Bombay H.C : Application for settlement was rightly rejected, where on date of filing application before Settlement Commission there were no assessment proceedings pending with Assessing Officer as same had expired by efflux of time

High Court Of Bombay

Shriniwas Machine Craft (P.) Ltd. VS. ITSC

Assessment Years : 2007-08 To 2009-10

Section : 245HA, 153, 245D

Mohit S. Shah, Cj. And M.S. Sanklecha, J.

Writ Petition No. 750 Of 2013

January 17, 2014

JUDGMENT

M. S. Sanklecha, J. – At the request of the Counsel for both sides the petition is being disposed of at the stage of admission.

2. This petition under Article 226 of the Constitution of India challenges:

(i) the order dated 15 March, 2013 passed by the Settlement Commission i.e. respondent No.1 under Section 245D(1) of the Income-tax Act, 1961 (“the Act”) rejecting the petitioner’s application for settlement for the Assessment Years 2007-08, 2008-09 and 2009-10; and

(ii) two notices dated 30 March, 2013 issued by the Deputy Commissioner of Income Tax i.e. respondent No.3 (“Assessing Officer”) under Section 148 of the Act seeking to reopen the assessment for assessment year 2008-09 and 2009-10.

2.1 The relevant facts leading to this petition are :

(a) The petitioner is engaged in the fabrication of sheet metal canopies for diesel generating sets.

(b) On 6 November, 2012 a Survey under Section 133A of the Act was conducted on the petitioner. During the course of the above survey certain papers, books of account and purchase bills were impounded. However, consequent to the above survey, no proceedings were taken either under Section 132(1) of the Act or under Section153A or 153C of the Act.

(c) On 7 March, 2013, the petitioner filled an application for settlement under Section 245C of the Act before the settlement Commission in the prescribed form being Form 34B for the assessment years 2007-08 to 2012-13.

(d) Thereafter, the Settlement Commission in terms of Section245D(1) of the Act issued a notice to the petitioner calling upon the petitioner to explain why the application for settlement dated 7 March, 2013 relating to assessment years 2007-08 to 2012- 13 should be admitted. In response to the above notice, the petitioner appeared before the Settlement Commission. So far as Assessment Years 2007-08 to 2009-10 were concerned it was pointed out that the same satisfies the definition of case under 245A(b) of the Act as the assessment proceedings were pending before the Assessing Officer. This was on the basis that the time for assessment/ re assessment proceedings under Section147/148 of the Act had not yet expired. In support of the submissions that assessment proceedings for Assessment Years 2007-08 to 2009-10 were pending before the Assessing Officer, reliance was placed upon Circular No.3-2008 dated 12 March, 2008 issued by the Central Board of Direct Taxes (CBDT) and the decision of the Special Bench of the Settlement Commission in Rescuwear Corpn., In re [2009] 177 Taxman 281 (ITSC) (SB).

(e) On 15 March, 2013, the Settlement Commission passed an order under Section 245D(1) of the Act accepting the petitioner’s application for settlement dated 7 March, 2013 insofar as it related to assessment years 2010-11, 2011-12 and 2012-13. However, the application for settlement dated 7 March, 2013 relating to assessment years 2007-08, 2008-09 and 2009-10 were not accepted i.e. rejected on the ground that no proceeding were pending for those assessment years before the Assessing Officer when the application for settlement was filed. In support of its above conclusion the Settlement Commission relied upon the decision of the Gujarat High Court in Amrish Kumar Shukla CIT v. Income Tax Settlement Commission [2012] 210 Taxman 529/25 taxmann.com 551 and the Kolkatta High Court in Outotec (W.P. No. 341 of 2011 dated 1-8-2011) titled as DIT v. Income Tax Settlement Commission.

(g) As pointed out above the petitioner challenges the order dated 15 March, 2013 of the Settlement Commission and the two notices dated 30 March, 2013 for reopening of assessment for assessment years 2008-09 and 2009-10.

3. Mr. Sharan Jagtiani, learned Counsel in support of the petition submitted as under:

(a) The petitioner’s assessment proceedings for assessment years 2007-08 to 2009-10 were pending proceedings as defined in Section 245A(b) of the Act when the application for settlement was filed on 7 March, 2013. This was for the reason that on 7 March 2013, it was open to the Assessing Officer to initiate proceedings for assessment/reassessment under Section 147/148 of the Act and no such notice had been issued till the filing of the application for settlement. It was only on issue of notice under Section 147/148 of the Act for assessment/reassessment for a particular year that the assessment proceedings were excluded from the purview of pending proceedings for the purpose of case as provided under proviso to Section 245A(b) of the Act. Thus, the settlement application dated 7 March, 2013 for the assessment years 2007-08 to 2009-10 could not have been rejected.

(b) The Settlement Commission itself by a Special bench decision in the matter of Rescuwear Corpn. (supra) has held that the assessment would be deemed to be pending before an Assessing Officer for a particular assessment year up to the time the Assessing Officer has power to initiate proceedings under the Act. In this case it is still open to the Assessing Officer to issue notice for reassessment under Section 147/148 of the Act for the assessment years 2007-08 to 2009-10 and no such proceedings were initiated till 7 March, 2013.

(c) The CBDT Circular No. 3/2008 dated 12 March, 2008 while explaining the provisions of Finance Act 20007 specifically clarified that an assessment proceeding before the Assessing Officer would be considered pending proceedings even if the time limit to issue a notice under Section 143(2) of the Act for finalizing assessment under Section 143(3) of the Act has expired. Further, it is clarified in the above Circular that the assessment shall be deemed to have been completed only on the date of service of assessment order on the assessee. In this case by placing reliance upon the above Circular, it is submitted that no assessment order has yet been served upon the petitioner and therefore, assessment proceedings are pending before the Assessing officer. Besides, the Circular issued by the CBDT are the binding upon the revenue and the revenue cannot act contrary to the binding Circulars of CBDT.

(d) Reliance was also placed upon clause (iv) of the Explanation to Section 245A(b) of the Act which clearly provides that the proceedings before the Assessing Officer shall be concluded on the date on which the assessment is made. In this case, it is the submission of the petitioner that no assessment as yet has been made by the Assessing Officer for assessment years 2007-08 to 2009-10 and therefore, the proceedings of assessment for the assessment years 2007-08 to 2009-10 continue to be pending proceedings before the Assessing Officer.

(e) The challenge to the two notices dated 30 March, 2013 issued under Section 147/148 of the Act is consequential to the challenge to the order dated 15 March 2013 of the Settlement Commission. This is because if the challenge to the order dated 15 March, 2013 of the Settlement Commission is upheld then the two notices dated 30 March, 2013 are ex facie without jurisdiction.

4. As against the above, Mr. Tejveer Singh Counsel appearing for the revenue in support of the impugned order dated 15 March, 2013 submitted as under:

(a) The decisions of the Gujarat High Court in Amrish Kumar Shukla (supra) and Kolkatta High Court in Autolec Ltd. (supra) on which the impugned order places reliance conclude the issue raised by the petitioner in favour of the revenue.

(b)It is an undisputed position that the time to make an assessment order for the assessment years 2007-08 to 2009-10 has already expired under Section 153 of the Act. Consequently no assessment order in regular assessment proceedings could be made by the Assessing Officer on 7 March, 2013 when the settlement application was filed. Therefore the proceeding for assessment years 2007-08 to 2009-10 cannot be said to be pending proceedings for the purpose of Chapter XIXA of the Act. (Settlement Provisions).

(c) The Circular No.3/2008 dated 12/3/2008 issued by CBDT has no application to the present facts as it explains the situation in the context of regular pending assessment proceedings where the time to pass an assessment order has not expired. It does not cover situations where the time to make an assessment has already expired.

In view of the above, it was submitted that there is no reason to interfere with the order dated 15 March, 2013 of the Settlement Commission passed in respect of assessment years 2007-08 to 2009-10 and the consequent notices dated 30 March, 2013 issued under Section 147/148 of the Act for the assessment years 2008-09 and 2009-10.

5. We have considered the submissions. It is an admitted position that in view of Section 153 of the Act the time to make an assessment for the return of income filed by the petitioner for assessment years 2007-08 to 2009-10 had already expired before 7 March, 2013 when the settlement application was filed by the petitioner. It is relevant to note that prior to 1 June, 2007 the definition of case as provided under Section 245A(b) of the Act meant any proceeding before any Income Tax Authority and was not restricted to assessment proceedings before an Assessing Officer. Besides, proceedings for assessment/reassessment or by way of an appeal and/or revision in connection with any such assessment or reassessment were all considered to be proceedings pending before the Income Tax authorities, permitting an application to be made under Chapter XIXA of the Act for settlement of cases. However, post-1 June 2007, definition of case was amended and it was restricted to only mean proceedings pending before an Assessing officer on the date on which the application for settlement was to the Settlement Commission. The newly added proviso and explanation thereto (2007 Amendment) excluded proceedings for assessment/reassessment under Section 147/148 of the Act from the purview of pending proceedings before the Assessing Officer. Thus, post 2007, it is only proceedings for those assessment years which are pending before the Assessing Officer which are entitled to avail of the facility of settlement provided in Chapter XIXA of Act.

6. Keeping in view the above change of law with effect from 1 June 2007, we shall now consider the respective submissions of the Counsel for the parties. The linchpin of the petitioner’s submissions is that on 7 March, 2012 assessment proceedings for assessment years 2007-08 to 2009-10 were pending before the Assessing Officer for the reason that it was still open to the Assessing officer to issue notices under Section 147/148 of the Act for assessment/reassessment proceedings in respect of the subject years i.e assessment years 2007-08 to 2009-10. The exclusion clause in Section 245A(b) of the Act comes into play only on issue of a notice under Section 148 of the Act which was admittedly not done up to 7 March, 2013 when the application for settlement was filed by the petitioner with the Settlement Commission. However, the proceeding under Section 147/148 of the Act by its very nature will only lie where the earlier assessment proceeding are not pending are not pending. This is self-evident as the jurisdictional requirement under Section 147/148 of the Act is that income chargeable to tax has escaped assessment. Therefore where the assessment was still pending (in case where returns have been filed) no occasion of income escaping assessment can arise. This is so held by the Apex Court in Trustees of H.E.H The Nizam’s Supplemental Family Trust vs. CIT [2000] 242 ITR 381/109 Taxman 193.The assessment will cease to be pending when the assessment proceedings are terminated. This termination can be either when the assessment is made or when the time to make the assessment comes to an end under Section 153 of the Act. Thus, in facts of this particular case, the period within which assessment could be made for assessment years 2007-08 to 2009-10 had admittedly expired under Section 153 of the Act.

7. In the present case, it is not disputed by the petitioner that the time limit to make an assessment order in regular proceedings for assessment years 2007-08 to 2009-10 had already long expired before 7 March, 2013 when the application for settlement was made by the petitioner to the Settlement Commission. Therefore, on the date of filing of the application i.e. 7 March, 2013 before the Settlement Commission there were no assessment proceedings pending with Assessing Officer as the same stood terminated by efflux of time.

8. In any case, where the proceedings have to be initiated for reassessment under Section 147/148 of the Act then the Assessing Officer has to come to reasonable belief before issuing the notice, that income chargeable to tax has escaped assessment. Therefore, there is a fresh application of mind to an assessment which is not pending and thereafter reaching a prima facie view that there is reason to believe, that income chargeable to tax, has escaped assessment. Thus in these facts, it would not be possible to accept the petitioner’s contention that the assessment proceeding for the Assessment Years 2007-08 to 2009-10 were pending before the Assessing Officer on 7 March, 2013, when the application for settlement was filed with the Settlement Commission.

9. It may be mentioned that during the course of his submissions Mr. Jagtiani the learned counsel for the petitioner did in passing refer to the fact that under Section 147 of the Act proceedings can be initiated not only for reassessment but also for assessment and therefore the proceedings for assessment are pending in this case. The occasion for assessment under Section 147 of the Act in accordance with Explanation 2 thereto arises only when there is a failure to file a return of income under Section 139 of the Act or there has been no assessment made and subsequently it is noticed that income has been understated. In the aforesaid two situations among others mentioned therein it would be deemed that income chargeable to tax has escaped assessment. However these are jurisdictional issues which would arise as and when a notice is issued under Section147/148 of the Act. The issue arising in this case is whether the assessments were pending on 7 March, 2013 when the application for settlement was filed. The answer to the same, in our view is an unmistakable NO for the reason that by virtue of Section 153 of the Act the assessment proceedings before the Assessing Officer stand terminated by efflux of time.

10. Mr. Jagtiani submitted that the legislative intent supported the petitioner’s view as was evident from Explanation (i) to Section 245A of the Act. The aforesaid explanation excludes the assessment/reassessment proceeding from the definition of case from the date of the issue of notice under Section 147 of the Act. It was vehemently submitted that till such time a notice can be issued under Section 148 of the Act, it was open to a party to file an application for settlement. Though the argument may prima facie appear to be attractive, on a close scrutiny it cannot be accepted. This for the reason pointed out hereinabove, that notice can be issued under Section the148 of the Act only when assessment is over either by an order under Section 143(3) of the Act or terminated by efflux of time under Section 153 of the Act. On issuing a notice under Section 148 of the Act the proceedings cease to be a case and an application for settlement will not lie. The likelihood of a future action, which may or may not take place and which action is solely dependent upon the Assessing officer cannot make a dead/terminated proceedings a pending proceedings. Thus, there was no assessment proceeding pending before the Assessing Officer on 7 March, 2013 when the application for settlement was made by the petitioner.

11. The petitioner in support of its contention that the assessment proceedings for the assessment years 2007-08 to 2009-10 are pending proceedings before the Assessing Officer placed strong reliance upon the Circular No.3/2008 dated 12 March, 2008 issued by the CBDT and particularly emphasized Para 6.2 thereof which reads as under:

“Under the existing provisions, as assessee may maker on application to the Commission of any stage of the proceedings in his case pending before any income tax authority. After 31st May, 2007 an assessee can make an application to the commission only during the pendency of the proceeding before the Assessing Officer, it is further clarified that (a) since intimation under section 143(1) is not an assessment order there will be no bar in filing an application for settlement subsequent to receipt of an intimation under section 143(1). It is not material whether time limit for issue of notice under section 143(2) has expired or not (b) the assessment shall be deemed to have been completed only on the date of service of assessment order to the applicant”. (Emphasis supplied)

However, on a close reading of the above Circular, it is clear that the Circular is dealing with a situation where time to issue a notice under Section 143(2) of the Act for making an assessment under Section 143(3) of the Act (6 months) has expired. In such a case, the circular clarifies that it would still be considered pending proceeding for the purpose of Chapter XIXA of the Act till an assessment order is made. However, such an assessment order can only be made when the time to make such an assessment order has not expired under Section 153 (two years) of the Act. Therefore, the Circular No.3/2008 dated 12 March, 2008 does not deal with a fact situation as arising in the present case viz. Where the time to make an assessment order has expired under Section 153 of the Act, would it still be considered as a pending proceeding? Therefore, in our view above Circular No.3/2008 dated 12 March, 2008 is of no assistance to the petitioner in the present facts.

12. The petitioner thereafter placed reliance upon Explanation (iv) to Section 245A(b) of the Act to contend that for the purposes of Chapter XIXA of the Act which to the extent is relied upon reads as under:

“….a proceeding for assessment for any assessment year ………………… shall be deemed to have commenced from the 1st day of the assessment year and concluded on the date on which the assessment is made”

On the above basis it is contended that for the purpose of Chapter XIXA of the Act, Section 153 of the Act should be ignored and the assessment continue to be pending till the date the assessment is made. This does not appear to be correct. Chapter XIXA of the Act does not provide that the period of limitation as provided under Section 153 of the Act has to be ignored for the purposes of considering an assessment to be a pending assessment before the Assessing Officer. The above Explanation (iv) to Section 245A(b) of the Act nowhere provides that the period of limitation as provided under Section 153 of the Act gets extended till an order of assessment is made. The reasonable construction to be put on the Explanation (iv) to Section 245A(b) of the Act would be the date of making an assessment before the expiry of the time limit provided under Section 153 of the Act. On the expiry of the time limit to make an assessment it would be impossible for the Assessing officer to make an assessment. Thus the words “concluded” on the date on which the assessment is made in Explanation (iv) to Section 245A(b) of the Act has to be read with conjunction with Section 153 of the Act i.e. the assessment has to be made prior to expiry of the time to make an assessment under the Act.

13. The petitioner also placed strong reliance upon the decision of the Special Bench of the Settlement Commission in Rescuwear Corpn. (supra) to contend that an assessment can be said to be pending till such time the Assessing Officer can initiate action for assessment under the Act. In particular, reliance was placed upon the following observation in the order passed in Rescuewear Corpn. (supra) as under:

“In the circumstances, we are more empowered with the view, strongly propounded by the CIT(DR) and endorsed by Dr. Debiprasad Pal, Sr. Advocate appearing for the applicant that proceeding for assessment can be said to be pending for particular assessment years only up such time till the Assessing Officer has power to take action in respect of those assessment years. Therefore, we are of the view that the meaning and scope of date of conclusion of proceeding” under clause (iv) of the Explanation to the section 245A(b) is that the proceeding for assessment can be said to be pending before as Assessing Officer in respect of those assessment years only for which the Assessing Officer can still take action/initiate the proceeding under the Act”.

It is clear from the above observation that an assessment would be pending before Assessing Officer when such Assessing Officer has power to take action in respect of those assessment years. However, the power to take action in respect of the assessment for a particular assessment year, comes to an end, on the expiry of the period under Section 153 of the Act to make an assessment. Moreover, the question posed to the Special Bench of the Settlement Commission in Rescuwear Corpn. (supra) was not the issue arising here viz. Whether an assessment proceeding can be said to be pending even when the period to make an assessment has expired under Section 153 of the Act? Therefore, the above decision of the Special Bench in Rescuwear Corpn. (supra) is of no assistance to the petitioner.

14. We have, independent of the view of the Gujarat High Court in Amrish Kumar Shukla (supra) and Kolkatta High Court n in the Outotec (supra), on examining the submissions concluded that the application for settlement filed on 7 March, 2013 for the assessment years 2007-08 to 2009-10 before the Settlement Commission in the present facts, is not maintainable.

However, as the Settlement Commission in the impugned order dated 15 March, 2013 relied upon the decision of the Gujarat High Court in Amrish Kumar Shukla (supra) and Kolkatta High Court order in Outotec (supra) and submissions were also made thereon before us, we are examining the same. The issue before Gujarat High Court arose from an order of the Settlement Commission which held that even where no proceedings were pending in respect of assessment years 2005-06 to 2008-09 yet they could be considered to be pending proceedings in view of the decision of the Special Bench of the Settlement Commission in the matter of Rescuwear Corpn. (supra). This decision was challenged before the Gujarat High Court by the revenue. The Gujarat High Court upheld the challenge of the revenue while agreeing with the view taken by the Kolkatta High Court in the matter of Outotec (supra) that assessment could not be said to be pending before the Assessing Officer even where the time for making an assessment had expired, on the date the assessee filed its application for settlement before the Settlement Commission. In fact the Gujarat High Court while agreeing with the view of the Kolkatta High Court held as under :

“19. We are in respectful agreement with the view expressed above. To our mind, accepting the proposition that even where by efflux of time, it is not open to the Assessing Officer to pass an order of assessment, merely because the return was accepted under Section 143(1) of the Act, the case of the assessee should be deemed to be pending for assessment only because the final order of assessment under section 143 (3) was not passed, would run counter to the statutory amendments made in section 245A(b) of the Act.”

Thus, on the above ground also there is no reason to interfere with the order of the Settlement Commission date 15 March, 2013.

15. In view of the fact that we are upholding the decision of the Settlement Commission dated 15 March, 2013 rejecting the application for settlement for the Assessment years 2007-08 to 2009-10, it follows that in view of Section 245HA of the Act, proceedings before the Settlement Commission shall abate under Section 245HA(1)(i) of the Act in respect of those years. As a consequence thereof, in terms of Section 245HA(2) of the Act, the papers and proceedings shall be restored to the Assessing officer in whose possession the papers relating to assessment years 2007-08 to 2009-10 were i.e. status quo ante. Thereafter i.e. post, 15 March, 2013, the Assessing Officer is entitled to issue notices for re opening of Assessment under Section 147/148 of the Act. Therefore, the Assessing Officer was entitled to issue the two impugned notices dated 30 March, 2013 under Section 148 of the Act, in respect of the Assessment years 2008-90 and 2009-10. It is made clear that the period from 11 December, 2013 when admittedly challenge to the notice under Section 148 of the Act was made till today shall be excluded from computing the period of limitation to complete the assessment/reassessment under Section 147 of the Act.

16. In view of the above, we see no reason to entertain the petition. Accordingly, the petition is dismissed with no order as to costs.

[Citation : 361 ITR 313]