the business of processing and trading of diamonds. Search and seizure proceedings were carried out on the business premises of respondent No. 2 at Surat and Mumbai as well as residential premises of its partners. Assessment for the block period was framed by the Assessing Officer. At that stage, the assessee approached the Settlement Commission by filing an application for settlement. However, the department objected to such application on various grounds. After considering the objections of the department, the Settlement Commission by impugned order dated 06.11.2002 allowed the application to be proceeded further. The Commission, in such order, observed as under:

We have heard both the sides and considered the issues raised before us. In the light of the withdrawal of the claim that the block assessment was barred by limitation and having regard to the fact and circumstances of the case and the complexities of investigations involved, we are of the view that the settlement application should be allowed to be proceeded with.

On 01.10.2003, the Division Bench of this Court passed the following order:

This petition seeking quashing and setting aside the order passed by the Additional Bench of the Income Tax Settlement Commission dated 6/11/2002 was after having been admitted on 23.6.2003, heard today for grant of interim relief. During the course of hearing it was pointed out by learned Senior Counsel Mr. J.P. Shah, appearing for the respondent that the procedure prescribed by sub-section (3) of section 245D of the Income Tax Act has just commenced in the settlement proceedings in the case filed by the respondent and the Commission may pass such final orders as it may think fit under sub-section (4) of section 245D of the Act. Therefore, the Settlement Commission cannot be said to have arrived at any final conclusion and the proceedings before the Commission ought not to be stayed. The learned Counsel Mr. M.R. Bhatt submitted that the petitioner is at liberty to raise the necessary objection during the inquiry or investigation and furnish its report under sub-clause (3) of section 245D of the Act. Therefore, at this stage the prayer for interim relief is not pressed.

In the above facts and circumstances, we do not find it necessary to pass any order at this stage and accordingly the matter is ordered to be listed for final hearing in regular course.

We are informed that though this Court granted liberty to the Commission to proceed further so far duty of differences, the Settlement Commission has not taken any final decision.

Having heard learned counsel for the parties, we do not see any reason to interfere with the order passed by the Settlement Commission. We noticed that section 245C of the income tax Act, 1961 pertains to application for settlement of cases. Section 245D prescribes procedure for the Settlement Commission to follow on receipt of an application u/s 245C. Sub-section (1) of section 245D as it stood at a relevant time provided that on receipt of an application u/s 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, shall, where it is possible, by order, reject the application or allow the application to be proceeded with within a period of one year from the end of the month in which such application was made u/s 245C. Sub-section (2A) of section 245D provided that assessee shall, within thirty-five days of the receipt of a copy of the order under sub-section (1) allowing the application to be proceeded with, pay the additional amount of income tax payable on the income disclosed in the application and shall furnish proof of such payment to the Settlement Commission. Sub-section (3) of section 245D provided where an application is allowed to be proceeded with under sub-section (1), the Settlement Commission may call for the relevant records from the Commissioner and after examination of the same, if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may give such direction to the Commissioner. Sub-section (4) of section 245D empowers the Commission to pass an order on such settlement application. It can be seen that in the present case, the impugned order permitted the respondent-assessee to clear the stage of sub-section (1) of section 245C of the Act. It merely amounted not to terminate the assessee''s application for settlement. On doing so, allowing the application to be proceeded with, the Settlement Commission recorded the reasons reproduced above.

We are of the opinion that by such order, the Settlement Commission did not finally decide the merit or demerit of the rival contentions. It only allowed the application to be proceeded with. All contentions of both the sides would necessarily be gone into by the Commission before passing any final order. The order of Settlement Commission was only in the nature of permitting further enquiry into application of the assessee for settlement. In that view of the matter, no interference is called for. Petition is dismissed. Rule is discharged. We clarify that Settlement Commission shall decide the application of assessee for settlement on the basis of material on record. This may be done expeditiously since many time has passed during the pendency of such proceedings.