Bombay High Court
Commissioner Of Income Tax ... vs Income Tax Settlement Commission on 21 October, 2013
Bench: Dr. D.Y. Chandrachud, M.S. Sonak
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO.9617 OF 2013
Commissioner of Income Tax (Central), Pune ..Petitioner.
versus
Income Tax Settlement Commission,
(ITSC), Additional Bench,
Mumbai and another ..Respondents.
.....
Mr. Tejveer Singh for the Petitioner.
Mr. Jehangir Mistri, Senior Advocate with Mr. Ashish Kamat, Mr. Nikhil Rajani i/b
V. Deshpande and Co. for Respondent No.2
.....
ig CORAM : DR.D.Y.CHANDRACHUD, AND
M.S. SONAK, JJ.
21 October 2013.
ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :
The Commissioner of Income Tax (Central), Pune has challenged an
order passed by the Settlement Commission on 29 August 2013 under the
provisions of sub-section (2C) of Section 245D of the Income Tax Act 1961. By
the order which has been impugned, the Settlement Commission has held as
follows :
"In the totality of facts available to us at present, we are satisfied
about the true and full nature of the disclosure made. The manner of
making undisclosed income, in the facts of the case, as stated, is on sales
kept outside the books resulting in understatement to sales. Needless to
say, as observed by the Hon'ble High Court in this very case, that if at a
later stage of the proceedings, facts come to our knowledge showing
suppression of full material facts or mis-statements thereof, the law will
take its own course."
2. The Commission has accordingly held that the application filed by the
Second Respondent is not an invalid application and should be allowed to be
proceeded with further. Following the order which was passed by the Settlement
Commission on 29 August 2013, further hearings took place before the
Commission on 19 September 2013 and 7 October 2013. The grievance of the
Petitioner is that the Commission has without ordering an enquiry by the
Commissioner under Section 245D(3), directly proceeded under sub-section (4)
and a letter was received from the Directorate of Investigation of the Settlement
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Commission on 4 October 2013 requiring the inspection of the factory premises
of the Second Respondent. The contention of the Revenue is that in the present
case it was necessary for the Settlement Commission to cause the
Commissioner to make or cause to be made a further enquiry or investigation
and to furnish a report on the matters covered by the application to the
Settlement Commission.
3. Section 245D(3) provides as follows :
"(3) The Settlement Commission, in respect of -
(i) an application which has not been declared invalid under sub-
section (2C); or
(ii) an application referred to in sub-section (2D) which has been
allowed to be further proceeded with under that sub-section,
may call for the records from the Commissioner and after examination of
such records, if the Settlement Commission is of the opinion that any
further enquiry or investigation in the matter is necessary, it may direct the
Commissioner to make or cause to be made such further enquiry or
investigation and furnish a report on the matters covered by the
application and any other matter relating to the case, and the
Commissioner shall furnish the report within a period of ninety days of the
receipt of communication from the Settlement Commission;
Provided that where the Commissioner does not furnish the report within
the aforesaid period, the Settlement Commission may proceed to pass an
order under sub-section (4) without such report."
4. The provisions of sub-section (3) of Section 245D would make it clear that
where an application has not been declared to be invalid by the Settlement
Commission under sub-section (2C), the Commission is empowered to call for
records from the Commissioner and upon the examination of such records, if it is
of the opinion that a further enquiry or investigation in the matter is necessary, it
may direct the Commissioner to do so. The jurisdiction to determine as to
whether a further enquiry or investigation is necessary is thus vested with the
Settlement Commission. In the present case, from the compilation of
correspondence which is placed on the record, it is clear that on 3 October 2013,
the Commissioner of Income Tax (Central) Pune had addressed a
communication to the Settlement Commission setting out that an enquiry under
sub-section (3) of 245D was necessary in respect of certain specific issues. The
grievance of the Petitioner, is that on 19 September 2013 at a hearing before the
Commission it was indicated that the department would be heard on the issue
relating to a Section 245D(3) enquiry on 7 October 2013, but as a matter of fact
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the Commission has not applied its mind to whether an enquiry under Section
245D(3) should be ordered.
5. The learned senior counsel appearing on behalf of the Second
Respondent on the other had has submitted that the issue as to whether an
enquiry under Section 245D(3) should be ordered by the Settlement Commission
has not been finally concluded by the Settlement Commission, and during the
course of the proceedings, the Settlement Commission would apply its mind to
that aspect. As we have noted earlier, by a letter dated 3 October 2013 to the
Settlement Commission, the Commissioner of Income Tax (Central) Pune has
drawn the attention of the Commission to the specific issues on which a further
enquiry or investigation under Section 245D(3) would be necessary.
6.
Sub-section (4) of Section 245D provides as follows :
"(4) After examination of the records and the report of the
Commissioner, if any, received under -
(i) sub-section (2B) or sub-section (3), or
(ii) the provisions of sub-section (1) as they stood immediately before
their amendment by the Finance Act, 2007,
and after giving an opportunity to the applicant and to the Commissioner
to be heard, either in person or through a representative duly authorised
in this behalf, and after examining such further evidence as may be
placed before it or obtained by it, the "Settlement Commission may, in
accordance with the provisions of this Act, pass such order as it thinks fit
on the matters covered by the application and any other matter relating to
the case not covered by the application, but referred to in the report of the
Commissioner."
7. Under sub-section (4) of Section 245D the Settlement Commission has
to : (i) examine the records; (ii) examine the report of the Commissioner, if any,
received under sub-section (2B) or sub-section (3), as the case may be, (or
under sub-section (1) as it stood before the Finance Act 2007); (iii) examine such
further evidence as may be placed before it or obtained by it. The Settlement
Commission is also required to furnish an opportunity to the applicant and to the
Commissioner to be heard before it passes an order under sub-section (4). A
reading together of the provisions of sub-section (3) and sub-section (4) would
indicate that the Settlement Commission is not as a mandate of law required to
order a further enquiry or investigation by the Commissioner under Section
245D(3) in every case. Whether the facts of the case are of such a nature or
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complexity as would require a further enquiry or investigation has to be
determined by the Settlement Commission after it has occasion, upon calling for
the records from the Commissioner and the examination of those records to
decide whether a further enquiry or investigation is necessary. Undoubtedly, if
the Settlement Commission holds that a further enquiry or investigation is
necessary under sub-section (3), such an enquiry or investigation has to be
ordered by the Commissioner because sub-section (3) confers jurisdiction on
the Commissioner to conduct the enquiry or the investigation, as the case may
be. Equally, it is evident both from the language of sub-section (3) and the terms
of sub-section (4) that the Settlement Commission is not required in every case
to cause an enquiry or investigation to be made under sub-section (3). That is
evident by the use of the words "if any" in sub-section (4). Moreover, under sub-
section (4) the Settlement Commission, besides considering the report, if any, of
the Commissioner under sub-section (2B) or sub-section (3) is empowered to
examine such further evidence as may be placed before it or obtained by it.
Evidence placed before the Commission would include evidence which may be
produced either by the assessee or by the Commissioner. Evidence obtained by
the Commission would include evidence which the Commission has obtained
under its own authority. In that sense the powers of the Settlement Commission
are wide. Finally, it may be necessary to note that under sub-section (4) the
Settlement Commission has to pass an order in accordance with the Act as it
thinks fit on matters covered by the application. The Settlement Commission
may also pass an order on any other matter relating to the case not covered by
the application, but which has been referred to in the report of the Commissioner.
Hence, if the Settlement Commission intends to pass an order in respect of any
other matter which has not been referred to in the application, that matter must
be of a nature such that it is referred to in the report of the Commissioner. At this
stage, it would also be necessary to advert to the provisions of sub-section (2) of
Section 245F under which the Settlement Commission has exclusive jurisdiction
to exercise the powers and to perform the functions of the Income Tax authority
under the Act, where an application made under Section 245C has been allowed
to be proceeded with under Section 245D, until an order is passed under sub-
section (4) of Section 245D. This is, however, made subject to the provisions of
sub-section (3). Consequently, where the Commission in the course of its
jurisdiction under Section 245D(3) has ordered an enquiry or investigation by the
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Commissioner, the exclusive nature of its jurisdiction is subject to Section
245D(3).
8. On the record of the case, it is common ground between counsel
appearing on behalf of the Revenue and learned senior counsel appearing on
behalf of the Second Respondent that the Settlement Commission is yet to apply
its mind to whether an enquiry under Section 245D(3) should be ordered. In
view of the statement which has been made on behalf of the Second
Respondent which is consistent with the scheme of the statutory provisions, we
are not inclined to entertain the proceedings at this stage, save and except to
clarify that the Settlement Commission shall during the course of its proceedings
specifically bring to bear its consideration on whether an enquiry under Section
245D(3) should be ordered particularly having regard to the circumstances which
have been set out in the letter of the Commissioner of Income Tax dated 3
October 2013. Since the proceedings are pending before the Settlement
Commission, it would not be appropriate for this Court to entertain the
proceedings any further. We accordingly dispose of the proceedings, having
clarified the legal position.
There shall be no order as to costs.
(Dr. D.Y.Chandrachud, J.)
(M.S. Sonak, J.)
