Source: http://aiftponline.org/journal/2016/june-2016/income-tax-settlement-commission/
Timestamp: 2019-04-24 03:19:02+00:00

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“2.32 This, however, does not mean that the door for compromise with the errant tax payer should forever remain closed. In the administration of fiscal laws, whose primary objective is to raise revenue, there has to be room for compromise and settlement. A rigid attitude would not only inhibit a onetime tax evader or an un intending defaulter from making a clear breast of his affairs, but would also unnecessarily strain the investigational resources of the department in cases of doubtful benefit to revenue, while needlessly proliferating litigation and holding up collections. We would, therefore, suggest that there should be a provision in the law for a settlement with the taxpayer at any stage of the proceedings. In the United Kingdom, the confession method has been in vogue since 1923. In the U. S. law also, there is a provision for compromise with the taxpayer as to his tax liabilities. A provision of this type facilitating settlement in individual cases will have this advantage over general disclosure scheme that misuse thereof will be difficult and the disclosure will not normally breed further tax evasion. Each individual case can be considered on its merits and full disclosures not only of the income but of the modus operandi of its build up can be insisted on thus sealing off chances of continued evasion through similar practice.
An institution, though within the Tax Department, but independent of the same to settle tax liability to give quietus to a dispute.
The ITSC is empowered to grant immunity from prosecution for any offence and also to grant immunity from imposition of any penalty under the Act.
The proceedings before the ITSC are confidential.
The orders of the ITSC are final and not appealable. The orders are only subject to judicial review in terms of Articles 136 and 226 of the Constitution.
The constitution of the ITSC is done 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” as specifically laid down in the statute itself.
Plugging loopholes due to in depth knowledge gained about manner of earning of income concealed.
The assessee gains by way of immunity from penalty and prosecution. Also, putting a quietus to disputed matters helps in avoiding long drawn and ruinous litigation.
2.1	Provisions of Chapter XIX A have undergone amendment from time to time. The present note explains law as applicable to applications filed on or after 01.10.2014. Following amendments over a period of time, which are crucial to understand the provisions of Chapter XIXA, are discussed.
Provisions of sub section (1) were amended by Taxation Laws (Amendment) Act, 1984 w.e.f. 1-10-1984 and words as follows were inserted in section 245C(1): “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”.
3.2	The provisions as enacted in the year 1976 did not require an applicant to disclose income which had not been disclosed to the Assessing Officer along with the application for settlement. Form 34B prior to the said amendment did not have clause 11 and the confidential annexure thereto. Instead, Rule 7 of ITSC Rules provided for calling for statement of facts from the applicant after the commission passed an order admitting the application. Prior to the year 1984, applicant was required to make full and true disclosure of income only after application was admitted for settlement.
3.3	After the amendment in the year 1984, the statement of facts and declaration of income is required to be made along with application for settlement. As the same is now required to be filed with the application, Rules provided for confidentiality of the statement of facts till the time application is admitted for settlement.
4.1	S. 245D(1) deals with admission of application filed for settlement. As originally enacted, it provided that an application may be admitted having regard to complexities of investigation involved or the nature and circumstances of the case. Conditions prescribed in section 245D(1) were in addition to conditions prescribed u/s. 245C for a valid application.
4.3	The observation of the hon’ble Supreme Court in B. N. Bhattacharjee’s case, 118 ITR 461, that purpose of Settlement Commission is not to provide shelter for big tax dodgers, was in context of the said second proviso to S. 245D(1).
4.5 The judgment of the Hon’ble Supreme Court in Express Newspaper’s case, 206 ITR 443 is in context of provisions of S. 245D(1A) as above.
4.6	After amendment in 1991, the only conditions that remained for admission of application was that ITSC had to be satisfied that “having regard to the nature and circumstances of the case or complexities of investigation involved”. These conditions were on the statute book since inception in 1976.
From 1976 to 1979 – application could be admitted having regard to nature and circumstances of the case or complexities of investigation involved. If Commissioner of Income Tax objected that concealment has been established or is likely to be established, application could not be proceeded with at all – objection was fatal.
From 1979 to 1991 – application could be admitted having regard to nature and circumstances of the case or complexities of investigation involved. If Commissioner of Income Tax objected that concealment has been established or likely to be established, than ITSC could examine whether the said objection of the CIT is correct. If ITSC satisfied that the objection was correct, application could not be admitted and if objection was incorrect, than application could be admitted.
From 1991 to 2007 – application could be admitted having regard to nature and circumstances of the case or complexities of investigation involved.
2007 till date – there is no specific and separate condition prescribed for admission of an application.
4.8	It is only an application that satisfies conditions prescribed by S. 245C that can be considered for admission. Whether an application satisfied conditions of S. 245C was always examined by the ITSC before the admission of application. Conditions prescribed by S. 245D(1) were considered only in case of an application which satisfied conditions of S. 245C. For applications filed before 01.06.2007, hearing to determine whether application satisfied conditions of a valid application u/s. 245C(1) were held in camera, in absence of department, as statement of facts and annexure to the application was confidential till case was admitted by order u/s. 245D(1). For applications filed after 01.06.2007, the applications are admitted u/s. 245D(1) and allowed to be further proceeded with u/s. 245D(2C) considering whether the application satisfies conditions of section 245C. They are the only conditions which are considered for admission of an application after amendment of law in the year 2007.
Intimation is given to the Assessing Officer about application filed for settlement.
5.2	Section 245K provides for certain disqualifications to filing of application for settlement.
6.1 Sub-section (1) of section 245C provides that an assessee can prefer an application at any stage of a case relating to him. The term “case” is defined by clause (b) to section 245A. Clause (b) was substituted by Finance Act, 2007 w. e. f. 01.06.2007 and the term had undergone major change as compared to earlier provisions. Even post amendment in the year 2007, the definition has undergone two major changes widening the meaning of the term case, once in the year 2010 and second time in the year 2014.
6.2	Case is defined as “any proceeding for assessment … in respect of any assessment year or years which may be pending before an assessing officer on the date on which an application … is made.” The words used are assessment year or years and therefore case can mean more than one assessment year. Therefore, a single application can be filed for any number of years as long as each of those assessment years satisfies condition of being a case.
6.3	In respect of application filed on or after 01.06.2007, only assessment proceedings pending before Assessing Officer is case.
6.4	As originally enacted by Finance Act 2007, the definition by clause (b) to S. 245A had a proviso which provided that certain specified type of reassessment proceedings are not case. The said proviso was amended in the year 2010 when proceedings u/s. 153A and 153C were included within case and now by Finance (No 2) Act 2014, the proviso has been altogether omitted.
6.5 The provisions were amended by Finance Act, 2010 and proceedings for assessment or reassessment in accordance with S. 153A or 153C were also included in meaning of case and years for which notice u/s. 153A or 153C have been issued are also valid proceedings for the purposes of filing application for settlement.
6.6	The provisions have further been amended by Finance (No. 2) Act, 2014 w. e. f. 01.10.2014 and the meaning of term case has been widened to include even reassessment proceedings or proceedings on set aside within the meaning of term case.
6.7	Explanation to clause (b) of S. 245A specifically provide for dates on which specified proceedings are deemed to commence and date on which they are deemed to conclude. Simultaneous with amendment of proviso to enlarge the scope of case in the year 2010 and 2014, amendments have been made to define when specified proceedings commence and conclude.
6.8	After the amendment in the year 2014, proceedings are case when the same are pending before the Assessing Officer, whether by issue of notice u/s. 143(2), 148, 153A or 153C or on set aside by appellate authorities or by CIT by order u/s. 263 or 264. The amendment widens the scope of a case to all assessment years for which assessment proceedings are pending before the Assessing Officer; whether assessment, reassessment or on set aside by higher authorities.
6.9	However, even after amendment in 2014, one issue still remains. The issue is whether assessment years for which none of the notices u/s. 143(2), 148, 153A or 153C have been issued till date, and assessment has not been made u/s. 143(3) for the said assessment year, whether application can be filed for such a year.
6.11	In view of use of the words “deemed” and also “from the first date of assessment year”, the question arises whether proceedings are pending till an assessment u/s. 143(3) is made or merely because time to make an assessment u/s. 143(3) has expired, it can be said that proceedings are not pending though an assessment u/s. 143(3) has not been made. If assessment proceedings are said to be pending if 143(3) assessment is not made, than an application can be filed for any assessment year for which scrutiny assessment u/s. 143(3) has not been made even if notice u/s. 143(2), 148, 153A or 153C has not been issued.
6.12	The issue first arose before Bombay Bench of ITSC in an unreported case (please refer to case of Dr Pradip Talwalkar and Shagun Enterprises) and it was held that merely because 143(3) assessment has not been made, it cannot be said that assessment proceedings are pending before Assessing Officer, once time to issue notice u/s. 143(2) has expired.
Rescuwear Corpn., In re  177 Taxman 281 (ITSC-Kol.) and it was held that if assessment has not been made u/s. 143(3) than assessment proceedings are pending before Assessing Officer even if time to issue notice u/s. 143(2) or time to make assessment u/s. 143(3) has expired.
CIT v. ITSC 212 Taxmann 511/ 259 CTR 318 (Del) and same view was expressed.
6.15 Before the Hon’ble Gujarat High Court in case reported in 210 Taxman 529 and 259 CTR 329, issue before ITSC was of both types of cases – one where time to make assessment u/s. 143(3) had expired and second where time to issue notice u/s. 143(2) had expired but time to make 143(3) had not expired and notice u/s. 143(2) had not been issued. The ITSC had admitted both types of assessment years for settlement. The department had before the Hon’ble Gujarat High Court challenged admission only those years where time for 143(3) had expired and did not challenge admission where only time to issue notice u/s. 143(2) had expired. The Hon’ble Gujarat High Court held that proceedings are not pending where time to make assessment u/s. 143(3) had expired.
Shriniwas Machine Craft P Ltd.(2014) 361 ITR 313 (Bom).
6.17	As per law laid down by Hon’ble Bombay High Court, even if notice u/s. 143(2) has not been issued, if assessment has not been made u/s. 143(3) and time to make assessment u/s. 143(3) has not expired, application can be filed for settlement.
6.18	However, if time to make assessment u/s. 143(3) has expired than proceedings cannot be said to be pending for the purposes of S. 245A(b). One of the major arguments that was considered by the Hon’ble High Courts in coming to the above conclusion was that proviso clearly excluded reassessment proceedings u/s. 148. Now that the proviso has been omitted and also that application can be filed for reassessment proceedings u/s. 148, can it be said that the law has changed calling for a fresh view?
6.19	In Varinder K. Arora, In re  180 Taxman 412 (ITSC-Mum) it was held that assessment proceedings would be treated to be pending till the assessment order is served on the applicant. In the said case, the assessment order had been served on the applicant on 02.04.2009 after the application was filed on 31.03.2009. It was that the proceeding for assessment were pending on 31.03.2009 as per clarification issued by the CBDT in the Circular No.3 of 2008 dated 12.03.2008 and as such the assessee’s application deserved to be admitted u/s.245D(1).
7.1 Sub-section (1) of section 245C requires that the application must contain a full and true disclosure of income, not disclosed before the Assessing officer. This is one of the important conditions for a valid application for settlement and one of the most litigated issues under Chapter XIXA of the Act.
7.2	In Raja Ram Industries v. Settlement Commission (1995) 81 Taxman 506 (ITSC-Del) it has that it is the obligation of the assessee making an application u/s.245C to make a full and true disclosure of the income, notwithstanding that the department has not detected the said income. The argument that an applicant was not required to disclose that part of his income which had not been detected by revenue, is wholly unacceptable and is to be rejected.
7.3 As discussed in paragraph 3.2 hereinabove, the condition of making full and true disclosure was always prescribed, but prior to the year 1984, statement of facts and full and true disclosure of income had to be furnished by the assessee after the application was admitted. After amendment in the year 1984, such a statement has to be filed along with application for settlement.
7.4 From the year 1984 till very recently, the Statement of facts was treated as confidential till the time the application was allowed to be further proceeded with by order u/s. 245D(2C). Recently, in January 2014, Rule 44CA of Income Tax Rules has been amended to provide that if application is admitted by order u/s. 245D(1), than the application and statement of facts shall be forwarded to department for its report u/s. 245D(2B).
CIT v. Express Newspapers Ltd 203 ITR 443 (SC) has held that offer of income for this purpose would not include withdrawal of claim for losses or expenses. As such, to constitute a valid offer of income in application for settlement, income offered must be income as earned, and not the extended meaning thereof u/s 147 which includes withdrawing of claim for losses, expenses and deductions.
7.6	Similar view taken has been taken in CIT v. ITSC  170 Taxman 172 (Mad).
7.8	Settlement is not only of income offered and even income which requires to be added will have to be considered and the application will not be restricted to income as earned. The application must have disclosure of income as earned to satisfy the condition of offer of income not known to the Assessing Officer, but computation of total income is not restricted to the said income and total income will have to be computed in accordance with provisions of the Act, considering full and true disclosure of facts relating to the case.
7.9	The need to make full and true disclosure in an application for settlement cannot be over emphasized. Though an assessee has to make full and disclosure even in return of income as required by section 139, the said condition in Chapter XIX A is prescribed twice. Section 245C prescribes conditions for a valid application and one of the main conditions is full and true disclosure of income. The same condition is again prescribed in S. 245H. S. 245H prescribes immunities that may granted by the ITSC and the conditions on satisfaction of which the said immunities may be granted. One of the prescribed conditions in section 245H is that applicant has made full and true disclosure of income.
Computation of income offered on the basis of such primary material facts is bonafide, fair and reasonable.
7.11	Having said that applicant has to make full and true disclosure, question arises whether assessee can revise offer of income originally made in the application.
CIT v ITSC 326 ITR 626 (Bom) which was the judgment affirmed by Hon’ble Supreme Court, discussed in para 7.12 hereinabove.
7.14	However, not every revision of income has been frowned upon by Hon’ble Courts. The condition of true and full disclosure of income does not in any manner suggest that no further income can be added by the Settlement Commission at the stage of final hearing u/s.245D(4). In this context, the Hon’ble Bombay High Court has laid down certain important principles in DIT (International Taxation) v. ITSC (2014) 365 ITR 108 (Bom). In this case, at the conclusion of hearing before the Settlement Commission u/s. 245D(1), the assessee made an additional offer of ` 150 crores with an intention to buy peace and avoid protracted litigation. It was particularly mentioned in the application that the income disclosed in the applications represented true and full disclosures and that additional income was declared without any evidence and with an intention to put quietus to the matter. The Special Bench of the Commission was of the view that prima facie that the disclosure was true and full. The department had challenged admission on the ground of revision of income and it was held that the assessee in no way detracted from their earlier application representing full and true disclosure of its income. This further amount was offered as goodwill gesture and did not establish that the original application did not contain a full and true disclosure of its income by the assessees. The Revenue had not led any evidence to show so. Thus, the further disclosure would not be hit by section 245C to make the entire exercise bad for failure to make full and true disclosure unless a specific finding to that effect is arrived at by the Commission at the time of final hearing stage u/s. 245D(4).
“11.	If, therefore, one juxtaposes, the facts in the Ajmera Housing case (supra) and the facts of the respondents in the present case and the context in which the additional income of ` 150 crores was offered to tax, the decision rendered and observations made in the Ajmera Housing (supra) may have no application to the present facts. None the less, the observations of the Apex Court in Ajmera Housing (supra) would have to be followed by us as this would ensure certainty of the legal position. However, we note that the additional income offered on 10 September 2007 by the respondents in no way detracted from their earlier application representing full and true disclosure of its income. This further amount was offered more as a gesture of bona fide / good faith as indicated above and with a desire to bring the dispute between the revenue and the respondents to an early end.
CIT v. ITSC 369 ITR 606 (Ker) held that the additional income offered by the applicant at later stage was only to put quietus to the litigation and in a spirit of settlement. All the relevant material was already before the Settlement Commission in respect of the additional income offered and that the Department participated in verification proceeding u/s.245D(3) and no timely objection was raised. It was thus held that there was no violation of procedure by the Settlement Commission.
suo moto effecting revisions thereto, that he renders his application invalid for the purposes of settlement.
7.18	Therefore, not every revision of quantum of income means that original offer of income was not full and true disclosure. It will have to be determined on facts of each case whether revision of quantum of income leads to conclusion that original offer of income was not full and true.
7.19	The next question that arises is at what stage of proceedings before ITSC, the condition of full and true disclosure is required to be considered. Is it to be considered at the initial stage of 245D(1) or 245D(2C) or the same can be considered at the time of final hearing u/s.245D(4) stage. A few years back, in a few cases the Hon’ble Settlement Commission had taken a view that whether full and true disclosure has been made will be determined at the stage of final settlement u/s. 245D(4). The said practice has been uniformly rejected by various Hon’ble Courts and some of the judgments are as follows.
CIT v. ITSC (No.1) (2014) 365 ITR 87 (Bom).
“In order to constitute a valid application under Section 245C(1), there must be a full and true disclosure of income which has not been disclosed and of the manner in which it has been derived besides a computation of the income tax payable on such undisclosed income. It is only upon the satisfaction of the Commission that the application meets the prerequisites of a valid application that the Commission shall have the jurisdiction to proceed. The Commission is bound to determine in the course of its proceedings under sub-section 2C of Section 245D as to whether the application is invalid. The Commission has to be satisfied from the report of the Commissioner and upon hearing the applicant that the application is not invalid. For, it is only then that the Commission has the jurisdiction to proceed.
The requirement that the applicant must make a full and true disclosure of the income; of the manner in which it has been derived and of the additional amount of income tax payable on such income, is a condition precedent to a valid application for settlement under sub-section 1 of Section 245C. The jurisdiction of the Commission to proceed can be invoked on the basis of an application which strictly complies with the provisions of Section 245C(1). An applicant who comes before the Commission has to make a clean breast of the income which has not been disclosed before the assessing officer; the manner in which it was derived and the additional amount of income tax payable on the income. Before conferring upon an applicant a locus to apply for a settlement of a case, Parliament has mandated a full and true disclosure. An applicant cannot make a partial disclosure of his undisclosed income by taking a chance that the rest will escape scrutiny or, if it does not escape scrutiny of then making another disclosure. The forum of the Settlement Commission cannot be used to employ such strategies. The requirements contained in sub-section 1 of Section 245C must be fulfilled so that the jurisdiction of the Commission can be invoked. Unless the Applicant fulfills the jurisdictional requirements, the application would not be maintainable. In fact, the proviso to Section 245C also requires the payment of tax and interest which would have been paid under the Act had the income disclosed in the application been declared in the return of the income before the assessing officer. This payment has to be effected before the date of making the application and proof of such payment must be attached with the application.
7.23	Having said that whether full and true disclosure has to be seen at every stage whether 245D(1), 245D(2C) and 245D(4), question arises what is the nature of finding to be recorded at interim stage of 245D(1) and 245D(2C). At the stage of 245D(1) only the application of the applicant is before the Hon’ble Settlement Commission and at stage of 245D(2C) though the report of the department is available, but the time available to pass the order is only of a fortnight. The legislature has provided three stages when an application is examined but it is only at the final stage of 245D(4) the Settlement Commission determines the issues arising for settlement considering the application of the assessee and reports filed by the department. Also, it can exercise its powers of investigation and verification u/s. 245D(3) only after application is held to be valid by order u/s. 245D(2C). Therefore, a proper and final finding is given only at stage of final settlement u/s. 245D(4) and orders u/s. 245D(1) and 245D(2C) are interim in nature.
7.24	Though a finding on whether application has made full and true disclosure has to be given at the interim stages the same are preliminary findings based on facts available. Following judgments deal with said aspect of the issue.
Vishnubhai Mafatlal Patel v. Assistant Commissioner of Income Tax, reported in  31 taxmann.com 99 (Gujarat) – in particular, para 12 of the order, which also took in to consideration the decision of Hon’ble Supreme Court in Ajmera Housing Corporation v. CIT 326 ITR 642 (SC). Similar proposition has been laid down in CIT v. ITSC (2013) 216 Taxman 246 (Guj).
the Hon’ble Supreme Court refused to interfere with order of admission on the ground that it is an interim order and all the issues will be revisited at the stage of final settlement u/s. 245D(4).
7.29	The consequence of finding at the stage of 245D(4) that application did not contain full and true disclosure is discussed hereinafter in para 18 hereinafter.
8.1	The application should also disclose manner in which income disclosed is derived. The modus operandi of earning income has to be disclosed. Disclosure of manner of earning income offered is as important as the condition of making full and true disclosure.
9.1	The additional tax payable on additional income offered must exceed ` 10,00,000/-. If the case is in pursuance of notice u/s. 153A or 153C, the additional tax payable has to exceed ` 50,00,000/-. If however, despite being a case in pursuance of notice u/s. 153A or 153C, if the case is connected to a case for which application has been filed, and such connection is as prescribed under the Act, than the additional tax payable has to exceed ` 10,00,000/-. The mode of computation of additional tax is provided by sub-section (1A) to (1D) of section 245C.
9.2 If the application is for more than one assessment year, than additional tax shall be determined as prescribed for each of the assessment year and the aggregate thereof shall be treated as additional tax payable as per the application.
and it was held that there is no requirement that the application u/s.245C must contain some disclosure of additional income for each and every assessment year comprised in it. The additional tax liability is for the application as a whole. Thus, several years comprised in an application should together aggregate the minimum additional tax liability prescribed. It is not necessary that there should be additional tax liability for each of the years comprised in the application. The only requirement is that the additional tax liability should be overall to the extent of minimum amount prescribed.
9.4	With reference to the computation of additional tax, the issue also arose as to whether the additional income disclosed in Settlement application is to be netted out with losses, if any, as per return of income so as to compute the additional tax liability on the net total income after adjusting losses. In this context, there are two decision of the High Courts, which are contrary to each other.
9.5	The Hon’ble Bombay High Court in Gobind Builders & Developers v. ITSC (2009) 309 ITR 167 (Bom) held that the computation of additional tax would have to be done after allowing set off of the unabsorbed depreciation against the income disclosed in the application for settlement. In other words, while computing income on which tax is payable u/s.245C, carried forward losses are to be set off.
“26.	Under the circumstances, the contention of the counsel for the petitioner that the term “total income” should be construed as defined under section 5 of the Act for the purpose of calculation additional tax of an applicant for settlement of a case cannot be accepted. This is for multiple reasons. Firstly, as discussed earlier clause (ii) of sub section (1B) of section 245C of the Act gives rise to deeming fiction where total income has to be considered as if the aggregate of the total income returned and the income disclosed would be the total income. Such deeming fiction must be allowed its full effect. Secondly, the very same clause uses the term “total income” returned in a different context and the aggregate of the total income returned and the income disclosed which would partake the character of a total income for this limited purpose. Thirdly, such deeming fiction cannot be discarded by bringing into consideration such term used elsewhere by the legislature. It is well known the legislature provides for definition of various terms frequently used in the statutes. The definition section usually comes with the expression “unless the context otherwise provides” or “unless there is anything repugnant to”. Such definition section defines various terms repeatedly used in a statute which would carry the meaning as contained in the definition. It is also well known that the statute defines often times terms for the special purpose of a section or even for a subsection. Examples are replete in the Act itself where the definitions are provided only for the purposes of a particular section or even a subsection. In the present case, this formula which contains a special definition for a special purpose would, therefore, have its effect only for section 245C. Being a special provision it would prevail over any other general term of a concept contained in the Act. Section 245C(1) of the Act also requires the applicant to provide besides other details, true and full disclosure of his income which has not be disclosed before the Assessing Officer and amount of income tax payable on “such income”. Reference to “such income” thus is the income disclosed in the settlement application which was not disclosed before the Assessing Officer.
27.	The reason for the legislature to provide a simple formula is not far to seek. As noted, the different stages before the settlement commission once an application is made by the assessee for settlement of his case, comes with time frame. Even the final order which the settlement commission may pass has a deadline beyond which if no order is passed, the proceedings would abate. At a stage where the settlement commission is required to ascertain where an assessee applicant has paid the additional tax with interest thereon only upon which application can be allowed to proceed further, no complex exercise or verification is envisaged. If the concept of total income contained in the Act is imported at such a stage, it can give rise to multiple disputes and lengthy debates with respect to the total income of an assessee and whether full tax on such income has been paid or not. At such a stage, the legislature does not envisage the commission to go into a complex exercise of ascertaining the total income of the assessee and further ascertaining his tax liability on such income. The legislature has, therefore, provided for a simple formula possible of a simple arithmetical application. It may be that in a given case the assesse may be entitled to a refund once the Settlement Commission passes its final order. Such isolated case, however, would not govern the interpretation of sub sections (1B) and (1C) of Section 245C. Any such interpretation would give rise to complex consideration by the Settlement Commission of the assessee’s total income not as defined in sub section (1B) to but as otherwise understood and referred to in Section 5 of the Act. Likewise, the computation of the tax on such total income and the resultant liability of the assessee for paying additional tax also would become a complex exercise. In income tax proceedings multiple claims, of deductions and exemptions give rise to often times complex considerations. Often the liability itself is fluctuating due to court pronouncements. Sometimes a legal question or interpretation of a provision may be in the virgin field not covered by any Court judgment. The legislature never intended that at the stage of ascertaining whether the assessee has deposited the additional tax on an application made for settlement of the case, such complex exercise should be undertaken by the Settlement Commission. Further, in our opinion, accepting any such interpretation would defeat the very purpose of introducing the simplicity of computation of “total income” of an assessee for the purpose of the said provision and his liability to pay additional tax with interest thereon.
10.1	Though under the old provisions existing before 01.06.2007, additional income was required to be disclosed in the application, tax thereon was payable only after application was admitted and allowed to be proceeded with in accordance with S. 245D(1). There was no provision for payment of interest u/s. 234A, etc except when final order was passed u/s. 245D(4) r. w. s. 245D(6).
10.2	Under the new scheme, proviso to s. 245C(1) provides that tax along with interest has to be paid along with application itself and proof of payment has to be attached. Interest has to be computed as if such income has been disclosed in return of income and date of filing application for settlement is date of filing return for the purpose of calculation of interest.
10.3	The Hon’ble Bombay High Court in Gobind Builders & Developers v. ITSC (2009) 309 ITR 167 (Bom) has held that condition of payment of additional tax and interest is mandatory and the application does not satisfy the prescribed conditions if admitted tax and interest is not paid before filing the application.
11.1	Sub-section 4 of section 245C requires that the assessee has to give intimation of having filed the settlement application to the Assessing Officer on the date of filing settlement application itself. 11.2	The purpose of said condition is to give effect to amendment of S. 245F. Before amendment in the year 2007, exclusive jurisdiction vested in the ITSC from the date of admission of application by order u/s. 245D(1). Under the amended provisions, exclusive jurisdiction vests in the ITSC from the date of filing settlement application. By the said intimation, the assessing officer is informed that exclusive jurisdiction over the case now vests in the ITSC.
11.3	It has been held by Hon’ble Bombay Bench of ITSC in case of Viraki Bros that if intimation is not given to the Assessing Officer in prescribed Form 34BA on the same day as filing application, the application does not satisfy the conditions and the same was rejected at the stage of 245D(1) itself.
12.1	Section 245K provides for disqualifications from making an application for settlement. The disqualifications prior to amendment made by the Finance Act, 2015, w.e.f. 1.6.2015 apply only to persons who have earlier made an application and do not apply to persons who are filing application for the first time. However, after the amendment made by the Finance Act, 2015, w.e.f. 1.6.2015, any person related to such person also shall not be entitled to apply settlement application, even if it is first time for such related person.
12.2	Clause (i) provides that where the order u/s 245D(4), passed in the case of the said assessee in an earlier application, provided for levy of penalty for concealment of income, the said assessee (now w.e.f. 1.6.2015 would also include related person to such assessee) can never make an application for any case.
12.3	Clause (ii) provides that if after passing of an order u/s 245D(4), the assessee has been prosecuted under chapter XXII of Income Tax Act for any offence in relation to the said case, the said assessee (now w.e.f. 1.6.2015 would also include related person to such assessee) cannot apply for settlement for any other matter.
12.4	Clause (iii) provides that where in case of an asseessee, the case has been sent back in accordance with provisions of section 245HA before 01.06.2002, the assessee (now w.e.f. 1.6.2015 would also include related person to such assessee) cannot thereafter make an application.
12.5	In respect of application made on or after 01.06.2007, if application is allowed to be proceeded with u/s. 245D(1), assessee (now w.e.f. 1.6.2015 would also include related person to such assessee) shall not be entitled to make an application ever again.
12.6	If an assessee had earlier made an application prior to 01.06.2007, disqualification from filing second application applies only if any of the 3 conditions are satisfied. Where the earlier application was filed after 01.06.2007, once the said application is admitted by order u/s. 245D(1), assessee (now w.e.f. 1.6.2015 would also include related person to such assessee) cannot file second application.
12.7	In Varinder K. Arora, In re  180 Taxman 412 (ITSC-Mum) it has been held that where first application for settlement filed by applicant had abated under operation of law and second application was not allowed to be proceeded with on technical reason, there was no bar under law against filing of third application.
c) HUF in which such person (i.e. individual assessee) is Karta.
a) any individual who held more than 50% of shares or voting rights in such company at any time before the date of settlement application by the company.
a) any individual who was entitled to more than 50% of profits in such firm, AOP or BOI at any time before the date of settlement application by such firm, AOP or BOI.
12.9	Thus, all the aforesaid related persons in connection with such assessee are disqualified w.e.f. 01.06.2015 once any of the conditions as stipulated in section 245K of the Act is applicable to such assessee thereby restricting all such related person from filing settlement application.
13.1	Fees of ` 500/- are payable as settlement fees and the paid challan has to be enclosed with the application as proof of payment. Fees payable are per application irrespective of number of assessment years for which application is preferred.
13.2	Sub-section (3) of section 245C provides that an application cannot be allowed to be withdrawn by the assessee.
13.3	Under the old scheme prior to 01.06.2007, proviso to S. 245C(1) provided that application for settlement could be filed only if assessee has filed return of income which was due. It was subject to lot of criticism and the proviso has been done away with and it is no more necessary that assessee has filed return of income before he is eligible to file application for settlement. As pendency of proceedings is from first day of assessment year, an assessee may instead of filing return of income due u/s. 139(1) and even before such time expires, directly file an application for settlement.
14.1	Under the old scheme prior to 01.06.2007, S. 245D(1) provided that an application for settlement may be admitted having regard to complexities of investigation involved or nature and circumstances of the case. It created lot of litigation as to which applications are fit for admission and led to uncertainty as to whether a case would be admitted or not.
14.2	The scheme for admission of a case has been completely altered w.e.f. 01.06.2007 and admission of an application would now be in two stages.
14.3	Section 245D(1) is substituted and it provides that a notice be issued by the ITSC to the applicant within 7 days of filing of application, to explain as to why his application be allowed to be proceeded with. Within 14 days of filing an application, ITSC has to decide whether to admit the application or to reject the same. If no order is passed within 14 days, application shall be deemed to be admitted. No conditions or criteria have been prescribed for deciding whether an application is fit for settlement. Therefore, only conditions prescribed in S. 245C(1) are relevant for deciding whether to allow an application to be proceeded with. At the first stage, no report or communication from department is required for ITSC to decide whether or not to allow an application to be proceeded with.
14.4	In the second stage of admission of an application for settlement, S. 245D(2B) provides that if application is allowed to be proceeded with in first stage, a report has be called from the Commissioner of Income Tax (referred to as CIT hereafter) within 30 days of filing of application and CIT has to furnish report within 30 days of receipt of communication. If report u/s. 245D(2B) is received within time, than on the basis of report, the ITSC may declare the application as invalid in accordance with S. 245D(2C). Such an order has to be on the basis of the report and within 15 days of receipt of the report. Opportunity of being heard is to be allowed to applicant if application is to be declared as invalid. If report is not received within specified time, ITSC has to proceed without the report. Again no condition or criteria have been prescribed to decide whether application is invalid, therefore only if condition prescribed by S.245C(1) not satisfied, that an application can be declared as invalid.
14.5	Orders of the Hon’ble ITSC u/s. 245D(1) and 245D(2C) have been challenged in a few recent cases. The judgments deal with the issue of nature of enquiry and finding required to be recorded by the ITSC in such orders. At each of the above two stages, the ITSC has to examine whether the conditions of a valid application are satisfied, but at both the interim stages, the finding of ITSC is tentative in that at a subsequent stage on the basis of evidence available, it may arrive at a finding that conditions of a valid application are not satisfied. The issue has been discussed in detail in para 7 hereinbefore.
15.1	S. 245F(1) of the Act provides that in addition to provisions of Chapter XIXA, the ITSC has all the powers of an Income Tax Authority.
15.2	Sub section (2) thereof gives exclusive jurisdiction to ITSC over the case from the date of filing of an application till order is passed u/s. 245D(4). The Assessing Officer cannot pass assessment order once an application is filed and intimation of filing application has been served.
15.3	Further, sub-section (3) of section 245F provides that in absence of express direction to the contrary by the ITSC, the provisions of this section shall not effect the operation of provisions requiring an assessee to pay self-assessment tax.
15.4	Sub-section (4) of section 245F provides that nothing contained in this section shall effect the operation of any provisions of the Act in relation to matters not before the commission.
15.5	From the date of filing application till the date of final order u/s. 245D(4), exclusive jurisdiction vests in the ITSC relating to the case. Therefore, during pendency of application it is ITSC which has to decide about release of jewellery seized as held in AMS Jewelers 139 taxman 34 (Del).
15.7	In Ashwani Kumar Goel v. ITSC 364 ITR 492 (Del) a peculiar contention was raised by the assessee. In this case, Settlement application was admitted to be proceeded further u/s.245D(1). At the time of final hearing u/s.245D(4), the applicant raised contention that at the time of admission of the application, the time limit for passing the block assessment had expired and in view of the same, no order can be passed by Settlement Commission. It was held that at the time of admission of the case u/s.245D(1), due opportunity was given to the applicant and no such plea of time barring assessment was raised. Hence, at stage of final hearing u/s.245D(4), the Settlement Commission cannot revisit and review its order passed u/s.245D(1) admitting the application to be proceeded with. Once the applicant is admitted to be proceeded with, the exclusive jurisdiction lies with the Settlement Commission.
Gupta Perfumers (P.) Ltd. v. ITSC  348 ITR 86 (Del) it was held that where in a settlement application u/s.245C certain seized papers were referred to, which belonged to third persons, assessee cannot claim immunity against penalty and prosecution for and on behalf of third persons and such seized papers can be used and utilised against third persons.
“21. We have already expressed a similar view above. The exclusive jurisdiction of the settlement commission to exercise the powers and perform the functions of an income tax authority, in terms of section 245F(2) of the said Act, is to be exercised and performed for the purpose of settlement of the case under Chapter XIX-A and not for assessment under Chapter XIV. That being the case, the powers and functions which are in the exclusive jurisdiction of the settlement commission are circumscribed by the object and role which has been ascribed to the settlement commission, which is to settle the case in terms of the procedure stipulated in Chapter XIX-A. Since assessment of the type contemplated under section 143(3) is outside the purview of settlement proceedings, a special audit under section 142(2A), which is in aid of assessment, would also be beyond the scope of settlement proceedings. The other decisions referred to by the learned counsel for the revenue do not militate against the view we have taken.
22. In sum, we hold that the income tax settlement commission does not have the power to direct a special audit under section 142(2A) in the course of settlement proceedings under Chapter XIX-A of the said Act.
16.1	Sub-section (3) of Section 245D provides that the ITSC may direct the Commissioner of Income-tax to make further enquiry or investigation and furnish a report if it is of the opinion that further enquiry or investigation is called for.
Sushil Kumar Modi v. State of Bihar (1998) 233 ITR 671 (Pat) and CIT v. ITSC  360 ITR 539 (Bom).
17.1	During the pendency of proceedings before it, the Commission may direct provisional attachment of the property belonging to the applicant in accordance with the second Schedule, if it is of the opinion that it is necessary to protect the interest of the revenue. Such order would be valid for a period of six months, though the Commission may extend the period.
18.1	Sub-section (4) of section 245D provides that after considering the application, reports of the Commissioner of Income-tax and such other materials, the Settlement Commission, may, in accordance with the provisions of the Act, pass such orders as it thinks fit. The provisions grant the widest powers to the Commission to pass an order as it deems fit and the only restriction on the powers is that the order has to be in accordance with the provisions of the Act.
18.2	In CIT v. Godwin Steels P Ltd 353 ITR 353 (Del) the Hon’ble Delhi High Court has laid down detailed guidelines on the nature of proceedings u/s. 245D(4) and meaning and import of the word “considered” used in sub-section (5) of section 245D.
18.3	Though s. 245C requires an application to be “…. containing a full and true disclosure of his income which has not been disclosed before the assessing officer and the manner in which such income is derived …”, it is not an application only relating to undisclosed income but application u/s. 245C(1) is for settlement of case as defined in s. 245A(b). A case means assessment or reassessment proceedings pending before the Assessing Officer; therefore settlement is of case and not only of income not disclosed before the assessing officer.
18.4	Therefore, though disclosure of income is one of the conditions for making an application for settlement, settlement is of the whole case and not merely of undisclosed income.
That the settlement shall be void, if it is subsequently found by the Commission to have been obtained by fraud or misrepresentation.
18.6	Sub-section 6 ensures that all the aspects of the case are decided and nothing remains pending, as section 245I provides that order u/s. 245D(4) is final in respect of matters stated therein.
18.7	Clause (iiia) has been inserted in sub-section (1) of section 245HA by Finance Act, 2015 w. e. f. 01.06.2015 to provide that if order u/s. 245D(4) does not provide for terms of settlement, the proceedings shall abate.
Anjum Mohammed Ghaswala, 252 ITR 1 (SC), Hindustan Bulk Carriers 259 ITR 449 (SC), Damani Bros (2003) 259 ITR 475 (SC) and Brij Lal & Others v. CIT (2010) 328 ITR 477 (SC).
18.9	Interest is chargeable only upto date of order u/s. 245D(1) and interest is not chargeable u/s. 234C. (see C M Smith and Sons v. ACIT (2014) 367 ITR 701 (Guj)).
18.10 The Order u/s 245D(4) also provides for manner of payment and the Commission has power to grant instalments for payment of sum due.
18.11 In Ranjan Kumar Akhaury (Dr.) v. CCIT (2003) 261 ITR 385 (Pat) it has been held that if the order u/s. 245D(4) does not quantify amount of tax and interest but merely gives directions, than the time limit for payment starts only from date on which the Assessing Officer serves notice of demand with working of tax and interest payable.
18.12 Sub-section (1A) of section 245H provides that where sum due is not paid as prescribed by order u/s 245D(4) or within such further time as may be allowed by the Commission, the immunity granted from penalty and prosecution shall stand withdrawn.
18.13 Sub-section (6A) of section 245D provides for charge of mandatory interest at the rate of 15% per annum on amount remaining unpaid for the period commencing from the end of 35 days from the date of receipt of order and ending with the date of payment. Interest is payable irrespective of time granted by the Commission.
18.14 Section 245J provides that subject to order u/s 245D(4), the sum due by such order may be recovered by the Assessing Officer having jurisdiction over the applicant and penalty for default may be imposed in accordance with the provisions of Chapter- XVII. The jurisdiction to recover amount due as per Order u/s 245D(4) is vested with the Assessing Officer having jurisdiction over the case, though he is bound by the terms of payment prescribed by the Commission.
18.15 As discussed hereinbefore in para 7, full and true disclosure is important condition prescribed for a valid application. Also the said aspect has to be examined at every stage of case though at interim stages of 245D(1) and 245D(2C), the said finding is tentative and final finding is to be given at stage of 245D(4). Also the condition as to full and true disclosure has also been prescribed in section 245H which provides power to Hon’ble Settlement Commission to give immunity from penalty and prosecution. Also not every case in which quantum of income is revised it can be said that applicant had not made full and true disclosure.
18.16 The question therefore arises that if at stage of 245D(4) the finding is that applicant has not made full and true disclosure what is the consequence of the said finding? Whether the application has to be held as invalid and sent back to department or immunity has to be denied to the extent of further addition on account of full and true disclosure not been made.
18.20 In Rasik Ramji Kamani v. S.K. Tripathi (1993) 202 ITR 74 affirmed in 203 ITR 848 (Bom) it was held that a Settlement, to be effective and meaningful, would require candid co-operation and frankness from the tax-payer, even if such assessee was not candid in the past.
19.1	Sub-section (1) of section 245H provides that the Settlement Commission may grant immunity from prosecution for any offence under Income Tax, 1961. It may also grant immunity, either wholly or in part, from imposition of any penalty under the Act. The immunity can only be in respect of case covered by the Settlement Commission. Also, the Commission may impose any conditions subject to which immunity is granted.
The applicant has made full and true disclosure of his income.
19.3 The Commission does not have jurisdiction to grant immunity from prosecution in a case where prosecution proceedings have been instituted before the date of filing of application u/s 245C.
19.4 Immunities granted by order u/s 245D(4) may be withdrawn in two circumstances. One being non-compliance with order u/s 245D(4) and second being order is obtained by fraud or misrepresentation of facts.
19.5	Sub-section (1A) of section 245H provides that the immunity shall be withdrawn if amount due as per order u/s 245D(4) is not paid within specified time or such further time as may granted by the Commission or if the applicant fails to comply with other conditions subject to which immunity is granted.
19.6	Sub-section (2) of section 245H provides that the Settlement Commission may withdraw the immunity granted if it is satisfied that the applicant had during settlement proceedings concealed particulars material to settlement or has given false evidence.
19.7	In Ashirvad Enterprises v. State of Bihar (2004) 266 ITR 578 (SC) the assessee filed an application before the Settlement Commission and subsequently prosecution was launched. The assessee approached the High Court to quash the prosecution proceedings and this was rejected by the High Court. The assessee appealed to the Supreme Court. Meanwhile the Settlement Commission accepted the settlement and granted immunity from prosecution. The Hon’ble Supreme Court quashed the prosecution proceedings. It was held that since the application for settlement was filed prior to lodging a complaint, the Settlement commission has the right to grant immunity from prosecution on its discretion, but once the petition is admitted, prosecution proceedings cannot continue.
19.8	In Nirmal & Navin P. Ltd. v. Ravindran (D) (2002) 255 ITR 514 (SC) it was that Settlement Commission can grant immunity from prosecution “in respect of matters arising out of settlement”. This immunity is a total immunity and not confined to specific assessment year. The High Court cannot declare order granting immunity as illegal or void.
19.9	In Kewal Krishna Gupta v. ITO (1992) 104 CTR 321 (P&H) and Super Rubber Industries v. DCIT (1995) 215 ITR 49 (Del) while the settlement application was pending for final settlement, prosecution proceedings were stayed.
20.1	Section 245I provides that every order passed u/s 245D(4) shall be conclusive as to matters stated therein. Further, no matter covered by such order can be reopened in any proceedings under the Act or any law for time being in force except as otherwise provided under Chapter XIX-A. The order u/s 245D(4) is final and no appeal or revision is provided under the Act.
20.2	In many instances the orders have been challenged by either the assessee or the department before Hon’ble High Court by way of writ under Article 226. Though such a writ is maintainable, it is not an appeal or review by Hon’ble High Court of order of the Hon’ble Settlement Commission. It has been held that decision cannot be challenged but the decision making process can be examined by the Hon’ble High Court.
20.4	In the said case, the Settlement Commission u/s.245D passed order in favour of assessee holding that an amount of ` 6 cr. as mentioned in receipts was principal amount of loan received and not interest on investment as claimed by revenue. The Hon’ble High Court held that it could not substitute its view in place of Settlement Commission, particularly on point of interpretation of a particular document.
Om Prakash Mittal 273 ITR 326 (SC), Omaxe ltd 209 Taxman 443 (Del), CIT v. Diksha Singh 350 ITR 157 (All) and Chandragiri Construction Co 334 ITR 211 (Mad)).
20.9	In context of charging interest u/s. 234B, the hon’ble Supreme Court held in case of Brijlal, 328 ITR 477 that the ITSC cannot after passing order u/s. 245D(4) pass rectification order u/s. 154 to charge interest u/s. 234B. After the said judgment, to put the issue beyond doubt, sub-section 6B has been inserted in section 245D to provide that ITSC can rectify any order within a period of 6 months of the month in which order u/s. 245D(4) has been passed.
it has been held that the Bench which passed the original order should ordinarily pass rectification order. It was further held that the Bench consisting of two members cannot rectify an order passed by Bench consisting of three members.
Order passed u/s. 245D(4) does not provide terms of settlement.
21.2	If the proceedings abate, the IT authority shall be entitled to use all material produced by applicant as well as any information gathered by ITSC.
21.3 For determination of time limit for making assessment as well as for computing time for payment of interest on refund, the period from date of application to date of abatement shall be excluded.
21.4	Once proceedings abate as above, AO has to give credit for taxes paid in proceedings before the ITSC.
R.B. Shreeram Durga Prasad & Fatherhand Nursing Das v. ITSC (1989) 176 ITR 169 (SC); Orient Chemical Industries v. ITSC (1979) 96 Taxman 622 (Del); Swadeshi Industries v. ITSC (1993) 199 ITR 293 (Cal).
22.4	In case of Vascon Engineers Ltd WP no 1800 of 2015, order dated 09.07.2015, before the Hon’ble Bombay High Court, the application was held to be invalid by order u/s. 245D(2C) on the basis of report of CIT that admitted taxes have not been paid. The Hon’ble Bombay High Court held that ITSC should satisfy itself about the stand of CIT before deciding the issue.

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