By TIOL News Service

MUMBAI, MAY 27, 2015: THE issue before the Bench is - Whether settlement application filed by an assessee u/s 245C would turn invalid, in case notice u/s 148 has already been served upon the assessee before filing of such application. YES is the answer.

Facts of the case

The assessee is a firm. During the A.Y 2010-11, a scrutiny assessment was undertaken, in which it was noticed that the assessee had purchased materials/goods from various parties. Some parties, whose names appeared in the list, were suspicious and it was alleged that they had issued bogus bills. There was no delivery of goods nor was there a transaction described and defined as "sale" within the meaning of the then Bombay Sales Tax Act, 1959/-, Central Sales Tax Act, 1956 or Maharashtra Value Added Tax Act, 2002. Thus, no transaction of the nature referred to in these enactments was reported. The names of such suspicious, bogus dealers were accordingly put up on the website of the Maharashtra Sales Tax Department. To verify the genuineness of purchase transactions from one such party, namely, M/s. Nutan Metals, information u/s 133(6) was called for but the said notice was returned back. However later, one Shri. Panchanmal Bokadia, the Proprietor of M/s. Nutan Metals made a statement before the AO confirming that the said M/s. Nutan Metals issues bills for earning commission without giving delivery of goods. Accordingly, the AO determined the highest credit balance at Rs.28,09,288/- as appearing on 10th December, 2009 in the ledger account of M/s. Nutan Metals as the peak credit and the same was thus treated as unexplained expenditure under section 69C and this amount was deemed to be income of assessee for the relevant A.Y 2010-11. As per information received from the DIT, one Mahendra S. Vora was found to have made huge cash deposits during F.Y 2009-10. In a statement before the ITO, M.S. Vora admitted that the deposits in the bank account did not pertain to him but to the assessee firm. Further, statement of one Rasiklal M. Morakhia, partner in the assessee firm was also recorded on the same day and the said R.M. Morakhia admitted that these deposits pertained to the assessee firm and did not pertain to M.S. Vora. The AO, therefore, held that such cash deposits and other deposits belonged to the assessee firm and added the same to total income in the hands of assessee, while making assessment.

For A.Y 2011-12, a notice u/s 148 was issued on 15th March, 2013 and it was served on the assessee firm on 18th March, 2013. Both, the assessment for A.Y 2010-11 and the notice u/s 148 for A.Y 2011-12 was deemed to be served respectively on the assessee firm before the assessee had filed application before the Settlement Commission u/s 245C. The assessee, knowing fully well that the bogus purchases and concealed income shown by assessee in the form of cash deposits, had been detected by the Department, filed a settlement application for A.Ys 2010-11 to 2012-13 on 18th March, 2013 u/s 245C. In this settlement application, additional income was declared at Rs. 1,05,25,216/- for A.Y 2010-11, at Rs. 8,97,111/- for A.Y 2011-12 and at Rs. 41,72,337/- for A.Y 2012-13. The relevant facts, as received from the DIT, were brought to the notice of the Settlement Commission on 21st March, 2013, i.e., before the date of hearing u/s 245D(1). The settlement application made u/s 245C was allowed to be proceeded with vide order passed by the Settlement Commission u/s 245D(1). Thereafter, required report u/s 245D(2B) was submitted to the Settlement Commission, wherein, it was brought to the notice of the Settlement Commission that there was no pending assessment for A.Y 2010-11, as the assessment order was already issued before the filing of the settlement application u/s 245C. Further, notice u/s 148 for A.Y 2011-12 was also served on the assessee before the Assessee filed the application before the Settlement Commission u/s 245C. Hence, for both these assessment years, the settlement application filed under section 245C of the IT Act was invalid. Further still, it was also brought to the notice of the Settlement Commission that bogus purchases shown by the Assessee had been detected by the Department for all the years, namely, A.Ys 2010-11 to 2012-13 and also that concealed income in the form of cash deposits had been detected by the Department before the filing of the said settlement application u/s 245C, which was much more than the undisclosed income declared by the Assessee firm. The Settlement Commission, in its order passed u/s 245D(2C), in its majority view, merely agreed with the Assessee firm by holding that the matter had not reached finality as yet and as such it was debatable whether the issues and the observation made by the Revenue would apply in the facts and circumstances of the case of the Assessee firm.

Having heard the parties, the High Court held that,

++ a perusal of the judgment of Supreme Court in the case of Commissioner of Income Tax vs. Anjum M. H. Ghaswala and Ors., indicate that the intention of the legislature in introducing section 245D is to see that protracted proceedings before the authorities or in Courts are avoided by resorting to settlement of cases. Further, in an earlier decision of this Court and of a Division Bench in the case of Commissioner of Income Tax vs. Income Tax Settlement Commission and Ors, this Court concluded that it has limited powers and it cannot interfere with the order of the Settlement Commission as if it is an Appellate Court. In the present case, the Commission had before it the application from the assessee filed on 18th March, 2013 for three A.Ys. This application was filed u/s 245(1). The Settlement Commission can be approached with an application for settlement of cases. The term 'case' is defined u/s 245A(b) to mean any proceeding for assessment under this Act, of any person in respect of any A.Y or A.Ys which may be pending before an AO on the date on which an application u/s (1) of section 245C is made. The application for settlement of case is contemplated by section 245(1) and which provides that an Assesse may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the AO, 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 the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided. The proviso to this sub section states that no such application shall be made unless in a case where proceedings for assessment or reassessment for any of the assessment years referred to in clause (b) of subsection (1) of section 153A or clause (b) of subsection (1) of section 153B in case of a person referred to in section 153A or section 153C have been initiated, the additional amount of income tax payable on the income disclosed in the application exceeds fifty lakh rupees, and in a case where subclauses (A) and (B) of clause (ia) of the proviso is attracted or where clause (ii) of the proviso is attracted. Upon receipt of this application, the Commission has to deal with it in terms of the procedure set out u/s 245D;

++ the Settlement Commission has been set up with a laudable and avowed object, that is to promote the settlement. It is not as suggested by Revenue's counsel to confer a right in any tax payer to be dishonest. Section 245C is meant for those assessees who seek to disclose income not disclosed before the AO including the manner in which such income has been derived, as the Supreme Court held in the case of Commissioner of Income tax vs. Express Newspapers Ltd., that Chapter XIXA is a part of the Income Tax Act and must be construed consistent with the overall scheme and object. Thus, it is to enable those Assessees who want to disclose income not disclosed till then together with the manner in which the same income is derived and the provisions are not meant for such Assessees who come after the event or who are guilty of a fraud perpetrated on the Revenue. Therefore, once the Commission has been approached, then, it has to deal with the application in terms of the sections contained in the Chapter. However, it must not enable those who wish to evade taxes or avoid the consequences following the same as provided by law and particularly by the IT Act. It is seen that the Settlement Commission in its order has held that the Assessee's representative took it through the entire application and submitted that the technical requirements of admission have been complied with. The application so filed before the Commission on 18th March, 2013 and the intimation of filing, in Form B, has been given on the same date to the AO. The Commission refers to the returns for A.Ys in question and finds that for A.Y 2010-11 notice u/s 143(2) was issued on 29th September, 2011. Thus, it found that the returns of income for the subject A.Ys were filed and the proceedings are pending from April, 2011, September, 2011 and April, 2012 for the respective A.Ys. For the A.Y 2010-11, the notice u/s 143(2) was issued as above, but the Assessee's representative pointed out that the AO passed the order on 18th March, 2013 and on the date on which the application before the Settlement Commission was filed, a copy of the order has not been served on the Commission. The Commission observed that the assessment order is signed on 18th March, 2013 and has been dispatched by post to the assessee on the same day in the morning, but it was returned unserved by the postal authorities to the Department. The Commission, therefore, perused the necessary records including the envelope and found that the service was refused but after the date on which the application for settlement was presented and filed before the Commission. It is the conclusion of the Commission that delivery of the envelope to the postal authorities cannot be termed as service. Therefore, there seems no force in the contention of Revenue's counsel that the assessment order having been served, the proceedings for the A.Y, namely, 2010-11 were not pending;

++ the argument before the Commission was that the word 'issued' should be interpreted as 'served'. After noticing this argument and other contentions, the majority concluded that the word 'issued' in the present context will have to be read as 'served'. Therefore, for A.Y 2011-12 as well, the Commission held that the proceedings are pending. For A.Y 2012-13, the return of income was filed on 25th September, 2012, but no notice u/s 143(2) has been issued. However, a notice u/s 148 dated 15th March, 2013 has been served on the Assessee on 18th March, 2013, which is the date of filing the application before the Commission. It is seen that the dissenting member was in error in holding that for the A.Y 2010-11 the proceedings for assessment under the Act are not pending. He has, to our mind, wrongly concluded that the assessment order was issued for that A.Y on 18th March, 2013 and the same has been dispatched. Such a dispatch would mean service. While it is true that the statement of the addressee that the notice was not served on him by the post may not in every case be enough to rebut the presumption, but it must be established that where any Central Act or Regulation made after the commencement of the General Clauses Act, 1897 authorises or requires any document to be served by post, whether the expression 'serve' or either of the expressions 'give' or 'send' or any other expression is used, then, unless a different intention appears, the service shall be deemed to be effected by properly addressing, prepaying and posting by registered post, a letter containing the document, and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post. The act of giving a notice is not complete on mere dispatch of the notice and further that the word 'issued' is also used in the same sense as 'served'. Thus, we find that the Commission was not inclined to refuse the application or not entertain it or admit it only on this ground. Once the assessee has pointed out the course of events, to which we do not find any rejoinder, then, even qua A.Y 2011-12, the proceedings can be said to be pending. It is pointed out as to how the notice u/s 148 dated 15th March, 2013 is said to have been issued and served on the assessee on 18th March, 2013, but reliance is placed on the word 'issued' and thereafter to construe it as 'served'. There is a considerable debate about this and once the dissenting Member also has found that the application for settlement is partially admissible, then, all the more, this court is not inclined to interfere with the majority view. The majority view as is found to be recorded and accepting the Assessee's version, does not require any further debate;

++ the thrust of the arguments is that the Assessee did not make a full and true disclosure of his income and therefore subsection (1) of section 245C is not complied with. The Commission has in the majority view found that there were certain bank accounts which have not been disclosed by the Assessee to the AO. The resultant income worked out on the basis of the entries in these accounts have been accepted by the assessee and he has set out the manner of earning as well as made true and full disclosure of income. It is seen that the dissenting Member states that in the application, the assessee has not enclosed copy of bank statements of the alleged benami bank accounts, which were the very basis on which he had made disclosure of its additional income. The Member went on and hold further that in the absence of these two bank accounts, it is not possible for the Commission to quantify the additional income. Then, he refers to the source of generation of cash which was the core issue for making declaration of additional income before the Commission. The Assessee has allegedly not confirmed the manner in which the additional income was earned. It is in these circumstances that the requirement of full and true disclosure is held to be not satisfied and for all three years. We do not find how this could be said to be a common conclusion for all the three years, inasmuch as, there is assessment order made for only one assessment year. It is in that order there is a reference to the bank accounts. It is in that order there is a reference to a communication addressed to the third party and that third party Mahendra S. Vora appearing before the AO and having his statement recorded. In such circumstances, it could not have been held by the dissenting member that the requirement of full and true disclosure and in regard to the income and the manner in which it is generated is not satisfied or fulfilled by the Assessee. How that finding can be common for all three A.Ys. More so, when for one assessment year the findings are that there is already an assessment order made and duly served, and secondly, there is a notice u/s 148 issued which must be construed as served for the A.Y 2011-12. Hence, this contradiction in the opinion of the Technical Member is enough to reject the submissions of Revenue's counsel. It is found that once the majority holds that the conditions regarding threshold limits for the quantum of tax for additional income, payment of tax and interest thereupon and pendency of proceedings all are fulfilled, then, the application was not liable to be rejected on any technical ground. Suffice it to further hold that the view taken by the majority cannot be termed as perverse or based on no material. It cannot be said to be arbitrary as well. In these circumstances, just because an alternate or other view is possible is not enough for this court to interfere in the Writ Jurisdiction.

(See 2015-TIOL-1344-HC-MUM-IT)