Income Tax Act, 1961 – Sections 132, 147, 148 and 245 – Reopening of assessment – Validity – By way of present petition, Petitioner has challenged notice issued under Section 148 of the Act for Assessment Year 2014-15 – HELD – Consequent to search and seizure action carried out under Section 132 of the Act, proceedings were initiated against Petitioner – Petitioner had approached Income Tax Settlement Commission by filing an application under Section 245C(1) of the Act – Settlement Commission passed order under Section 245D(4) of the Act by assessing total income and directed Petitioner to pay tax along with interest – Act envisages only one order concerning a case of assessee, it may either be an order of settlement passed by Settlement Commission or an order of assessment passed by Assessing Officer, but not both – Once an order has been made by Settlement Commission under Section 245D(4) of the Act, same is conclusive and final in respect of assessment for assessment year in relation to which such order has been passed – Since assessment has been concluded by Settlement Commission, Assessing Officer has no jurisdiction to reopen assessment by invoking provision of Section 147 of the Act – Impugned notice issued under Section 148 of the Act is quashed and set aside – Petition allowed

 

2023-VIL-144-GUJ-DT

 

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

 

R/SPECIAL CIVIL APPLICATION NO. 3623 of 2022

 

Date: 25.09.2023

 

M/s JP STRUCTURES PRIVATE LIMITED

 

Vs

 

ASSISTANT COMMISSIONER OF INCOME TAX

 

For the Petitioner: MR. HARDIK V VORA (7123)

For the Respondent: KARAN G SANGHANI (7945)

 

CORAM

HONOURABLE MR. JUSTICE BIREN VAISHNAV

HONOURABLE MR. JUSTICE BHARGAV D. KARIA

 

ORAL JUDGMENT

 

(PER: HONOURABLE MR. JUSTICE BIREN VAISHNAV)

 

1. By way of the present petition, the petitioner has challenged the notice dated 27.03.2021 issued under Section 148 of the Income Tax Act, 1961 of the assessment year 2014-15.

 

2. Facts in brief are as under:

 

2.1 The petitioner company is engaged in the business of Civil Construction on a contract basis mostly for Government and Semi-Government agencies. On 13.04.2016, search and seizure action was carried out under Section 132 of the Act at Dobariya/Sodha Group by the department on 18.12.2013. The petitioner had filed an application under Section 245C(1) of the Act on 30.10.2014 for A.Y. 2010-11 to 2014-15 before the Income Tax Settlement Commission. The Settlement Commission passed an order under Section 245D(4) of the Act assessing a total income of Rs.22,02,86,457/- and directed the petitioner to pay tax along with interest.

 

2.2 Consequentially on 06.06.2016, the Assistant Commissioner of income Tax, Central Circle (1), passed an order under Section 245D(6) of the Act giving effect to the order of the Settlement Commission.

 

2.3 A notice under Section 148 of the Act was issued. The petitioner raised objections on 06.04.2021 inter-alia, stating that since the assessment has been concluded by the Settlement Commission, the Assessing Officer has no jurisdiction to reopen the same. The respondent issued a notice on 03.12.2021 and asked the petitioner to file a return under Section 148 of the Act. The petitioner reiterated his objection, to which, on 04.02.2022, the respondent passed a rebuttal order stating that the objections in the petition are rejected on necessary verification and from the details available, there was reason to believe that there was escapement of income.

 

3. Mr. Hardik Vora learned counsel for the petitioner would invite the attention of the Court in case of Komal kant Faikir chand Sharma Vs. Deputy Commissioner of Income-tax Circle1 reported in [2019] 108 taxmann.com 50 (Gujarat) and submit that the Assessing Officer had no jurisdiction to reopen the assessment.

 

4. Mr. Karan Sanghani learned Senior Standing Counsel for the department submitted that the petitioner has failed to fully and truly disclose income details and to show as to how it had not escaped assessment. He would submit that with the introduction of Section 245H(2) there was a clear intent of the legislature to deter any instances whereby the assessee has ignored true and full disclosure which is subsequently found even after the order of the Settlement Commission.

 

5. Having considered the submissions made by the learned counsel for the respective parties, it is not in dispute that the issue is covered by a Division Bench of this Court in case of Komalkant Faikirchand Sharma (supra). The relevant paragraphs read as under:

 

“5.2 Dealing with the contention raised on behalf of the petitioner that the reopening of assessment is bad on the ground that earlier the matter had travelled to the Settlement Commission and the Settlement Commission had passed an order under section 245D(4) of the Act and hence, the Assessing Officer has no jurisdiction to reopen the assessment, the learned senior standing counsel drew the attention of the court to the provisions of section 245I of the Act to submit that the same provides that the order of the Settlement Commission passed under subsection (4) of section 245D of the Act shall be conclusive as to the matters stated therein and no matter covered by such order shall be reopened in any proceeding under the Act. It was submitted that therefore, what is conclusive is the matter stated in the order of the Settlement Commission, whereas the income, which is stated to have escaped assessment in the present case, was not a matter before the Settlement Commission, and hence, the order of the Settlement Commission would not be conclusive in respect of matters in relation to which the assessment is sought to be reopened by the Assessing Officer, as there was no consideration of the said issue by the Settlement Commission. Therefore, the reopening of assessment is valid and legal.

 

5.3 It was further submitted that sub section (5) of section 245D of the Act provides that subject to the provisions of section 245BA of the Act, the materials brought on record before the Settlement Commission shall be considered by the Members of the concerned Bench before passing any order under subsection (4) of section 245D of the Act and in relation to passing of such order, the provisions of section 245BD shall apply. It was submitted that the material, on the basis of which the Assessing Officer seeks to reopen the assessment, was not brought on record before the Settlement Commission and therefore, the Settlement Commission had no opportunity to consider the same before passing the order under section 245D(4) of the Act.

 

5.4 Reliance was placed upon the decision of Supreme Court in Brij Lal & Ors. v. Commissioner of Income Tax, Jalandhar, 2010 (328) ITR 477, reference to which shall be made at a later stage.

 

5.5 Reliance was also placed upon the decision of the Delhi High Court in Gupta Perfumers (P) Ltd. v. Income Tax Settlement Commission & Ors., 2012 (348) ITR 86, wherein the court held that section 245I of the Act states that the order of the Settlement Commission under section 245D(4) shall be conclusive as to the matters stated therein and save as otherwise provided no matter in the said order shall be reopened in any proceedings. The use of the words "save as otherwise provided" in that Chapter refers to the reopening of matters, which are conclusively decided. The conclusiveness attached to the orders of the Settlement Commission relates to the matters stated in the orders of the Settlement Commission.

 

5.6 Reliance was also placed upon the decision of Bombay High Court in Rajiv Yashwant Bhale v. The Principal Commissioner of Income Tax, (2018) 401 ITR 408, wherein the court has held that the conclusivity of the order passed by the Settlement Commission is to the matters stated in such order passed under section 245D(4) of the Act, whereas, in this case, the matters in respect of which the assessment is sought to be reopened, have not been decided by the Settlement Commission and hence, there is no bar against reopening the assessment under section 147 of the Act.

 

6. In the backdrop of the facts and contentions noted herein above, it is evident that in this case, the validity of the reopening of assessment by the Assessing Officer under section 147 of the Act has been called in question, principally, on two grounds. Firstly, that in this case, after the search was conducted and proceedings were initiated against the petitioner, the petitioner had approached the Settlement Commission, which had passed an order under section 245D(4) of the Act, which has become final and conclusive and, therefore, the Assessing Officer has no jurisdiction to reopen the assessment. Secondly, on merits, on the reasons recorded, the Assessing Officer could not have formed the belief that income chargeable to tax has escaped assessment.

 

7. Insofar as the first question is concerned, it may be germane to refer to the decisions relied upon by the learned counsel for the respective parties. In Omaxe Ltd. v. Assistant Commissioner of Incometax (supra), the Delhi High Court was considering a case where the assessment was sought to be reopened by issuing a notice under section 148 of the Act. The court held that a harmonious reading of the provisions of the statute would show that it does not postulate the existence of two orders, each of a different incometax authority, determining the total income of an assessee for the same assessment year. It was held that if the contention of the Revenue is accepted, not only will the finality of the order of settlement be disturbed, but it will also result in different orders relating to the same assessment year and relating to the same assessee being allowed to stand. The court observed that the order of the Settlement Commission can be reopened only in cases of fraud and misrepresentation and in no other case. It further held that if the order of settlement is an assessment order and under section 245I of the Act, there is a finality attached to it, it is difficult to conceive of a situation where the Assessing Officer would be empowered to reopen the assessment of the income made by the Settlement Commission on any ground. The only ground by which the finality of the order of the Settlement Commission can be disturbed is where it is subsequently found by the Settlement Commission itself that its order has been obtained by fraud or misrepresentation of facts. The court placed reliance upon the decision of Allahabad High Court in the case of CIT v. Smt. Diksha Singh, [2011] 201 Taxman 378, wherein it was held that since the legislature in its wisdom had conferred powers on the Settlement Commission to reopen the proceedings in certain circumstances and to deal with the situation in the event of commission of fraud or misrepresentation and has left it to the Settlement Commission to deal with such contingencies, it cannot be postulated that the Assessing Officer or any other income tax authority will have jurisdiction to assess the tax for the same financial year despite the finality and conclusiveness of the order of settlement. It was further held that there cannot be piecemeal determination of the income of an assessee for the relevant period, one by the Settlement Commission and another by the assessing authority, and to hold otherwise would be to frustrate the very purpose of filing an application before the Settlement Commission for settlement. The court further observed that the question therein was what would be the position when an order under section 245D(4) is passed by the Settlement Commission and whether such an order can be construed as one dealing with the entire gamut of the return filed by the assessee and the issues raised therein, and held that since the exclusive jurisdiction to exercise the powers and perform the functions of an income tax authority in relation to the case vests with the Settlement Commission, after an order is passed under section 245D(1) till the final settlement order is passed under section 245D(4) of the Act, it is not possible to countenance a situation where it can be said that the assessee's claim for deduction was not the subject matter of the order passed by the Settlement Commission under section 245D(4) of the Act.

 

7.1 In Mandhana Industries Ltd. v. Principal Commissioner of Incometax Central1 (supra), the Bombay High Court held that the provisions of section 245D read with section 245H, 245I and 245F of the Act make it abundantly clear that a case could either be dealt with by the concerned income tax authority or the Settlement Commission, but not both. The court held that the Act envisages only one order concerning a case of the assessee, it may either be an order of settlement passed by the Settlement Commission or an order of assessment passed by the Assessing Officer, but not both. The court further referred to the relevant provisions contained in Chapter XIXA of the Act and came to the conclusion that once an application for settlement of a case is filed before the Settlement Commission and is allowed to pass through various stages under section 245D of the Act, it is only the Settlement Commission which can pass any order concerning such a case. At all stages, the Act refers to a case for which an application for settlement can be filed, a case which the Settlement Commission considers for settlement, a case the Commission either allows to be settled or does not allow to be so settled. The court further held that the Act does not envisage a return of an assessee to be split into two parts, one for consideration before the Settlement Commission by way of settlement and another for normal assessment at the hands of the Assessing Officer or the appellate or the revisional authority. In other words, if an application for settlement is allowed and the case is settled, the entire assessment for the assessment years in question would stand settled.

 

7.2 In Rajiv Yashwant Bhale v. The Principal Commssioner of Income Tax (supra), on which reliance has been placed by the learned senior standing counsel for the respondent, the contention was that noncompliance of the order of the Settlement Commission does not make the order itself, not a final or conclusive one. A continuing default per se is different from the finality and conclusiveness of the order itself and cannot affect the conclusiveness of an order of a judicial authority. The question in that case was whether the order passed by the Settlement Commission was a conditional order and that if the conditions remained satisfied, whether the order can be said to be final or conclusive? This decision, therefore, would have no applicability to the facts of the present case.

 

7.3 In Brij Lal v. Commissioner of Income Tax, Jalandhar (supra), the Supreme Court held thus:

 

"18. Coming to Chapter XIXA which deals with settlement of cases, it may be stated that the word "case" is defined under Section 245 A(b). It is an exhaustive definition. The definition makes it clear that an application for settlement shall lie only when any proceedings for assessment or reassessment are pending or an appeal or revision in connection with such assessment or reassessment is pending before the Income Tax Authority. Under Section 245C(1), such application for settlement will not be maintainable without full and true disclosure of the income by the applicant, the manner in which such undisclosed income was derived and that the applicant had furnished his return of income and that the additional tax payable on such income exceeds the specified amount."

 

"23. Descriptively, it can be stated that assessment in law is different from assessment by way of settlement. If one reads Section 245D(6) with Section 245I, it becomes clear that every order of settlement passed under Section 245D(4) shall be final and conclusive as to the matters contained therein and that the same shall not be reopened except in the case of fraud and misrepresentation. Under Section 245- F(1), in addition to the powers conferred on the Settlement Commission under Chapter XIXA, it shall also have all the powers which are vested in the Income Tax Authority under the Act. In this connection, however, we need to keep in mind the difference between "procedure for assessment" under Chapter XIV and "procedure for settlement" under Chapter XIXA (see Section 245D). Under Section 245 F(4), it is clarified that nothing in Chapter XIXA shall affect the operation of any other provision of the Act requiring the applicant to pay tax on the basis of selfassessment in relation to matters before the Settlement Commission."

 

"25. Our detailed analysis shows that though Chapter XIXA is a self contained code, the procedure to be followed by the Settlement Commission under Sections 245-C and 245D in the matter of computation of undisclosed income; in the matter of computation of additional income tax payable on such income with interest thereon; the filing of settlement application indicating the amount of income returned in the return of income and the additional income tax payable on the undisclosed income to be aggregated as total income shows that Chapter XIX-A indicates aggregation of incomes so as to constitute total income which indicates that the special procedure under Chapter XIX-A has an in-built mechanism of computing total income which is nothing but assessment (computation of total income)."

 

"26. To elaborate, under Section 245- C(1B), if the applicant has furnished a return in respect of his total income, tax shall be calculated on the aggregate of total income returned and the income disclosed in the settlement application as if such aggregate were total income. Under the Act, tax is payable on the total income as computed in accordance with the provisions of the Act. Thus, Section 143(3) provision is sought to be incorporated in Section 245C. When Parliament uses the words "as if such aggregate would constitute total income", it presupposes that under the special procedure the aggregation of the returned income plus income disclosed would result in computation of total income which is the basis for the levy of tax on the undisclosed income which is nothing but "assessment". Similarly, Section 245- C(1C) provides for deductions from the total income computed in terms of Section 245C(1B)."

 

"30. Now, Section 245C (1) is voluntary disclosure by the assessee of his undisclosed income. Under Section 245C (1), the assessee has to mention in his settlement application the additional amount of tax payable by him on such undisclosed income. Under proviso

 

(a), the application for settlement shall not be entertained till the assessee has furnished the return of income which he was required to file under the Act to the extent of his income. Under proviso (b), the assessee has to declare the additional amount of tax payable. Thus, the two provisos to Section 245C (1) show that Chapter XIXA, which prescribes a special procedure for assessment by settlement, contemplates a pre assessment collection of tax."

 

"31. With the filing of the settlement application and after such application is allowed to be proceeded with under Section 245D(1), intimation under Section 143(1), regular assessment under Sections 143(3)/144 and reassessment under Section 147 lose their existence as under Sections 245- C(1A) and (1B) it is only the income disclosed in the return of income before the AO alone which survives for consideration by the Settlement Commission for settling the amount of income which is not disclosed in the return."

 

"37. As held hereinabove, under Section 245 C (1) read with Section 245- C(1B)(ii) and Section 245C(1C)(b), the additional amount of income tax payable is to be calculated on the aggregate of total income returned and the income disclosed in the settlement application as if such aggregate is the total income. Thus, the scheme of the said sections is based on computation of total income and in that sense we have stated that such application for settlement is akin to a return of income. The said provision deals with "total income". Thus, as stated above, Sections 234A, B and C are applicable up to the stage of Section 245D (1) order passed by the Settlement Commission. However, Parliament has not extended the provisions and the liability to pay interest beyond the date of application for settlement. This is the position even after the Finance Act of 2007."

 

"39. Moreover, as stated above, under the Act, there is a difference between assessment in law [regular assessment or assessment under Section 143(1)] and assessment by settlement under Chapter XIXA. The order under Section 245D (4) is not an order of regular assessment. It is neither an order under Section 143(1) or Section 143(3) or Section 144. Under Sections 139 to 158, the process of assessment involves the filing of the return under Section 139 or under Section 142; inquiry by the AO under Sections 142 and 143 and making of the order of assessment by the AO under Section 143(3) or under Section 144 and issuing of notice of demand under Section 156 on the basis of the assessment order. The making of the order of assessment is an integral part of the process of assessment. No such steps are required to be followed in the case of proceedings under Chapter XIXA. The said chapter contemplates the taxability determined with respect to undisclosed income only by the process of settlement/arbitration. Thus, the nature of the orders under Sections 143(1), 143(3) and 144 is different from the orders of the Settlement Commission under Section 245D (4).

 

40. Even in CIT v. Anjum M.H. Ghaswala6 there is no finding by this Court that the order of the Settlement Commission under Section 245 D(4) is an order of assessment under Section 143(3) or under Section 144. In Ghaswala case6 the only question decided by this Court is that the interest under Section 234B is mandatory in nature and that the Settlement Commission, therefore, had no authority to waive it."

 

"41. xxxxxx Once the case stands admitted, the Settlement Commission shall have exclusive jurisdiction to exercise the powers of the Income Tax Authority."

 

"42. The order of the Settlement Commission under Section 245D(4) shall be final and conclusive under Section 245I subject to two qualifications under which it can be recalled viz. fraud and misrepresentation but even here it is important to note that under Section 245D(7) where the settlement becomes void on account of fraud and misrepresentation the proceedings with respect to the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission."

 

7.4 Thus, in Brij Lal v. Commissioner of Income Tax, Jalandhar (supra), the Supreme Court has held that under the Act, there is a difference between assessment in law [regular assessment or assessment under section 143(1)] and assessment by settlement under Chapter XIXA. The order under section 245D(4) of the Act is not an order of regular assessment. It is neither an order under section 143(1) or section 143(3) or section 144 of the Act. Under sections 139 to 158, the process of assessment involves the filing of return under sections 139 or 142 of the Act; inquiry by the Assessing Officer under sections 142 and 143 and making of the order of assessment by the Assessing Officer under sections 143(3) or 144 and issuing of notice of demand under section 156 on the basis of the assessment order. The making of the order of assessment is an integral part of the process of assessment. No such steps are required to be followed in the case of proceedings under Chapter XIXA. The said Chapter contemplates the taxability determined with respect to undisclosed income only by the process of settlement/arbitration. Thus, the nature of the orders under sections 143(1), 143(3) and 144 is different from the orders of the Settlement Commission under section 245D(4) of the Act.

 

7.5 Moreover, the Supreme Court, in the above decision has held that the scheme of the said section is based on computation of total income and in that sense it has stated that such application for settlement is akin to a return of income. The said provision deals with 'total income'. Therefore, when section 245C deals with total income, all matters falling within the ambit of total income would stand concluded once the Settlement Commission settles a case and passes an order under section 245D(4) of the Act. The order of the Settlement Commission would be final and conclusive subject to two qualifications, viz. fraud or misrepresentation.

 

Moreover, when the settlement becomes void under section 245D(7) of the Act, the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission.

 

7.6 Section 245I of the Act, which bears the heading "Order of settlement to be conclusive", postulates that every order of settlement passed under subsection (4) of section 245D shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in that Chapter, be reopened in any proceeding under the Act or under any other law for the time being in force.

 

7.7 An application under section 245C of the Act is akin to a return of income, wherein the assessee is required to make a full and true disclosure of his income and the order under section 245D(4) of the Act is in the nature of an assessment order. Therefore, assessment of the total income of the assessee for the assessment year in relation to which the Settlement Commission has passed the order under section 245D(4) of the Act stands concluded and in terms of section 245I of the Act, such order shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in Chapter XIXA, be reopened in any proceeding under the Act or under any other law for the time being in force. Therefore, once an order is passed by the Settlement Commission under section 245D(4) of the Act, the same is conclusive insofar as the assessment year involved is concerned. When the section refers to matters not covered by such order, it refers to matters other than that covered under the assessment, viz. other than determination of the total income of the assessee for that assessment year. There may be matters in respect of the very assessment year which do not touch the determination of the total income of the assessee, like nonpayment of advance tax or the like, which have no direct connection with the determination of the total income for that assessment year, which would not stand concluded by the order of the Settlement Commission. However, when section 245C of the Act requires the assessee to make a full and true disclosure of his income for the period in respect of which he has made such application, the order under section 245D(4) of the Act would relate to the determination of the total income of the assessee for that assessment year and such order is conclusive and cannot be reopened except as provided in that Chapter.

 

7.8 As to how the proceeding can be reopened is provided under section 245D(6) of the Act, which says that every order passed under section 245D(4) of the Act shall provide for the terms of settlement, including any demand by way of tax, penalty or interest, the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts. Therefore, the only ground on which an order of settlement made under section 245D of the Act can be reopened is that if it is subsequently found by the Settlement Commission that the order under section 245D(4) of the Act had been obtained by fraud or misrepresentation of facts. Therefore, once an order has been passed under section 245D of the Act by the Settlement Commission, the assessment for the year stands concluded and the Assessing Officer thereafter has no jurisdiction to reopen the assessment.

 

7.9 This court is in agreement with the view of the Bombay High Court in Mandhana Industries Ltd. v. Principal Commissioner of Income Tax (supra) and the Delhi High Court in case of Omaxe Ltd. v. Deputy Commissioner of Income Tax (supra) wherein, the court held that the provisions of Chapter XIXA of the Act make it abundantly clear that a case could either be dealt with by the concerned income tax authority or the Settlement Commission and not by both. The Act does not envisage a return of an assessee to be split into two parts, one for consideration before the Settlement Commission by way of settlement and another for normal assessment at the hands of the Assessing Officer or the appellate or revisional authority. In other words, if an application for settlement is allowed and the case is settled, the entire assessment for the assessment year in question would stand settled. The court held that the Act does not envisage parallel proceedings for the same assessment year concerning the same assessee.

 

7.10 The upshot of the above discussion is that once an order has been made by the Settlement Commission under section 245D(4) of the Act, the same is conclusive and final in respect of the assessment for the assessment year in relation to which such order was passed and the Assessing Officer has no jurisdiction under section 147 of the Act to reopen an assessment made under section 245D(4) of the Act. That, however, does not mean that the Revenue is without remedy if at a subsequent stage it is noticed that the assessee had suppressed its actual income before the Settlement Commission. In view of the provisions of subsection (6) of section 245D of the Act, an order made by the Settlement Commission under section 245D (4) of the Act shall provide for the terms of settlement, which should inter alia provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation. Section 245D (7) of the Act provides that where the settlement becomes void, as provided in subsection (6) of section 245D, the proceedings in respect of the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission. The remedy, therefore, is not under section 147 of the Act, but under section 245D(6) read with section 245D(7) of the Act.”

 

6. What is therefore evident from reading the facts of the present case and the decision rendered by the Division Bench of this Court is that once an order of Settlement Commission is made, the same is conclusive and final in respect of the assessment for the assessment year in relation to which the order has been passed. The Assessing Officer has therefore no jurisdiction to reopen the assessment by invoking the provision of Section 147 of the Act.

 

7. For the aforesaid reasons the petition is allowed. Impugned notice dated 27.03.2021 is quashed and set aside. No costs.

 

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