CA Ankit Banka

Application for settlement for Assessment year for which no notice Under Section 148 been issued- Sanction for issue of notice

The existing provision contained in clause (b) of section 245A of the Act defines a case for the purpose of Chapter XIX-A as any proceeding for assessment under this Act, of any person in respect of any assessment year or assessment years which may be pending before an Assessing Officer on the date on which an application under sub-section (1) of section 245C is made. The Explanation to the said clause provides for deemed commencement of proceedings under different situations.

Clause (i) of the Explanation to clause (b) of section 245A provides that the proceeding for assessment or reassessment under section 147 of the Act is deemed to commence from the date of issue of notice under section 148 of the Act. It has been observed that issue relating to escapement of income is often involved in more than one assessment year. In such case the assessee becomes eligible to approach Settlement Commission only for the assessment year for which notice under section 148 has been issued. Therefore, to take the proceeding for all other assessment years where there is escapement, the assessee becomes eligible only after notice under section 148 has been issued for all such assessment years.

In order to obviate the need for issue of notice in all such assessment years for commencement of pendency, it is proposed to amend clause (i) of the said Explanation to provide that where a notice under section 148 is issued for any assessment year, the assessee can approach Settlement Commission for other assessment years as well even if notice under section 148 for such other assessment years has not been issued. However, a return of income for such other assessment years should have been furnished under section 139 of the Act or in response to notice under section 142 of the Act.

Deemed commencement of proceedings

The existing provision contained in clause (iv) of the Explanation provides that a proceeding for any assessment year, other than the proceedings of assessment or reassessment referred to in clause (i) or clause (iii) or clause (iiia), shall be deemed to have commenced from the 1st day of the assessment year and concluded on the date on which the assessment is made.

It is proposed to amend clause (iv) of the Explanation to provide that a proceeding for any assessment year, other than the proceedings of assessment or reassessment referred to in clause (i) or clause (iii) or clause (iiia), shall be deemed to have commenced from the date on which a return of income is furnished under section 139 or in response to notice under section 142 and concluded on the date on which the assessment is made or on the expiry of two years from the end of relevant assessment year, in a case where no assessment is made.

Extended time period for rectification of mistake apparent from the record

The existing provision contained in sub-section (6B) of section 245D of the Income-tax Act provides that the Settlement Commission may, at any time within a period of six months from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (4).

There is no provision for additional time where the assessee or the Commissioner files an application for rectification towards the end of the limitation period. Accordingly, it is proposed to amend sub-section (6B) of section 245D of the Income-tax Act to provide that the Settlement Commission may, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (4),-

  • at any time within a period of six months from the end of month in which the order was passed;
  • on an application made by the Principal Commissioner or Commissioner before the end of period of six months from the end of month in which the order was passed, at any time within a period of six months from the end of month in which such application was made.

Immunity from prosecution

The existing provision contained in sub-section (1) of section 245H of the Income-tax Act provides that the Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 245C has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his income and the manner in which such income has been derived, grant to such person, immunity from prosecution.

As immunity is provided from prosecution by the Settlement Commission, it is proposed to amend sub-section (1) of section 245H of the Income-tax Act so as to provide that the Settlement Commission while granting immunity to any person shall record the reasons in writing in the order passed by it.

Abatement of proceedings

The existing provision contained in sub-section (1) of section 245HA of the Income-tax Act provides for abatement of proceedings in different situations.

It is proposed to amend sub-section (1) of section 245HA of the Income-tax Act to provide that where in respect of any application made under section 245C, an order under sub-section (4) of section 245D has been passed without providing the terms of settlement the proceedings before the Settlement Commission shall abate on the day on which such order under sub-section (4) of section 245D was passed.

Approach to Settlement Commission by Assessee and his related Concern or Relatives only once

The existing provision contained in section 245K of the Income-tax Act, provides that where an application of a person has been allowed to be proceeded with under sub-section (1) of section 245D, then such person shall not be subsequently entitled to make an application before Settlement Commission. It further provides that in certain situations the person shall not be entitled to apply for settlement before Settlement Commission.

The restriction is presently applicable to a person. Therefore, an individual who has approached the Settlement Commission once can subsequently approach again through an entity controlled by him. This defeats the purpose of restricting the opportunity of approaching the Settlement Commission only once for any person. Accordingly, it is proposed to amend section 245K of the Income-tax Act to provide that any person related to the person who has already approached the Settlement Commission once, also cannot approach the Settlement Commission subsequently. The related person with respect to a person means,-

  • where such person is an individual, any company in which such person holds more than fifty percent. of the shares or voting power at any time, or any firm or association of person or body of individual in which such person is entitled to more than fifty percent of the profits at any time, or any Hindu undivided family in which such person is a karta;
  • where such person is a company, any individual who held more than fifty percent. of the shares or voting power in such company at any time before the date of application before the Settlement Commission by such person;
  • where such person is a firm or association of person or body of individual, any individual who was entitled to more than fifty percent. of the profits in such firm, association of person or body of individual, at any time before the date of application before the Settlement Commission by such person;
  • where such person is an Hindu undivided family, the karta of that Hindu undivided family.

Adjustment of asset seized under section 132 or requisitioned under section 132A

The existing provision contained in section 132B of the Income-tax Act, provides that the asset seized under section 132 or requisitioned under section 132A may be adjusted against the amount of existing liability under the Income-tax Act, the Wealth-tax Act etc. and the amount of liability determined on completion of assessment.

It is proposed to amend section 132B of the Income-tax Act to provide that the asset seized under section 132 or requisitioned under section 132A may also be adjusted against the amount of liability arising on an application made before the Settlement Commission under sub-section (1) of section 245C.

These amendments will take effect from 1st day of June, 2015.

NOTE ON RELEVANT CLAUSES  OF FINANCE BILL 2015

Clause 35 of the Bill seeks to amend section 151 of the Income-tax Act relating to sanction for issue of notice.

The existing provisions contained in section 151 of the Act provides for sanction from certain authorities before issue of notice under section 148. The section specifies different sanctioning authorities for the cases where earlier assessment has been made under sub-section (3) of section 143 or section 147 and othercases (where no assessment has been so made). Requirement of sanction are also dependent on whether notice is proposed to be issued within or after four years from the end of relevant assessment year. The rank of the Assessing Officer proposing to issue such notice is also relevant to decide whose sanction is required.

It is proposed to amend the said section so as to provide that no notice shall be issued under section 148 by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice. It is further proposed that in any other case, no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice.

This amendment will take effect from 1st day of June, 2015.

Clause 57 of the Bill seeks to amend section 245A of the Income-tax Act relating to definitions in respect of settlement of cases.

The existing provision contained in clause (b) of the aforesaid section defines a case for the purpose of Chapter XIX-A as any proceeding for assessment under this Act, of any person in respect of any assessment year or assessment years which may be pending before an Assessing Officer on the date on which an application under sub-section (1) of section 245C is made. The Explanation to the said clause provides for deemed commencement of proceedings under different situations.

It is proposed to amend clause (i) of the Explanation to clause (b) of the said section to provide that a proceeding for assessment or reassessment or recomputation under section 147 shall be deemed to have commenced––

(a)      from the date on which a notice under section 148 is issued for any assessment year;

(b)      from the date of issuance of such notice referred to in sub-clause (a), for any other assessment year or assessment years for which a notice under section 148 has not been issued but such notice could have been issued on such date, if the return of income for the other assessment year or assessment years has been furnished under section 139 or in response to a notice under section 142.

The existing provisions contained in clause (iv) of the Explanation to clause (b) of section 245A provide that a proceeding for assessment for any assessment year, other than the proceedings of assessment or reassessment referred to in clause (i) or clause (iii) or clause (iiia) of the Explanation, shall be deemed to have commenced from the 1st day of the assessment year and concluded on the date on which the assessment is made.

It is proposed to amend clause (iv) of the said Explanation to provide that the proceeding for assessment shall be deemed to have commenced from the date on which a return of income for that assessment year is furnished under section 139 or in response to notice under section 142 and concluded on the date on which the assessment is made, or on the expiry of two years from the end of relevant assessment year in case where no assessment is made.

This amendment will take effect from 1st June, 2015.

Clause 58 of the Bill seeks to amend section 245D of the Income-tax Act relating to procedure on receipt of an application under section 245C.

The existing provision contained in sub-section (6B) of section 245D of the Income-tax Act provides that the Settlement Commission may, at any time within a period of six months from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (4).

It is proposed to amend the said sub-section (6B) to provide that the Settlement Commission may, with a view to rectify any mistake apparent from the record, amend any order passed by it under sub-section (4)––

(a)      at any time within a period of six months from the end of month in which the order was passed;

(b)      on an application made by the Principal Commissioner or Commissioner before the end of the period of six months from the end of the month in which such application was made.

This amendment will take effect from 1st June, 2015.

Clause 59 of the Bill seeks to amend section 245H of the Income-tax Act relating to power of Settlement Commission to grant immunity from prosecution and penalty.

The existing provision contained in sub-section (1) of section 245H of the Income-tax Act provides that the Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 245C has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his income and the manner in which such income has been derived, grant to such person, immunity from prosecution.

It is proposed to amend the said sub-section to provide that the Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 245C has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his income and the manner in which such income has been derived, grant to such person, for the reasons to be recorded in writing, immunity from prosecution.

This amendment will take effect from 1st June, 2015.

Clause 60 of the Bill seeks to amend section 245HA of the Income-tax Act relating to abatement of proceeding before Settlement Commission.

The existing provision contained in sub-section (1) of section 245HA of the Income-tax Act provides for abatement of proceedings in different situations.

It is proposed to amend sub-section (1) of section 245HA of the Income-tax Act to provide that where in respect of any application made under section 245C, an order under sub-section (4) of section 245D has been passed not providing for the terms of settlement then, the proceedings before the Settlement Commission shall abate on the day on which the order under sub-section (4) of section 245D was passed not providing for the terms of settlement.

This amendment will take effect from 1st June, 2015.

Clause 61 of the Bill seeks to amend section 245K of the Income-tax Act relating to bar on subsequent application for settlement.

The existing provisions contained in the aforesaid section provides that where an application of a person has been allowed to be proceeded with under sub-section (1) of section 245D, then, such person shall not be subsequently entitled to make an application before the Settlement Commission. It further provides that in certain situations the person shall not be entitled to apply for settlement before the Settlement Commission.

It is proposed to amend section 245K of the Income-tax Act to provide that any person related to the person who is barred on subsequent application for settlement also cannot make any application subsequently before the Settlement Commission. The expression “related person” with respect to a person has also been clarified to mean,: ––

(i) where such person is an individual, any company in which such person holds more than fifty per cent. of the shares or voting power at any time, or any firm or association of person or body of individual in which such person is entitled to more than fifty per cent. of the profits at any time, or any Hindu undivided family in which such person is a karta;

(ii)      where such person is a company, any individual who held more than fifty per cent. of the shares or voting power in such company at any time before the date of application before the Settlement Commission by such person;

(iii)     where such person is a firm or association of person or body of individual, any individual who was entitled to more than fifty per cent. of the profits in such firm, association of persons or body of individuals, at any time before the date of application before the Settlement Commission by such person;

(iv) where such person is an undivided Hindu family, the karta of that Hindu undivided family.

This amendment will take effect from 1st June, 2015.

EXTRACT OF RELEVANT CLAUSES FROM FINANCE BILL 2015

35. Substitution of new section for section 151

Sanction for issue of notice.    

For section 151 of the Income-tax Act, the following section shall be substituted with effect from the 1st day of June, 2015, namely:—

“151. (1) No notice shall be issued under section 148 by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice.

(2)      In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.

(3)      For the purposes of sub-section (1) and sub-section (2), the Principal Chief Commissioner or Chief Commissioner or the Principal Commissioner or Commissioner or the Joint Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself.”.

57. Amendment of section 245A.

In section 245A of the Income-tax Act, in clause (b), in the Explanation, with effect from the 1st day of June, 2015,—

(A)     for clause (i), the following clause shall be substituted, namely:—

“(i) a proceeding for assessment or reassessment or recomputation under section 147 shall be deemed to have commenced—

(a) from the date on which a notice under section 148 is issued for any assessment year;

(b) from the date of issuance of the notice referred to in sub-clause (a), for any other assessment year or assessment years for which a notice under section 148 has not been issued, but such notice could have been issued on such date, if the return of income for the other assessment year or assessment years has been furnished under section 139 or in response to a notice under section 142;”;

(B)     in clause (iv), for the words, figure and letters “from the 1st day of the assessment year and concluded on the date on which the assessment is made” occurring at the end, the words and figures “from the date on which the return of income for that assessment year is furnished under section 139 or in response to a notice served under section 142 and concluded on the date on        which the assessment is made; or on the expiry of two years from the end of relevant assessment year, in case where no assessment is made” shall be substituted.

58. Amendment of section 245D.

In section 245D of the Income-tax Act, for sub-section (6B), with effect from the 1st day of June, 2015, the following sub-section shall be substituted, namely:—

“(6B) The Settlement Commission may, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (4)—

(a)      at any time within a period of six months from the end of the month in which the order was    passed; or

(b)      at any time within the period of six months from the end of the month in which an application for rectification has been made by the Principal Commissioner or the Commissioner or the applicant, as the case may be:

Provided that no application for rectification shall be made by the Principal Commissioner or the Commissioner or the applicant after the expiry of six months from the end of the month in which an order under sub-section (4) is passed by the Settlement Commission:

Provided further that an amendment which has the effect of modifying the liability of the applicant shall not be made under this sub-section unless the Settlement Commission has given notice to      the applicant and the Principal Commissioner or Commissioner of its intention to do so and has       allowed the applicant and the Principal Commissioner or Commissioner an opportunity of being heard.”.

59. Amendment of section 245H.

In section 245H of the Income-tax Act, in sub-section (1), with effect from the 1st day of June, 2015, after the words “subject to such conditions as it may think fit to impose”, the words “for the reasons to be recorded in writing” shall be inserted.

60 . Amendment of section 245HA

In section 245HA of the Income-tax Act, in sub-section (1), with effect from the 1st day of June, 2015,—

(A)     after clause (iii), the following clause shall be inserted, namely:—

“(iiia) in respect of any application made under section 245C, an order under sub-section (4) of section 245D has been passed not providing for the terms of settlement; or”;

(B)     in the Explanation, after clause (c), the following clause shall be inserted, namely:—

“(ca) in respect of an application referred to clause (iiia), the day on which the order under sub-section (4) of section 245D was passed not providing for the terms of settlement;”.

61. Amendment of section 245K.

In section 245K of the Income-tax Act, with effect from the 1st day of June, 2015,—

(A)     in sub-section (1), for the words “he shall not be entitled to apply”, the words and brackets “he          or any person related to such person (herein referred to as related person) shall not be entitled to apply” shall be substituted;

(B)     in sub-section (2), for the words “shall not be subsequently entitled”, the words “or any related person shall not be subsequently entitled” shall be substituted;

(C) after sub-section (2), the following Explanation shall be inserted, namely:—

‘Explanation.—For the purposes of this section, “related person” with respect to a person means,—

(i)       where such person is an individual, any company in which such person holds more than fifty per cent. of the shares or voting rights at any time, or any firm or association of persons or body of individuals in which such person is entitled to more than fifty per cent of the profits at     any time, or any Hindu undivided family in which such person is a karta;

(ii)      where such person is a company, any individual who held more than fifty per cent. of the shares or voting rights in such company at any time before the date of application before the Settlement Commission by such person;

(iii) where such person is a firm or association of persons or body of individuals, any individual  who was entitled to more than fifty per cent. of the profits in such firm, association of persons or body of individuals, at any time before the date of application before the Settlement Commission by such person;

( Compiled by Taxguru Team jointly with CA Ankit Banka)

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