Star Trading vs Commissioner of Income Tax

P.R. Raman, J.—Petitioner is an assessee under the IT Act. It is a wholesale dealer of wheat products. For the asst. yrs. 1988-89 to 1989-90 the petitioner was assessed to tax. Aggrieved by the assessment, he preferred an appeal before the CIT. While the matter was pending before the CIT, the petitioner filed an application before the Settlement Commission, Chennai invoking the provisions contained u/s 245C of the IT Act. The Settlement Commission by order dt. 27th March, 1996 allowed the application to be proceeded with u/s 245D(1) of the Act. While so before passing final orders, a new scheme popularly known as ''Kar Vivad Samadhan Scheme'' was introduced by Finance (No. 2) Act, 1998. Hence, the petitioner claiming benefit under the scheme approached the designated authority, namely, CIT. The designated authority, after processing the application, passed Ext. P1 order dt. 26th Feb., 1999 u/s 90(1) of the Finance (No. 2) Act, 1998 determining the amount payable by the declarant towards the full and final settlement of his tax liability under the scheme. Thereafter, when the matter came up before the Settlement Commission, the petitioner submitted that he has already applied for the benefit under the KVSS and that pursuant to the application his declaration made under the KVSS was accepted and amounts were determined by the designated authority under the scheme and so was not interested to prosecute the application. In the circumstances, the Settlement Commission remitted the case to the ITO stating that the assessee is not co-operating with the proceeding u/s 245D(4) of the IT Act. While so, pursuant to Ext. P1 order, a certificate was issued by the designated authority, and the matter became final. It is later that the CIT by Ext. P2 order dt. 30th Oct., 2000, cancelled the same for reasons stated in the order, which is impugned in this original petition.

The CIT held that the appeal filed before the CIT(A) and pending disposal has become non est. According to the CIT, once the assessee had moved the Settlement Commission u/s 245D of the IT Act, the jurisdiction of the IT authorities is ousted by virtue of Section 245F(2) of the IT Act. The declaration made by the petitioner before the designated authority under the KVSS is not in accordance with law. As there was no appeal pending, the assessee is not entitled to claim the benefit of the scheme, which is a condition precedent for claiming any relief under the scheme. On the other hand the assessee contended that the declaration under the KVSS was made in terms of the scheme, that the appeal was pending before the CIT(A)-II, Ernakulam and was denuded by the order passed by the Settlement Commission. Although the settlement application was admitted u/s 245D(1), that in no way abates the appeal until final orders are passed by the CIT(A) u/s 251. Hence the appeal has to be treated as pending and therefore the assessee was entitled to file declaration under the KVSS. It was also contended that as per Section 95(1)(b) of the KVSS, 1998 the provisions of the scheme are not applicable only in cases where an order has been passed by the Settlement Commission u/s 245D(4) of the IT Act and in the present case only order passed is u/s 245D(1) admitting the application and no final order was passed u/s 245D(4) and as such the bar u/s 95 under the scheme is not applicable. These objections were overruled by the CIT(A) and confirmed the proposals made and cancelled the certificate issued under the KVSS, the correctness of which arises for consideration in this writ petition.

Learned Counsel Sri Philip T. Varghese appearing on behalf of the assessee contended that the view taken by the CIT in Ext. P2 is erroneous and contrary to the provisions contained in the IT Act. Relying on Section 245F(2) of the IT Act, he contended that an application made u/s 245(C), which has been allowed to be proceeded with u/s 245(D) will only have the effect of conferring exclusive jurisdiction in the matter on the Settlement Commission until an order is passed under Sub-section (4) of Section 245. In other words, it only prevents the authorities from exercising any power under the IT Act, until a finality is reached in the proceedings before the Settlement Commission. After admitting the application u/s 245C and in the present case no orders were passed u/s 245D(4) of the Act, Sub-section 2 of Section 245F has no application. According to him, Section 245F(2) of the IT Act does not have the effect of taking away the jurisdiction of the authorities under the Act; but only confers exclusive jurisdiction on the Settlement Commission, until final orders are passed under Sub-section (4) of Section 245D. This is only by way of an interim measure and since no orders as such were passed u/s 245D(4), the application submitted by the assessee under the KVSS is perfectly in order. It was also contended that once a certificate is issued u/s 90(2) of the Finance (No. 2) Act, 1998, the matter has become conclusive as to the matters stated therein and it is only thereafter that in terms of Sub-section (4) of Section 90 the appeal filed by him would stand withdrawn. In other words, the appeal is deemed to be pending until determination of the amount and certificate granted under Sub-section (2) of Section 90 of the Finance (No. 2) Act of 1998. It was also contended that insofar as Section 90(4) is not attracted, thus the benefit of the scheme cannot be denied relying on the provision contained in Section 95(c), since the appeal is deemed to be pending as on the date on which he preferred an application under the KVSS. Per contra the learned standing Counsel Sri George K. George appearing for the respondent supported the order of the CIT and contented that once the assessee opted to settle the matter by approaching the Settlement Commission u/s 245C, and the Commission having processed the application and admitted the same u/s 245D(1), the Settlement Commission alone will have exclusive jurisdiction in the matter, the effect of which is that there cannot be any further order to be passed in the appeal filed by the assessee and in effect it comes to an end. If so, the assessee will not be entitled to the benefit, in the light of the provisions contained in Section 95(1)(c) of the KVSS. He also submitted that as per the second proviso to Section 90 of the KVSS of Finance (No. 2) Act, 1998, the designated authority can at any time amend the certificate already issued and therefore the cancellation as per Ext. P2''is well within his powers.

I have heard both sides.

The facts are not in dispute. At the time when the assessee approached the Settlement Commission u/s 245C of the IT Act, admittedly an appeal was pending before the CIT(A) against the order of assessment passed by the ITO. It is true that the Settlement Commission processed the application and admitted the same in terms of Section 245D(1) of the IT Act. But admittedly before final orders are passed thereon, the new scheme of Finance (No. 2) Act, 1998 was introduced and the assessee claiming the benefit under the KVSS applied before the designated authority u/s 95 of Finance (No. 2) Act, 1998 and the designated authority determined the amount payable by the declarant in terms of Section 90 as per Ext. P1 order. Subsequently, a certificate was also issued. As per Section 90(2) such certificate issued under the scheme is conclusive, and no matter covered by such order shall be reopened by any proceedings under direct tax enactment or indirect tax enactment or under any other law being in force and by virtue of Sub-section (4) of Section 90, the appeal, if any, filed by the declarant, shall be deemed to have been withdrawn as on the date on which the order referred to in Sub-section (2) of Section 90 was passed. Therefore, the appeal shall be deemed to have been withdrawn only when an order under Sub-section (2) of Section 90 is passed. Therefore, in the present case, the appeal is deemed to be pending as on the date on which an application under the scheme was filed. Thus Section 95(1)(c) of the Act has no application. Insofar as the Finance (No. 2) Act, 1998 is concerned, the only provision by which the appeal deemed to have been withdrawn is Sub-section (4) of Section 90 to which I have already made reference. The effect of Section 245F(2) in my view, is only to confer exclusive jurisdiction on the Settlement Commission to exercise the powers and perform the function of the IT authorities under this Act which, means the reference is to the IT Act, 1961 only. It does not in any way take away the jurisdiction conferred on the designated authority under the Finance (No. 2) Act, 1998 specifically providing certain benefits to the assessee to be dealt with under the scheme. Further conferment of exclusive jurisdiction is until final orders are passed u/s 245D(4) of the IT Act only. That does not have the effect of closing the appeal itself, at that stage. It only precludes the authorities from exercising the jurisdiction under this Act and to keep in abeyance the proceedings until final orders are passed u/s 245D(4) of the IT Act. Sub-section (2) of Section 245F is only by way of an interim measure so as to enable the Settlement Commission to exercise all such powers of the IT authorities so as to give a finality to the proceedings pending before it by passing a final order u/s 245D(4) of the Act. There is no other provision under the IT Act which expressly states that once the matter is referred to the Settlement Commission, it will automatically have the effect of the appeal or any other proceedings being withdrawn. True that once a final order is passed by the Settlement Commission, the matter becomes conclusive in respect of the matters dealt with by the Commission. Admittedly, no such final order was passed by the Settlement Commission in this case and therefore there is no reason to hold that the appeal preferred by the assessee before the CIT(A) is deemed to have been withdrawn and to deny the benefit thereunder. In my view, the appeal, though cannot be proceeded with, must be deemed to be pending until final orders are passed u/s 245D(4) of the IT Act. The assessee has submitted an application before the designated authority at a time when the appeal was pending and it is only when a certificate u/s 90(2) is issued that the appeal finally stood withdrawn or closed by virtue of Section 90(4) of Finance (No. 2) Act, 1998. Therefore, both the reasonings adopted by the CIT, in my view, are erroneous and liable to be set aside.

Admittedly, a certificate was issued by the designated authority and became conclusive. It was thereafter that Ext. P2 was passed. There is no provision under the Finance (No. 2) Act, 1998 specifically conferring any power to cancel the certificate so issued. At any rate, the CIT has only referred to second proviso to Section 90 under the scheme so as to assume the power. It is only by virtue of the second proviso to Section 90 that the CIT has passed the impugned order. The second proviso to Section 90 only enables the designated authority to amend the certificate and not to cancel the same. The word "amend" in the it means, correct error in (document); make proposed minor improvements in; make better; so etc. Therefore, the power to amend does not extend to cancel the certificate as such. Admittedly, this is not a case to attract the first proviso. If so, in the factual situation, the CIT has no power to cancel the certificate issued in favour of the assessee.

In the result, Ext. P2 is quashed and the Original Petition is allowed.