INCOME TAX OFFICER v. SARAF TEXTILE MILLS (P) LTD
[Citation -1986-LL-0630-7]

Citation 1986-LL-0630-7
Appellant Name INCOME TAX OFFICER
Respondent Name SARAF TEXTILE MILLS (P) LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 30/06/1986
Assessment Year 1979-80
Judgment View Judgment
Keyword Tags settlement commission • period of limitation • self-assessment • advance tax • draft order
Bot Summary: On behalf of the department, it was argued that though the Settlement Commission has the jurisdiction over the matter in view of the provisions that are contained in section 245C of the Act, those matters which are not the subject-matters of the settlement, the Settlement Commission would not have the powers to deal with them and in that situation would be for the ITO alone to deal with that item or issue. The order of the Settlement Commission dated 9-11-1982 is only on the admission of the settlement petition and not on the finality of the issue. Section 245C provides for making of an application by an assessee, which should contain such particulars as may be prescribed by the Settlement Commission to enable the Settlement Commission to decide on the settlement. The reading of sub-sections and above gives an indication that the Settlement Commission apart from being given the powers of settlement have been specifically provided to have all the powers which are vested in an income- tax authority which income-tax authority is defined in section 245A. Sub- section of this section further makes a clarification that once an application has been allowed to be proceeded with under that section, then till it is disposed of the Settlement Commission shall have the exclusive jurisdiction and shall exercise the powers and perform the functions of the income-tax authority in relation to the case. 3.1 The question, i.e., to be considered is what should the ITO do when he becomes aware of the fact that the assessee had moved an application for settlement before the Settlement Commission. 3.2 Reading of section 245F to also goes to indicate that - Settlement Commission would assume exclusive jurisdiction only in respect of matters that are contained in the petition; other sections of the Act relating to payment of advance tax, self- assessment tax would remain operative on an applicant unless the Settlement Commission expressly directs otherwise; and the provisions of the Act would remain and continue to be effective in respect of matters which are not the subject-matter of the petition before the Settlement Commission unless the Settlement Commission expressly directs so. The assessee has filed the form of application for settlement but the subject- matter to be settled as per Annexure 2 mentioned in the application has been filed and it does not indicate in the letter that section 80J relief is also one of the issues for consideration by the Settlement Commission.


In this departmental appeal, only dispute is whether ITO is right to make rectification of his order under section 154 of Income-tax Act, 1961 ('the Act'), when case is pending with Settlement Commission. On behalf of department, it was argued that though Settlement Commission has jurisdiction over matter in view of provisions that are contained in section 245C (1) of Act, those matters which are not subject-matters of settlement, Settlement Commission would not have powers to deal with them and in that situation would be for ITO alone to deal with that item or issue. It was further argued that even under section 245F (4) of Act it is made clear that in absence of any express direction by Settlement Commission nothing will prevent operation of provisions of Act so long those are not matters connected with settlement petition. It was, therefore, argued that once assessment having been made in which certain mistakes have crept in it would be for ITO alone to carry out such rectification. only item that was considered for section 154 in present issue is about section 80J of Act relief which has been wrongly allowed for sixth year which is not allowable at all to assessee. Therefore, even on merits it is case where section 154 has been properly invoked. 2. For assessee, it was argued that assessee made application t o settlement petition on 12-9-1981. copy of Form No. 34B has been filed by assessee. In this Form in column 8 - particulars of matter to be settled - it has been mentioned that Annexure 2 is attached but it was submitted that copy of Annexure 2 is not traceable in file and, therefore, same has not been filed. department also could not provide copy of application made to Settlement Commission. assessee, however, filed copy of statement of facts that have been filed before Settlement Commission as also grounds of appeal which have been filed before Commissioner (Appeals), which have been enclosed as part of statement of facts. It was submitted that subsequent to assessee having made application to Settlement Commission ITO made draft order under section 144B of Act on 11-3-1982. This was followed by directions of IAC dated 6-9-1982. In accordance with direction of IAC, ITO completed assessment on 6-9-1982. It was further argued that issue of section 80J was appealed against before Commissioner (Appeals). petition was heard on 28-7-1982 and order of Settlement Commission is dated 9-11-1982. order of Settlement Commission has been made part of record. order of Settlement Commission dated 9-11-1982 is only on admission of settlement petition and not on finality of issue. According to assessee, section 245F (1) indicates that Settlement Commission shall have all powers of income-tax authority and sub- section (2) further emphasises that it shall have exclusive jurisdiction over assessment. Reference was also made to section 245A (a) of Act regarding definition of case and it was also argued that though all matters concerning assessment may not be subject-matter of settlement but Act does not envisage two orders-one by ITO on matters not disputed by assessee and one by Settlement Commission. He, therefore, pleaded that t h e order of Commissioner (Appeals) is fully justified under circumstances of case. 3. We have heard parties and have given very careful consideration to issue before us. point that needs to be considered by us is whether ITO could make assessment when he is aware that assessee has made application to Settlement Commission and having made assessment though fully realising that assessee had moved Settlement Commission can be rectify order under section 154. To appreciate his particular question it would be necessary for us to consider provisions contained in section 245 s well as in section 153 of Act. Chapter XIX-A of Act specifically concerns with settlement of cases. In section 245A (a) and (b) 'case' and 'income-tax authority' have been defined as under; (a) 'case' means any proceeding under this Act for assessment or reassessment of any person in respect of any year or years, or by way of appeal or revision in connection with such assessment or reassessment, which may be pending before income-tax authority on date on which application under sub-section (1) of section 245C is made; (b) 'income-tax authority' means Director of Inspection, Commissioner, Commissioner (Appeals), Appellate Assistant Commissioner Inspecting Assistant Commissioner or Income-tax Officer." Section 245C provides for making of application by assessee, which should contain such particulars as may be prescribed by Settlement Commission to enable Settlement Commission to decide on settlement. Sub-clause (iii) of this section provides that once application has been made for settlement, then assessee can withdraw application so made. Section 245D of Act talks of procedure to be adopted by Settlement Commission on receipt of application from assessee like calling for report from Commissioner for purposes of admission or otherwise of petition filed by assessee. Section 245F (1) , (2) , (3) and (4) read as under: "(1) In addition to powers conferred on Settlement Commission under this Chapter, it shall have all powers which are vested in income- tax authority under this Act. (2) Where application made under section 245C has been allowed to be proceeded with under section 245D , Settlement Commission shall, until order is passed under sub-section (4) of section 245D , have, subject to provisions of sub-sections (3) of that section, exclusive jurisdiction to exercise powers and perform functions of income-tax authority under this Act in relation to case. (3) Notwithstanding anything contained in sub-section (2) and in absence of any express direction to contrary by Settlement Commission, nothing contained in this section shall affect operation of any other provision of this Act requiring applicant to pay tax on basis of self-assessment or by way of advance tax in relation to matters before Settlement Commission. (4) For removal of doubt, it is hereby declared that, in absence of any express direction by Settlement Commission to contrary, nothing in this Chapter shall affect operation of provisions of this Act insofar as they relate to any matters other than those before Settlement Commission." reading of sub-sections (1) and (2) above gives indication that Settlement Commission apart from being given powers of settlement have been specifically provided to have all powers which are vested in income- tax authority which income-tax authority is defined in section 245A (b) . Sub- section (2) of this section further makes clarification that once application has been allowed to be proceeded with under that section, then till it is disposed of Settlement Commission shall have exclusive jurisdiction and shall exercise powers and perform functions of income-tax authority in relation to case. definition of case is contained in clause (a) of section 245A. This clearly indicates that case is related to assessment of assessee of particular assessment year or in respect of more than one assessment years. There is no such thing as Settlement Commission having jurisdiction on part of matters which are to be considered by it while balance jurisdiction lying with ITO. This has been recognised by Legislatures for which purpose they have emphatically provided that it is Settlement Commission which shall have exclusive jurisdiction over case. Legislatures realised that assessee may make application to Settlement Commission in respect of certain items only which may be part of total income, which is being considered by ITO. Probably to avoid situation of ITO making assessment, in Explanation 1(v) of section 153 have been inserted simultaneously, which reads as under: "Explanation 1: In computing period of limitation for purposes of this section - (i) to (iv) ** ** ** (v) In case where application made before Income-tax Settlement Commission under section 245C is rejected by it or is not allowed to be proceeded with by it, period commencing from date on which such application is made and ending with date on which order under sub- section (1) of section 245D is received by Commissioner under sub-section (2) of that section, shall be excluded." reading of this provision in indicative of fact that once applications made to Settlement Commission by assessee, ITO would b e justified in not proceeding with assessment. In case he waits and does n o t dispose of assessment and subsequently application is either rejected or is not allowed to be proceeded with, then for purposes of calculating limitation for completion of assessment time lost from date of making of application to Settlement Commission till date of such order is to be excluded. According to section 245F , Settlement Commission assumes jurisdiction over case only when it admits petition. assessee having made petition is not allowed to withdraw petition. Once petition is admitted, then from manner in which section has been worded it seems that case is to proceed from time of making of application by assessee because only on that particular point of time, requirement is that case must be pending. 3.1 question, i.e., to be considered is what should ITO do when he becomes aware of fact that assessee had moved application for settlement before Settlement Commission. wording that is contained in Explanation 1(v) to section 153 indicates that ITO has option of not to proceed ahead with making of assessment but wait till order of Settlement Commission in either rejecting application or admitting same. In case of refusal, time lost, i.e., from date of making of application till date of order would be exclude for purposes of calculating normal time available for making of assessment. This perhaps seems to be reasonable view as there is nothing in Act, which provides for piece-meal assessment, i.e., in facts of case one by ITO and another by Settlement Commission. However, in case ITO chooses to make assessment it would be equally difficult to hold that assessment is invalid. It could have been held to be invalid if it has been so provided for in Act specifically though impliedly it is so specified. 3.2 Reading of section 245F (1) to (4) also goes to indicate that - (a) Settlement Commission would assume exclusive jurisdiction only in respect of matters that are contained in petition; (b) other sections of Act relating to payment of advance tax, self- assessment tax would remain operative on applicant unless Settlement Commission expressly directs otherwise; and (c) provisions of Act would remain and continue to be effective in respect of matters which are not subject-matter of petition before Settlement Commission unless Settlement Commission expressly directs so. It case before us, ITO had made order under section 154 and chosen to withdraw relief under section 80J already granted by him on ground that assessee was not entitled to such relief as present assessment year was sixth year to which section 80J relief is not applicable. assessee has filed form of application for settlement but subject- matter to be settled as per Annexure 2 mentioned in application has been filed and it does not indicate in letter that section 80J relief is also one of issues for consideration by Settlement Commission. various statement o f facts, which have been annexed indicate that assessee had taken matter of claim under section 80J before first appellate authority. It is not contended that observation of ITO that is was sixth year was wrong. Considering all this, it could perhaps be said that action of ITO is not wholly unwarranted though it could perhaps be argued that in view of provisions that is contained in Explanation 1(v) to section 153 ITO had no business to primarily frame assessment and thereafter carry out rectification knowing fully well that matter is before Settlement Commission. However, in view of fact that assessee is not at all entitled to section 80J relief for sixth year, we have to quash order of Commissioner (Appeals) and restore order of ITO. departmental appeal is accordingly allowed. *** INCOME TAX OFFICER v. SARAF TEXTILE MILLS (P) LTD.
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