An Interplay - Income Tax Search and Seizure and Income Tax Settlement Commission

Introduction

Chapter XIX-A of the Act pertains to the settlement of cases. Under sub-section (1) of section 245C of the Act, an assessee at any stage of a case relating to him can make an application for settlement in the prescribed manner.

The term 'case' has been defined in clause(b) of section 245A as to mean any proceedings of assessment under the Act of a 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 of the Act is made. Finance Act 2010 w.e.f. 01-06-2010 inserted Explanation clause (iiia) to Section 245A(b) which as under :

"a proceeding for assessment or reassessment for any of the assessment years referred to in clause (b) of sub-section (1) of section 153A in case of a person referred to in section 153A or section 153C, shall be deemed to have commenced on the date of issue of the notice initiating such proceeding and concluded on the date on which the assessment is made; "

Therefore the issue of conclusion of an assessment as mandated in Explanation clause (iiia) to Section 245A(b) is of wide import as an assessee can only file an application for settlement at any stage of a case relating to him though during the pendency of such case. Thus, if the case is concluded, the pendency of the case ends and the doors of the Settlement Commission are closed for an assessee. In other words, if a case as defined in clause (b) of section 245A has concluded, application for settlement would not be maintainable. As per the explanation (iiia) above, the definition of the term 'case', the assessment under section 153A would be deemed to conclude on the date on which the assessment is made.

Issue under consideration

Whether merely 'the passage' or 'only service' of an assessment order shall oust the pendency of a case thereby closing the doors of Income Tax Settlement Commission

Now a very vital question arises, as to whether merely the passage of the assessment order shall oust the pendency of such a case or

Only service of assessment order shall oust the pendency of such a case.

This is a very controversial issue owing to conflicting judgments of the courts.

Let us understand the moot issue with help of an illustration. Lets us assume that in pursuance of a search in the case of Mr. X on 20-02-2018, notices were issued for A.Y.’s 12-13 to 18-19. The assessments for the above mentioned years have to be framed on or before 31-12-2019 u/s 153A r.w.s 153B. Now, Mr. X being desirous to approach the ITSC, informed the AO on 01-12-2019 to keep the assessment proceedings in abeyance as he is desirous to approach the ITSC for prompt settlement of its cases. Owing to the time limitation of the assessment orders which have to be passed before 31-12-2019, the AO has passed the assessment orders on 22-12-2019, however, the copy of the order was received by the assessee only on 29-12-2019. The assessee meanwhile on 26-12-2019 had filed an application to the ITSC and intimated the AO.

Now considering the factual matrix of this illustration, a question arises as to whether the pendency in the cases of Mr. X has ousted since the orders have been passed before the date of filing the application. To the contrary, since the assessment orders have not been yet received by Mr.X on the date of filing of the application before ITSC, therefore can it be said that pendency very much exists and has not been ousted.

The illustration laid down above can be said to be a classic example of what sometimes happens in the central circles. This is more likely due to the fact that as to whether to approach ITSC or not is a long-drawn decision process as far as the assessee is concerned. He has to weigh both pros and cons, arrange funds for the pre-payment of taxes which runs against the time limitation in which the assessment orders have to be framed u/s 153A r.w.s. 153B of the act. The AO on the other hand cannot keep the assessment proceedings in abeyance unless and until the assessee files an intimation before him on prescribed Form 34BA on having made an Application to ITSC u/s 245C.

The issue has been a subject matter of debate and litigation for a long time.

Having said so, on the plain reading of clause (b) of section 245A in conjunction with its explanation (iiia), it appears that as per the language used, the assessment proceedings shall conclude on the date on which the assessment is made which will oust the pendency and thereby close the doors of settlement. It is worthwhile to mention that the legislation doesn’t specifically and unambiguously states that the date of the conclusion is related to the date on which the assessment order is served nor to the date on which it is dispatched for service. If one, therefore, were to give the plain meaning interpretation to this expression, the assessment would be deemed to be concluded on the date on which such order of assessment is passed.

It is further pertinent to mention here is that under sub section (1) of section 245C of the Act, an assessee can file an application for settlement at any stage of a case relating to him. A case means any proceeding for assessment or reassessment which may be pending before the Assessing Officer on the date of making an application for settlement. Thus pendency of assessment proceeding is of vital importance for maintaining an application under sub section (1) of section 245C of the Act. Upon an application for settlement being filed, the same would pass through various stages envisaged in section 245D of the Act. Under sub section (2) of section 245F, where an application made under section 245C has been allowed to be proceeded with under section 245D, the Settlement Commission shall, until an order is passed under subsection (4) of section 245D, have exclusive jurisdiction to exercise the powers and perform the functions of an income tax authority under the Ac in relation to the cases. The proviso to sub section (2) of Section 245F provides that where an application has been made under section 245C on or after the 1st day of June 2007, the Settlement Commission shall have such exclusive jurisdiction from the date on which the application was made. Thus, upon making of an application before the Settlement Commission, the Assessing Officer would be, divested of his jurisdiction over the case which would vest exclusively in the Settlement Commission. Sub section (7) of section 245D however provides that where a settlement becomes void, proceedings with respect to the matters covered by the settlement shall be deemed to have been received from the stage where the application was allowed to be proceeded with by the Settlement Commission and the income-tax authority concerned, and notwithstanding anything contained in the provisions of the Act, complete such proceedings at any time before the expiry of two years from the end of the financial year in which the settlement become void.

Therefore, the statutory provisions noted above manifest the intention of the legislature to vest the jurisdiction to process a case of the assessee either in the Settlement Commission or in the Assessing Officer. No sooner an application for settlement is filed under sub section (1) of section 245C of the Act, the Assessing Officer would be divested of his jurisdiction to assess the return further. The jurisdiction would vest solely and exclusively in the Settlement Commission. If for some reason as envisaged under section 245D of the Act, proceeding for settlement becomes void, under subsection (7) thereof, the proceedings before the Assessing Officer would be deemed to have revived upon which he would complete the assessment within the extended time frame provided therein. The overwhelming intention of the legislature thus is that there can be only one order concerning an assessment, be it by the Assessing Officer termed as the order of assessment or by the Settlement Commission termed as settlement order. There cannot be the order of assessment by the Assessing Officer for the same period for which the Commission would also pass the order of settlement.

Now, keeping in view the aforementioned legislative intent, if it is construed though only for the sake of academic purposes and arguments that the date of assessment be construed as the date on which the order is served and till such time such order is served to the assessee the pendency continues thereby enabling the assessee to approach the ITSC based on such pendency, it could lead to a conflicting situation. In such a case, as far as the department is concerned they would have already framed a valid assessment. On the other hand, the ITSC shall also take cognizance of the application so filed before it. In my considered opinion, there is no provision under which the order of assessment already passed by the Assessing Officer under such a situation would be obliterated. Surely, the legislature would never bring about a situation where an order of assessment would remain on record in respect of the same period for which the Settlement Commission would pass a settlement order. The statutory provisions noted above manifest the intention of the legislature to vest the jurisdiction to process a case of the assessee either in the Settlement Commission or in the Assessing Officer. No sooner an application for settlement is filed under sub section (1) of section 245C of the Act, the Assessing Officer would be divested of his jurisdiction to assess the return further. The jurisdiction would vest solely and exclusively in the Settlement Commission. If for some reason as envisaged under section 245D of the Act, proceeding for settlement becomes void, under subsection (7) thereof, the proceedings before the Assessing Officer would be deemed to have revived upon which he would complete the assessment within the extended time frame provided therein. The overwhelming intention of the legislature thus is that there can be only one order concerning an assessment, be it by the Assessing Officer termed as the order of assessment or by the Settlement Commission termed as settlement order. There cannot be the order of assessment by the Assessing Officer for the same period for which the Commission would also pass the order of settlement.

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