HIGH COURT OF MADRAS
Assistant Commissioner of Income-tax
TAX CASE (APPEAL) NOS. 1169 to 1171 OF 2005
JUNE 6, 2012
Mrs. Chitra Venkataraman, J.
These tax case appeals have been filed by the assessees against the order of the Income Tax Appellate Tribunal in respect of the block assessment period 1991-92 to 2001-02 raising the following questions of law:-
1. Whether the Tribunal was right in upholding the block assessment made under Section 158BC of the Act by holding that the period taken to approach the Settlement Commission and its rejection is to be excluded and thus the impugned order is not barred by limitation ?
2. Whether the Tribunal was right in holding that Explanation 1(iv) to Section 158BE is retrospective in nature ?
3. Whether the Tribunal was right in law in holding that the surcharge leviable under Section 113 is retrospective in nature ?
4. Whether the Tribunal was right in law in sustaining the interest levied under Section 158BFA(1) of the Act especially when the delay is due to the delay in supply of the seized materials ?
2. As regards the third question of law, learned counsel appearing for the assessees placed the order of this court in T.C.(A) Nos. 246, 247 and 248 of 2008, in respect of three of the partners of the assessee’s firm AND contended that this court had already considered the issue as regards the surcharge levied and the effect of introduction of proviso to Section 113 with effect from 1.6.2002 and held the same against the assessee. Thus, this court by order dated 19.8.2011 in T.C.(A) Nos. 246, 247 and 248 of 2008 in the case of three of the partners of assessee viz., S.V. Rajamanickam, V. Subramaniam and V. Bhoopala Shanmugam following the decision of the Apex Court in CIT v. Rajiv Bhatara  310 ITR 105/178 Taxman 285 held that even without the proviso to Section 113 of the Income Tax Act in the case of block assessment in search cases, the Finance Act, 2001 was applicable in relation to the search initiated in 2000. Thus, the question of law No. 3 stands answered against the assessees.
3. The assessees herein are partnership firms. In the search conducted in the business premises and the residential premises of the partners on 24.8.2000 which continued on 4.9.2000, 13.9.2000 and finally concluded on 23.10.2000, various incriminating materials were seized. Based on the results of the search and seizure, the assessees filed petitions before the Settlement Commission on 31.5.2001. It is a matter on record that notice under Section 158BC of the Act was issued on 18.9.2000 and served on the assessees on 26.9.2000. The assessees are stated to have sought for time for filing the return and ultimately the assessees had filed their return on 27.2.2001. It is seen from the documents placed before this court that the Settlement Commission rejected the petitions filed by the appellants on 11.6.2002 in Settlement Application No. 641/CBE/13/2001-IT. After giving sufficient opportunity to the assessees, ultimately the assessment orders were passed on 26.9.2003. Aggrieved by this assessment, the assessees went on appeal before the Commissioner of Income Tax (Appeals). Among various grounds taken on the merits of the assessment, the assessees contended that the assessment made was barred by limitation since Explanation 1(iv) to Section 158BE not having a retrospective effect, the time during which the applications were pending before the Settlement Commission could not be ignored. In other words, the period during which the applications were pending before the Settlement Commission should not be excluded in the matter of computing the time limit for passing assessment orders under the block assessment procedure. The assessees further pointed out that the insertion of Explanation 1(iv) to Section 158BE under the Finance Act, 2002 with effect from 1.6.2002 is prospective in character. As such even by invoking the Explanation, the applications already filed before the Settlement Commission could not come for any reckoning of the exclusion period. In considering the said issue, the Tribunal held that Explanation 1(iv) to Section 158BE is retrospective in nature; as such the block assessment order passed on 26.9.2003 was well within the limitation period. Aggrieved by the said order, the assessees have come before this court raising the above said questions of law.
4. Learned counsel appearing for the appellants emphasising on the language of the Explanation substituted with effect from 1.6.2002 under the Finance Act 2002, pointed out that the insertion of the clause (iv) in Explanation 1 to Section 158BE covers the cases of applications made after 1.6.2002 alone and cannot have any relevance to the applications made prior to that date. In this connection, he placed reliance on the decision of the Apex Court in CIT v. Suresh N. Gupta  297 ITR 322/166 Taxman 313 and the Kerala High Court decision in Hajee K. Assainar v. CIT  81 ITR 423 and submitted that when the insertion of the Explanation affects the rights of the parties, the insertion of an Explanation has to be read as prospective one.
5. On the contrary, learned Standing Counsel appearing for the Revenue supported the order of the Tribunal and contended that given the fact the Settlement Commission has exclusive jurisdiction to deal with an assessment, the provisions which were available for exclusion of the time limit in respect of the proceedings pending before the Settlement Commission under Section 245HA which was omitted by Finance Act, 2002 with effect from 1.6.2002, was inserted to the Explanation 1 as clause (4) to Section 158BE brought in under the very same Finance Act. He further pointed out that as on the date of insertion of the Explanation 1(iv) to Section 158BE, the applications before the Settlement Commission were very much pending and the order of the Settlement Commission was made only on 11.6.2002. Thus, going by the wordings of the Explanation inserted therein, the said provision would apply to the assessees’ case too. In any event going by Section 158BH, when all other provisions of the Act would apply to the assessment made under Chapter XIVB, the provisions contained in Chapter XIX-A would have relevance in the matter of working out limitation.
6. Heard learned counsel appearing for the appellants and learned Standing Counsel appearing for the Revenue and perused the materials available on record.
7. Before going into the context herein, the provisions under Section 158BE providing for the time limit for completing the block assessment, relevant to the case on hand, particularly with reference to Explanation are usefully extracted hereunder:
Section 158BE Time Limit for completion of block assessment :-
The order under section 158BC shall be passed –
(a) Within one year from the end of the month in which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned after the 30th day of June, 1995 but before the 1st day of January, 1997;
(b) Within two years from the end of the month in which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed in cases where a search is initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997.
(2) The period of limitation for completion of block assessment in the case of the other person referred to in section 158BD shall be –
(a) & (b) ** ** **
Explanation : In computing the period of limitation for the purposes of this section, the period –
(i) to (iii) ** ** **
(iv) in a case where an application made before the Settlement Commission under Section 245C is rejected by it or is not allowed to be proceeded with by it, the period commencing on the date on which such application is made and ending with the date on which the order under sub-section (1) of Section 245D is received by the Commissioner under sub-section (2) of that section.
8. Chapter XIX-A of the Income Tax Act provides for settlement of cases meaning thereby proceeding for settling the assessment under the Act in respect of any assessment year or assessment years pending before the Assessing Officer as on the date on which the application is made under Section 245C(1). Section 245F specifies the powers and procedure of the Settlement Commission. Section 245F states that in addition to the powers conferred on the Settlement Commission under Chapter XIX-A, it shall have all the powers which are vested in an income tax authority under the Act. Section 245HA deals with abatement of the proceedings before the Settlement Commission and the effect of the abatement. In this it also provides for exclusion of the time during which the application was pending before the Settlement Commission for the purpose of calculating the time limit under Sections 149, 153, 154, 155, and 231 and for the purposes of payment of interest under Sections 243 and 244. It may be noted herein that the said provision was once again inserted by Finance Act 2007 with effect from 1.6.2007. We are not concerned about the insertion of the said provision by the Finance Act 2007 since the block assessment relates to the period 1991-92 to 2001-02. The provision as it stood during the material time relevant to the case herein is as follows:-
Section 245HA (1) The Settlement Commission may, if it is of opinion that any person who made an application for settlement under Section 245C has not co-operated with the Settlement Commission in the proceedings before it send the case back to the Assessing Officer who shall thereupon dispose of the case in accordance with the provisions of this Act as if no application under Section 245C had been made.
(2) ** ** **
(3) For the purposes of the time limit under sections 149, 153, 154, 155 and 231 and for the purposes of payment of interest under sections 243, 244 in a case referred to in sub-section (1), the period commencing from on and from the date of the application to the Settlement Commission under Section 245C and ending with the date of receipt by the Assessing Officer of the order of the Settlement Commission sending the case back to the Assessing Officer shall be excluded and where the assessee is a firm, for the purposes of the time limit for cancellation of registration of the firm under sub-section (1) of section 186 the period aforesaid shall, likewise, be excluded.
The above said provision it was omitted under the Finance Act, 2002 with effect from 1.6.2002.
9. A reading of the provisions contained in Section 158BE shows that it provides for time limit for completion of the block assessment, in the cases of search done prior to 1.1.1997 and the search done after 1.1.1997. While in respect of the the search conducted prior to 1.1.1997, the period of limitation given for passing an order under Section 158BE is one year, in respect of the search made after 1.1.1997, the limitation period given is two years. In both cases the limitation is calculated from the end of the month in which the last of the authorisation for search under Section 132 or for requisition under Section 132A as the case may be was executed.
10. Thus, in providing the time limit for completion of the block assessment, the said section also makes the procedure for computing the period of limitation. Explanation 1 provides for exclusion of time. The said Explanation contains four clauses. Explanation 1 clause (iv) with which we are concerned, in computing the period of limitation deals with the applications made before Settlement Commission under Section 245C. A plain reading of the Explanation 1(iv) to Section 158BE reveals that in a case where an application made before the Settlement Commission under Section 245C is rejected by it or is not allowed to be proceeded with by it, then the period commencing on the date on which the application is made and ending with the date on which an order under sub-section (1) of Section 245D is received by the Commissioner would stand excluded in the matter of computing the limitation under Section 158BE.
11. Learned counsel for the assessee placed emphasis on the phrase in Clause (iv) of Explanation 1 particularly, “the period commencing on the date on which such application is made”, to contend that the provision is prospective in nature that applications which are filed on and after 1.6.2002 to the Settlement Commission alone would come for reckoning of the exclusion period as provided under Section 158BE. In other words there are no provisions to cover cases like the assessee to exclude the time during which the application was pending before the Settlement Commission and the amendment being prospective it will cover the cases of applications filed after the amendment.
12. We do not think that such a reading of the provisions in piecemeal is available to the assessee. As already pointed out that the clause (4) of the Explanation begins by saying “where an application made before the Settlement Commission is rejected by it” which means the application which is already pending and rejected also stands covered by the said Explanation. All that Explanation 1 (i) to (iv) provides for is the manner of computing the period of limitation by excluding the time taken as regards certain proceedings under the Act and as for e.g., (1) the period during which the assessment proceeding is stayed by an order or injunction of any court (2) the period commencing from the day on which the Assessing Officer direct the assessee to get his accounts audited under Section 142(2A) and ending on the day on which the assessee is to furnish a report of such audit under the section. That being the case the starting point of the period would be filing of the petition and ending with the date on which an order was received by the Commissioner, all the applications which are pending as on the date of introduction of the Explanation under the Finance Act, 2002 would stand covered by the Explanation.
13. We do not think that there exists any difficulty in understanding the scope of this provision. When the intent of the Section to cover cases pending before the Settlement Commission as on the date of amendment is clear, to hold otherwise that it covers only those applications filed after 1.6.2002 would only bring in an unwarranted strained understanding of the plain language of the Section which it does not call for. Going by the well settled principles on interpretation of statutes that when the language of the section is clear and gives no room for any doubt or ambiguity, the provisions have to be applied as they are. Consequently, given the fact that the scope of Explanation is clarificatory in nature all that the insertion of the Explanation under the Finance Act, 2002 does is to bring in is what was contemplated under Section 245HA since omitted with effect from 1.6.2002 under the Finance Act 2002. In other words what was provided for under Section 245HA is now brought in by way of Explanation 1(iv) under the Finance Act 2002 which by deleting 245HA substitutes Exp. 1 to 158BE.
14. As already pointed out the provisions contained in Chapter XIX-A for settlement of cases is more of a facility offered to the assessee desirous of going before the Settlement Commission to settle the cases by making full and true disclosure of the income which has not been offered or disclosed before the assessing officer. Given the fact that filing of such an application is more in the nature of offer to settle the liability, once an assessee makes an application under Section 245C before the Settlement Commission processed under Section 245D, the Settlement Commission is vested with the exclusive jurisdiction to exercise the authorities of an Income Tax Assessment Officer under the Act which means to the exclusion of all other authorities under the Act, the one and only authority who can deal with the assessment of an assessee is the Settlement Commission. Section 245F is the relevant provision on the powers of the Settlement Commission. Sub-section (1) of Section 245F states that in addition to the powers conferred on the Settlement Commission under the Chapter, it shall have all the powers which are vested in an income tax authority under the Act. Sub-section (2) states where an application under Section 245C is allowed to be proceeded with under Section 245D. Until an order is passed under Section 245D(4) subject to sub-section (3), the Settlement Commission shall have exclusive jurisdiction to exercise the powers and perform the functions of an income tax authority under the Act in relation to the case. Section 245I states that the order passed by the Settlement Commission is conclusive as to the matters stated in its order under Section 245D(4) and the matters covered therein, except as provided in the Chapter shall not be reopened in any proceeding under the Act or under any other law for the time being in force. Thus, when such exclusive jurisdiction is given to the Settlement Commission, rightly under Section 245HA, provisions were made for the exclusion of the period during which the applications were pending before the Settlement Commission. In the background of the jurisdiction of the Settlement Commission, Section 158 BH assumes significance.
15. It is no doubt true that Chapter XIVB is a code by itself laying down the procedure for assessment of search cases pending for computation of undisclosed income of the block period; the assessment of the undisclosed income as a result of the search, the assessment of the undisclosed income of any other person, the procedure for block assessment and the time limit for completion of block assessment. Considering the said provision in the decision in Suresh N. Gupta (supra), the Apex Court pointed out that even though Chapter XIV-B is a complete code by itself yet by reason of Section 158BH, except those specifically provided in the Chapter, all other provisions of the Act to block assessment procedure in Chapter XIVB apply to the case of the block assessment too. For computation of income under Chapter XIV B one has to take note of the normal computation machinery under Chapter IV. Thus, the Apex Court held that there is no conflict between the computation machinery under Chapter XIV-B and the normal computation machinery under Chapter IV. The Apex Court pointed out that this is the importance behind enactment of Section 158BH which inter alia states that if there is no conflict between the provisions of Chapter XIV-B and any other provisions of the 1961 Act, then the latter will operate. Thus, by considering the provision as to whether the surcharge could be levied in respect of a demand made as per Section 113, the Apex Court held that the concept of a charge on the “total income” of the previous year under the 1961 Act is retained even under Chapter XIV-B. Therefore Section 158BB which deals with the computation of undisclosed income of the block period has to be read with computation of total income under Chapter IV of the 1961 Act.
16. While dealing with the issue as regards the levy of surcharge, the Apex Court also observed as to the applicability of all other provisions of the Act as given under Section 158BH. Thus the view of the Apex Court strengthens our view that even without an Explanation, clause (iv) in Section 158BE the provisions contained in respect of exclusion of time limit to matters which were pending before the Settlement Commission under Section 245HA as it stood till its repeal under the Finance Act 2002 with effect from 1.6.2002 would be applicable in respect of block assessment too. Thus with the omission of Section 245HA and insertion of Explanation 1(iv) to Section 158BE, if as on the date of insertion of the Explanation, an application is pending before the Settlement Commission and an order is passed subsequent thereto, the case would stand covered by the Explanation inserted under the Finance Act 2 of 2002.
17. Given the fact that the Settlement Commission order was made on 11.6.2002 and as on the date of insertion to Explanation 1(iv) with effect from 1.6.2002 the applications were pending before the Settlement Commission, we have no hesitation in rejecting the assessees’ contention that the Explanation should not be given retrospective effect. Going by the decision of the Apex Court referred to above, we have no hesitation in rejecting the contention Learned counsel for the assessee placed reliance on the decision of the Kerala High Court in Hajee K. Assainar (supra). It would not be out of context herein to point that even in the said decision in paragraph 12 the Kerala High Court pointed out that if a statute deals merely with the matters of procedure and does not affect the rights of parties, the new procedure would prima facie apply to all pending as well as future actions. As far as the calculation of the limitation and the exclusion of the time limit herein is concerned, the Explanation merely deals with the procedural matters and in any event Explanation being clarificatory in nature and on the strength of the wording of Clause (iv) of Explanation 1 in Section 158BE, we have no hesitation in rejecting the plea of the assessee by confirming the order of the Tribunal. Consequently, the substantial questions of law 1 and 2 raised by the assessees stands rejected.
18. As far as the fourth question of law regarding the levy of interest under Section 158BFA is concerned, the Tribunal pointed out that the contention of the assessee that the delay in furnishing the block return was due to non-supply of the copies of the seized materials to it by the Income Tax Authorities was devoid of merits as the assessee has not brought any positive evidence on record to show that it was in need of vital information without which it was not in a position to complete its block return. In the absence of any materials placed before the Tribunal, the said contention was rejected. Being a pure question of fact and no further materials placed before this court, we do not find any ground to interfere with the order of the Tribunal. Consequently, the fourth substantial question of law also stands rejected. In fine, the Tax Case Appeals stand dismissed and the order of the Tribunal is confirmed. No costs.