There must be Validity of application filed before Settlement Commission

Brief about the Case

The matter involves three assessment years, namely,2010-11,2011-12and 2012-13.The Assessee firm was engaged in the business of trading in ferrous and nonferrous metals. During a scrutiny assessment related to A.Y. 2010-11 it was noticed that the second Respondent-Assessee had purchased materials/goods from various parties. In order to verify the genuineness of purchase transactions from one such party, namely, M/s. Nutan Metals, information under section133(6) of the IT Act were called for but the said notice was returned back. However, on 12^thFebruary 2013, Shri Panchanmal Bokadia Proprietor of M/s. Nutan Metals made a statement before the A.O. confirming that the said M/s. Nutan Metals issues bills for earning commission without giving delivery of goods. Accordingly, the A.O determined the highest credit balance as appearing in the ledger account of M/s. Nutan Metals as the peak credit and the same was treated as unexplained expenditure under section 69C of the IT Act and was deemed to be income of the Assessee for the relevant A.Y. 2010-11.Further, it was also found based on information received from the Director of IncomeTax (Intelligence and Criminal Investigation) dated 8^thMarch, 2013,one Shri. Mahendra S. Vora has made huge cash deposits during financial year 2009-10.In a statement before the Income Tax Officer (Intelligence and Criminal Investigation) II, Mumbai,Shri.Mahendra S. Vora admitted that the deposits in the bank account did not pertain to him but to the Assessee firm. Further, statement of Shri Rasiklal M. Morakhia, partner in the Assessee firm was also recorded on the same day who admitted that these deposits pertained to the Assessee firm and did not pertain to Shri. Mahendra S. Vora. The A.O. therefore, held that the cash deposits and other deposit as agreed totaling Rs.1,86,48,101/-belonged to the Assessee firm andt he same was added as income in the hands of the Assessee firm. The Assessment order dated 18^thMarch, 2013 for A.Y. 2010-11was not only passed but also sent to the Assessee firm through Registered Speed Post on 18^thMarch, 2013 itself and the necessary entry on the computerized system of the Department(AST) was also made on 18^thMarch, 2013 itself .For A.Y. 2011-12,a notice u/s 148was issued on 15^thMarch, 2013 and it was served on the Assessee firm on 18^thMarch, 2013. The Assessee firm, knowing fully well that the bogus purchases shown by the Assessee had been detected and also that concealed income in the form of cash deposits had been detected by the Department, filed a settlement application for A.Y. 2010-11to 2012-13on 18^thMarch, 2013 u/s 245C of the IT Act. Before the date of hearing u/s 245D(1) of the IT Act on 22^nd March, 2013, all the relevant facts were before the Settlement Commission. A copy of the order dated 26^th March, 2013 passed by the settlement commission was forwarded to the Petitioner asking for a report under section 245D(2B) of the IT Act. In response, it was brought to the notice of the Settlement Commission that there was no pending assessment for A.Y.2010-11,as the assessment order was already issued before the filing of the settlement application under section 245C of the IT Act. Further, notice under section 148 for A.Y. 2011-12was also served on the Assessee firm before the Assessee filed the application u/s245C of the IT Act. Hence, for both these assessment years, the settlement application filed was invalid. It was also pointed out to the Settlement Commission that even the copies of the detected bank accounts were not submitted by the applicant in the application fo rsettlement and thus, the application did not disclose relevant crucial material facts, hence as per settled law, application is liable to be thrown out by the Settlement Commission. The Settlement Commission however did not consider the arguments of the Petitioner and has brushed aside the case of the Petitioner. The Settlement Commission, in its order passed under section 245D(2C), in its majority view, merely agreed with the Assessee firm by holding that the matter had not reached finality as yet and as such it was debatable whether the issues and the observation made by the Petitioner would apply in the facts and circumstances of the case of the Assessee firm. It is in the above facts and circumstances that the Petitioner impugns the orders passed by the Settlement Commission. By this Writ Petition under Article 226 of the Constitution of India, the Petitioner has prayed for issuance of a writ of certiorari or writ in the nature of certiorari or any other appropriate writ, direction or order to quash and set aside orders passed on 26^thMarch, 2013 and10^thMay, 2013.

Submission of Petitioner

The application for settlement made to the Commission in terms of section 245C of the IT Act was not maintainable. There was no pending assessment for A.Y.2010-11,as the assessment order was already issued before the filing of the settlement application. Further, notice u/s 148 of the IT Act for A.Y. 2011-12 was also served on the Assessee firm before the Assessee filed the application. The pendency of proceedings under the IT Act is a sine quanon for the admission of the application before the Commission. Thus,w hen a notice had been served and assessment order has been passed for two assessment years referred above, the Settlement Commission had no jurisdiction to accept the application. Section 245C of the IT Act mandates a full and true disclosure. The Respondent No. 2 has admitted and owned up the two undisclosed bank accounts. However, copies of the accounts did not form part of the settlement application. Further the disclosure of undisclosed income was much less than what has already been detected by the department as bogus purchases and concealed income by way of cash deposit. If the application was not truthful and complete, then, the Commission was not obliged to entertain it. The assessee had knowledge that the Department was aware of its bogus purchases when it made the settlement application. Yet, it did not make a disclosure of these transactions in the settlement application. The Settlement Commission also was aware through the two captioned reports of the Commissioner and at the hearing about these bogus purchases before it considered the applications for passing the orders under sections 245D(1) and 245D(2C). Still it held by a majority view that full and true disclosure has been made .As rightly held by the third dissenting Member, the Assessee had not made a full and true disclosure of income and the manner of earning the income.

Submission by Respondent-Assessee

The Ld. Counsel appearing on behalf submitted that the Writ Petition has no merit and must be dismissed. The Court cannot substitute its views with that of the Settlement Commission unless it concludes that the order of the Settlement Commission is vitiated by arbitrariness, perversity and malafides. The Settlement Commission is wholly empowered to entertain and admit the application. While admitting and entertaining it, the Commission is not obliged to consider the merits or demerits of the application or the claims raised therein. It was submitted that it is erroneous to assume that the Assessee was aware of the assessment order under section 143(3) of the IT Act. That order was never served on the Assessee. He relied upon para 7 of the affidavit in reply to submit that there is no merit in the contentions of the Petitioner. It was pointed out that between 4^thFebruary, 2013 and 15^thMarch, 2013 the assessee has paid income tax in the sum of Rs.66,28,053/.It was specifically stated that till 15^thMarch, 2013, no notice was received by the respondent firm. On 15^thMarch,2013, the respondent firm paid the sum of Rs.500/as the fee prescribed for filing the application before the Settlement Commission. It was stated that assessment order was dispatched at 8:49 p.m. (20:49 hours)on 18^thMarch, 2013. Relying upon Circular No. 3 of 2008 dated 12^thMarch, 2008 issued by the CBDT, it was urged that the service of the Assessment Order is the crucial and relevant aspect of the matter.

Held by the Court

Para 3 of the impugned order and passed by the majority reads as under:

“We have considered the above argument of the AR. We find that the assessment order is signed on 18.03.2013 and has been dispatched by post to the applicant on the same date in the morning. However, it has been returned unserved by the postal authorities to the department. On the perusal of the envelope containing the assessment order it has also been noticed that the service was refused on 19.03.2013 as well as on 20.03.2013. From the above facts it is clear that although the dispatch of the assessment order has been done on18.03.2013 (the date on which assessment order was passed),the service to the applicant was not made by 18.03.2013. If the refusal is to be accepted as service then the earliest service is on 19.03.2013. Alternate plea of the AR that the applicant be debarred for making the application in the circumstances only w.e.f. 19.03.2013 onwards has also got considerable  force. The delivery of the envelope to the postal authorities on18th cannot be termed as service to the applicant on the same date in the present set of facts.”

It is the conclusion of the Commission that delivery of the envelope to the postal authorities cannot be termed as service. Therefore, the Hon’ble court did not find any force in the contention of Revenue that the assessment order having been served the proceedings for the A.Y. namely 2010-11 were not pending. As far as the A.Y. 2011-12 is concerned, the Commission found in para 4 of the majority order that no notice under section 143(2) of the IT Act has been issued to the second Respondent. However, a notice under section 148 of the IT Act dated 15^thMarch, 2013 has been issued and served on the second Respondent on 18^thMarch, 2013.The argument before the Commission was that the word ‘issued’ should be interpreted as ‘served’. After noticing this argument and other contentions, the majority concluded that the word ‘issued’ in the present context will have to be read as ‘served’. Therefore, for A.Y. 2011-12 aswell, the Commission held that the proceedings are pending. Fo rA.Y. 2012-13,the return of income was filed on 25^thSeptember, 2012, but no notice under section 143(2) has been issued. However, a notice under section 148 of the IT Act dated 15^thMarch,2013 has been served on the Assessee on 18^thMarch, 2013, which is the date of filing the application before the Commission. Even with regard thereto, the Assessee’s representative argued that there could not have been any reassessment proceedings where the time limit to issue notice under section 143(2) still exists and assessment is not barred by limitation. It was found that the thrust of Revenue submissions is that even the member who had given dissenting note has held that the application submitted under section 245C(1) for A.Y. 2010-11and 2011-12is not maintainable and the same is treated as inadmissible but for the A.Y. 2012-13,there is a inconsistent and contradictory finding by the dissenting Member. In para 2 of his note at page 66, the Member holds that the notice under section 148 of the IT Act for A.Y. 2011-12hasbeen served on 18th March, 2013 and therefore proceedings for that A.Y, are not pending. However, for A.Y. 2012-13,he has without referring to para 7 of the majority view agreed with it that the application is maintainable and can be admitted. Thus, on when same facts he holds that proceedings for A.Y. 2011-12are not maintainable, he ought to have agreed with the majority for both years, namely, A.Y. 2011-12and A.Y.2012-13.Therefore, according to the dissenting Member, the application for A.Y. 2012-13is admissible and can be proceeded with. The dissenting member was in error in holding that for the A.Y. 2010-11the proceedings for assessment under the Act are not pending. He has, to the mind of court, wrongly concluded that the assessment order was issued for that assessment year on 18^thMarch,2013 and the same has been dispatched. Such a dispatch would mean service. Further, the thrust of the Revenue arguments is that the Assessee did not make a full and true disclosure of his income for all the three years. The court did not find how this could be said to be a common conclusion for all the three years, inasmuch as, there is assessment order made for only one assessment year. It was found that once the majority holds that the conditions regarding threshold limits for the quantum of tax for additional income, payment of tax and interest thereupon and pendency of proceedings all are fulfilled, then, the application was not liable to be rejected on any technical ground. Suffice it to further hold that the view taken by the majority cannot be termed as perverse or based on no material. It cannot be said to be arbitrary as well. In these circumstances, just because an alternate or other view is possible is not enough to interfere in the Writ Jurisdiction. Thus, all statutory requirements and conditions are complied with. The admission of the Assessee’s application for settlement causes no prejudice to the Revenue nor does it conclude the matter in favour of Respondent No. 2.As a result of the above discussion no substance were found in the Writ Petition. Accordingly it was dismissed.