W.P. NO. 188 OF 2015

P.K. JAISWAL AND ALOK VERMA, JJ.

R.L. Jain Ld., Sr. Adv. and Ms. V. Mandlik, Ld. Counsel for the Petitioner. 
Sumeet Nema, Ld. Counsel and A.K. Jain, Dy. CIT for the Respondent.

ORDER

P.K. Jaiswal, J. - Heard on I.A. No. 378/2015, an application for vacating the interim order dated 9.1.2015.

2. The income tax department has filed the present writ petition against the order dated 18.8.2014 passed by the respondent no. 2 settlement commission under Section 245 (D(1) of the Income Tax Act, 1961 and letter dated 24.9.2014 (Annexure P/9).

3. Brief facts of the case are that on 25.9.2007, a search and seizure operation was conducted by the investigating wing of the Income Tax Department along with the cases of Bhatia Group. The search and seizure operation was carried out on the respondent No. 1 company at the business premises as well as the residential premises of the Directors of Company. Thereafter, the assessment of the relevant Assessment year from 2002 - 03 to 2006 - 07 had been completed under Section 153A/153C and assessment proceedings for the Assessment Years 2007 - 08 and 2008 - 09 is pending due to stay granted by the Apex Court in Petition (S) for Special Leave to Appeal (C) No (s).18937/2012.

4. During the course of the assessment proceedings the Assessing Officer made a reference under Section 92 CA to the TPO after taking approval of Commissioner of Income Tax - I, Indore, for the assessment year 2007-08 & 2008-09.

5. The TPO has forwarded a copy of order under Section 92CA of the Act dated 29.10.2010 to the Assessing Officer as well as respondent No. 1 company separately for the assessment year 2007 - 08 & 2008 - 09.

6. The respondent No. 1 company filed writ petition bearing Nos. 2229/2011 & 2230/2011 for both the Assessment years before this Court on 14.5.2012. This Court dismissed the writ petitions on account of alternative remedy. The assessing company did not accept the above order and filed SLP (c) 18936/2012 & SLP No. 18937/2012, for the assessment year 2007 - 08 & 2008 - 09, respectively before the Apex Court. On 10.7.2012 vide Annexure P/2, the Hon'ble Supreme Court granted stay in favour of the respondent No. 1 and directed that the respondent No. 1, the assessing officer, shall not proceed with the assessment proceedings pursuant to the impugned order.

7. In respect of assessment order 2009-10, the respondent No. 1 company filed writ petition no. 3021/2013 and by interim order dated 7.3.2013 this court stayed the assessment order. In respect of assessment years 2010-11 W.P. No. 1516/2013 was filed and the Division Bench of this Court by order dated 28.2.2014 stayed the assessment proceedings till further orders.

8. In the year 2011 - 12, 2012 - 13 and 2013 - 14, the assessing authority has issued notice under Section 143(2).

9. The respondent No. 1 - company has filed application under Section 245(C) (1) before the respondent No. 2 Settlement Commission on 5.8.2014 for the assessment years 2007 - 08 to 2014 - 15. The respondent No. 1 - company also intimated to the assessing officer through a letter dated 5.8.2014 and Form 34BA of the Rules.

10. On 18.8.2014, the settlement application of the assessee company was processed by the Settlement Commission (SA No. MP/INC-1/003/2014-15/IT) and order under Section 245D(1) was passed on 18.8.2014 admitting the Settlement Application.

11. On 19.8.2014 the Settlement Commission called a report under Section 245D(2B) from the Commissioner of Income Tax - I, Indore through a letter within 30 days on receipt of said letter.

12. On 18.9.2014, the Commissioner of Income Tax - I, Indore has furnished a report under Section 245(D)(2B) of IT Act, 1961 and in para 2.1 has clearly mentioned under the remark that assessment proceedings were stayed by Hon'ble Supreme Court and High Court of Madhya Pradesh from the Assessment Year 2007 - 08 to Assessment Year 2010 - 11. In para 6 of the said report it is also stated that the matter is 'sub-judice'. The Commissioner of Income Tax - I, Indore has requested through its report to Settlement Commissioner that proceeding may kindly be kept in-abeyance till the matters are decided by the Hon'ble Apex Court and High Court. On 18.12.2014 the Settlement Commission has sent a letter to the Commissioner Income Tax - I, Indore with final opportunity to furnished the report of Rule 9 of SCP Rule 1997 on or before 12.1.2015. It is also stated by the Settlement Commission in its letter that "please note that, in case no report is received in this case on or before 12.1.2015, the Commission shall proceed further without the report to initiate 245D(4) proceeding". The department being aggrieved by order dated 18.8.2014 and communication dated 24.9.2014 has prayed for quashment of the same.

13. On 9.1.2015 this court issued show cause notice to the respondent No. 1 and also passed an interim order staying the further proceeding pending before the respondent No. 2 in respect of assessment year 2007 - 08 to 2014 - 15 until further orders from this court.

14. The application for vacating stay has been filed by the respondent No. 1 - company on the ground that order dated 18.8.2014 is only an interim order and a final order will be passed by the Settlement Commission after examination of the records, considering the report of the Commissioner, and the material brought on record before the Settlement Commission. The Settlement Commission has a jurisdiction to provide for the terms of the Settlement including demanding any tax, penalty or interest. The Commission has also the jurisdiction to examine as to whether any order has been obtained by way of fraud or mis-representation of the facts. Thus, the Income Tax Act provides for a complete mechanism for dealing with settlement applications and the said mechanism is complete code in itself and merely because of the fact that an interim order has been passed under Section 245(D1) does not mean that any irreparable losses has been caused to the Income Tax Department.

15. It is also submitted that the Income Tax Department did not object the order dated 18.8.2014 while filing its report on 18.9.2014 and even thereafter in response to the letter dated 24.9.2014, the Income Tax Department did not raise any objection and merely requested for extension of time of 60 days, which was given to the extent of 30 days by the Settlement Commission. The Department after failing to get extension of 60 days has rushed to this Court and filed a present petition, after waiting for 4 ½ months from the date of order dated 18.8.2014. It is also pointed out that the provisions of Settlement of cases under Chapter XIXA of the Income Tax Act are complete code itself and provide for a time bound manner and deciding the application. The application which was filed before the Settlement Commission was maintainable and the Department has an opportunity to raise all the legal and valid objections before the Settlement Commission and thereafter, the Department is not going to suffer any way and prays for vacating the stay. It has also been pointed out by the learned counsel for the petitioner that W.P. No. 3021/2013 and W.P. No. 1516/2014, have been permitted to be withdrawn without granting any opportunity to the respondent No. 1 by orders dated 14.1.2015.

16. In respect of pendency of two SLP's the learned counsel for the respondent - company has made a statement at bar that an application for withdrawal was filed in the aforesaid Special Leave Petitions and thus applications were mentioned on 28.1.2015. The Hon'ble Supreme Court directed for listing the matter on 2.2.2015 before an appropriate Bench and as per instructions received from his client, the Hon'ble Supreme Court permitted the respondent No. 1 to withdraw both the SLP's. It is also submitted that both the SLP (Petitions) were pending since 2012, but no objection was filed by the department nor they brought to the knowledge of the Hon'ble Suprme Court about the order dated 18.8.2014 and 24.9.2014. He has also drawn our attention to the report dated 18.9.2014 (Annexure P/8). Para 2.0, 2.1, 3,4,5 and 7 are relevant which reads as under :—

"2.0 Validity of application for the relevant years:

Search u/s. 132 of the I.T. Act 1961 was conducted in the case of the above mentioned assessee group namely 'Bhatia Group' on 25.9.2007. Thereafter statutory notices were issued and served upon the assessee for previous years and also for the A.Ys. 2007 - 08 and 2008 - 09. In the Block period of the case, Assessment Years 2007-08 and 2008 -09 are involved. A.Y. 2007 - 08 is covered under the provisions of Section 153A and A.Y. 2008 - 09 being the search year is covered u/s. 143(2)/142(1) of the Act. The assessee had filed its returns of income in response to the statutory notices issued under the provision of Income Tax Act. The assessment proceedings are pending in the case of assessee for A.Y. 2007 - 08 and 2008 - 09 because proceeding of scrutiny assessment have been stayed by the Hon'ble Supreme Court and also by the High Court in following assessment years.

2.1 The factual status of the case with respect to the pendency of proceedings of scrutiny assessment and also proceedings pending before various courts for the A.Ys. 2007-08 to 2014-15 in this case of assessee are being produced as under :—

	Asst. Years	Proceedings pending u/s.	Before whom pending	Date from which the proceedings are pending	Remark
	2007-08	153A/143(3)	After decentralization of case proceeding pending before ACIT- 3(1)	03.03.2008. (u/s 153A)	On 10.7.2012 Supreme Court has ordered in SLP(C) No. 18936 of 2012 dt. 10.7.2012 directing the assessing officer not to proceed with the assessment proceedings pursuant to the order passed by the Ld. TPO and proceedings shall not be barred by limitation on account of pendency of the writ petition. The relevant order of the Hon'ble Apex Court dated: 10.7.2012 is enclosed as per annexure-A.
	2008-09	143(3)	As above	Notice issued u/s.143(2) for the A.Y. 08-09 03.1.02008.	For A.Y. 08-09 on 10.7.2012 Supreme Court has ordered in SLP(C) No. 18937 of 2012 dt. 10.7.2012, directing the assessing officer not to proceed with the assessment proceedings pursuant to the order passed by the Ld. TPO. The relevant order of the Hon'ble Apex Court dated 10.7.2012 is enclosed as per annexure -B.
	2009-10	143(3)	As above	Notice u/s.143(2) for the A.Y. 09-10 issued on 31.8.2010 & 6.9.2010.	A.Y. 2009-10 MP High Court vide WP No. 3021/2013 passed interim order dt. 7.3.13 directing the assessing officer not to proceed with the assessment proceedings pursuant to the order passed by the Ld. TPO. The relevant order of the Hon'ble High Court of M.P. dated 7.3.13 is enclosed as per annexure-C.
	2010-11	143(3)	As above	Notice u/s.143(2) for the A.Y. 2010-11 issued on 29.8.2011	A.Y. 2010-11 MP High Court vide WP No. 1516/2013 passed interim order dt. 28.2.2014 directing the assessing officer not to proceed with the assessment proceedings and also observed that the assessment proceeding shall not be barred by limitation on account of pendency of the writ petition. The relevant order of the Hon'ble High Court of M.P. dated 28.2.2014 is enclosed as per annexure- D.
	2011-12	143(3)	As above	Notice u/s 143(2) for the A.Y. 2011-12 on 7.8.2012	Matter is pending before the Addl. Commissioner of Income Tax (TPO), Ahemedabad, which was referred to the TPO vide letter dated: 20.12.2012 after obtaining approval of the CIT-I, Indore The relevant letter is enclosed as per annexure-E.
	2012-13	143(3)	As above	Notice u/s. 143(2) for the A.Y. 2012-13 issued on 12.8.13.	Matter has to be referred to the Addl. Commissioner of Income Tax (TPO), Ahemedabad. It will be sent shortly.
	2013-14	143(3)	As above	Notice u/s. 143(2) for the A.Y. 2013-14 has been issued on 2.9.2014	Case for the A.Y. 2013-14 has been selected for scrutiny assessment in the month of September 2014 and statutory notice u/s. 143(2) has been issued which was duly served to the assessee.
	2014-15		As above	For A.Y. 2014-15, the proceedings are pending as defined in Explanation (iv) to 245A(b) of the Act.	Assessee has filed the application with Settlement Commission on 5.8.2014 u/s. 245C.

3.0 Correctness of additional tax interest paid by the applicant:

The assessee has made disclosure of additional income of Rs. 18,93,19,340/- before the Hon'ble Settlement Commission. On this additional tax is Rs. 5,25,30,036/- and interest thereon is Rs. 3,49,85,023 is calculated, and paid, relevant tax payments is verified with the OLTAS and same is in order, enclosed as per Annexure F.

4.0 On the basis of evidence gathered and analysis of documents during assessment proceedings the proposed adjustment made by TPO-1 Ahmedabad, for various assessment years for which the application has been filed by the assessee, is as under:—

	F.Y.	A.Y	Adjustment proposed on account of	Amount of adjustment proposed by TPO as per draft order u/s 92CA(3)
	2006-07	2007-08	TPO passed the order by taking foreign party (AE) as the tested party, instead of taking Indian Party (ie., assessee company), in computation of the arm's length price.	2007-08	12,33,45,587
	2007-08	2008-09		2008-09	357,20,97,260
	2008-09	2009-10		2009-10	56,67,01,894
	2009-10	2010-11		2010-11	46,47,15,067
	2008-09	2009-10	Addition on account of guarantee fees proposed on account of guarantee given by assessee company for AE.	2009-10	18,94,60,000
	2009-10	2010-11		2010-11	14,56,92,234
	2009-10	2010-11	In the assessment order TPO, has made the protective addition on account of transaction related to restructuring between two AE situated at Dubai & Singapore.	Protective
				380,33,10,000/-

4.1 On the basis of written submission made by applicant before Hon'ble Settlement Commission it is gathered that disclosed various amounts in the relevant assessment years under different sources of income are as under :—

	A.Y.	Additional Income Offered
		Transfer of COAs	Payment of freght	Purchased and sale of coal	Disallowance u/s. 14A	Disallowance of deferred revenue exp.	Indenting Commission	Adho-Disclosure	Total Amount 0
	2007-08	6,72,55,707	-	-	81,139	-	2,00,000	50,00,000	7,25,36,846
	2008-09	-	-	-	1,00,442	-	3,00,000	50,00,000	54,00,442
	2009-10	-	31,40,889	-	45,897	-	7,50,000	50,00,000	89,36,786
	2010-11	-	1,80,74,108	3,78,95,937	-	-	33,50,000	50,00,000	6,43,20,045
	2011-12	-	-	-	-	-	41,50,000	-	41,50,000
	2012-13	-	-	-	1,51,888	-	1,50,000	-	3,01,888
	2013-14	-	-	-	-	3,35,73,333	1,00,0000	-	3,36,73,333
	2014-15	-	-	-	-	-	-	-	-
	Total	6,72,55,707	2,12,14,997	3,78,95,937	3,79,366	3,35,73,333	90,00,000	2,00,00,000	18,93,19,340

The assessees has not shown the above additional incomes in the returns of income filed u/s 153A/143(3) & 139 of the Act. The above additional incomes disclosed by the assessee with the Hon'ble Settlement Commission are totally new averments against the adjustment proposed by the TPO.

5.0 Adequacy of Taxes:—

It is brought to your kind notice that; the order was poassed on the basis of Transfer Pricing Officer's report, because the only issued involved was in respect of Arms Length Price (ALP) value of international transactions carried out with its Associated Enterprises. Therefore comments on merits regarding adequacy of quantum of disclosed income before Hon'ble Settlement Commission may be called from TPO-I, Ahemedabad. Hence no comments are offered on this issue.

6.0 It is further requested that the Hon'ble Supreme Court and Hon'ble High Court of M.P. through their aforesaid orders have stayed the assessment proceedings in the case. As such, the matter is sub judice. Hence, it is requested that the proceedings before the Settlement Commission may kindly be kept in abeyance till the matter is decided by the Hon'ble Courts.

6.1 The Assessing Officer, i.e. ACIT-3(1), Indore and JCIT, Range-3, Indore have also opined as per above. Reports of the JCIT/AO are enclosed herewith.

7.0 Looking to the sensitivity of the case; the case record is being sent personally by an Income Tax Inspector deputed by the Department.

Submitted for kind perusal."

17. The procedure prescribed is that on receipt of application by the Settlement Commission, he has to issue notice to the applicant within 7 days and on hearing the applicant an order has to be passed under Section 245 D(1) rejecting or allowing the application to be proceeded with. At this stage, no hearing is required to be given to the commission of Income Tax and only the applicant has to be heard.

18. In the present case, the Settlement Commission called for a report vide letter dated 18.8.2014 from the Commissioner of Income Tax. The Commissioner of Income Tax furnished its report on 18.9.2014 and in this report the Commissioner of Income Tax has accepted the pendency of the assessment proceedings and has not made any prayer for rejecting / declaring the application made by the respondent as invalid. The only averment that has been made by the Commissioner before the Settlement Commission is to keep the proceedings in abeyance till the matter is decided by the High court and the Hon'ble Supreme Court. In view of the report dated 18.9.2014 of Commissioner of Income Tax, which has been reproduced herein before, the application of the respondent No. 1 was not declared invalid under Section 245D(2C). There is no procedure or irregularity or lack of jurisdiction of the Settlement Commission and the Commission has rightly proceeded in the matter prescribed under the Act.

19. Under the provisions of Rule 9, the Commissioner shall furnish further report within a period of 45 days. In the case in hand, as per report sent by the Income Tax Commissioner there was no prayer to declare the application invalid therefore, the next step ie., calling of report under Rule 9 is only consequence as provided in the Act since there is no mandate provided in the Act to keep the proceeding in abeyance, which was made by the petitioner and, therefore, the Settlement Commission has rightly proceeded in the matter vide letter dated 24.9.2014. The two writ petitions which were pending in the High Court and the two SLP's before the Apex Court matters have been now withdrawn by the respondent No. 1 and at the time of withdrawal no objection was raised by the department. At this stage, it cannot be said that respondent No. 1 has not made full and true disclosure as required under the provisions of the Act.

20. The Apex Court in the case of CIT v. K. Jayaprakash Narayanan [2009] 184 Taxman 85, the Supreme Court dismissed a similar prayer by passing the following order :—

"(2.) THIS SLP is filed against the decision of the Settlement Commission admitting the application of the assessee under s. 245D of the IT Act, 1961. It is the case of the Department that the assessee had failed to make full and true disclosure in the first instance and that the said declaration made at a later date by way of second declaration cannot be the ground for admitting the application under s. 245D. Since this SLP is filed only against the order of the Settlement Commission admitting the application of the assessee under s. 245D, we do not wish to interfere at this stage. However, we make it clear that on the point of maintainability of the application, it would be open to the Department to raise the contention before the Settlement Commission who would be entitled to examine that question at the final hearing of the matter."

21. The Division Bench of Delhi High Court in the case of CIT v. Income Tax Settlement Commission[2013] 35 taxmann.com 56/217 Taxman 39 has held the following in para 22, 24, 25 and 34 which reads as under :—

"22. From the above, it is clear that in True Woods Pvt. Ltd. (supra), a specific argument had been raised on behalf of the Revenue that it was incumbent upon the Settlement Commission to record a specific finding to the effect that the applicant had made a full and true disclosure before it admitted the application or took any further steps on the basis thereof. This argument was rejected by the Division Bench. The Division Bench was of the view that while the foundation for settlement was an application from the assessee in which the assessee is required to make a full and true disclosure, it was equally true that such requirement need not be examined and authoritatively determined at the threshold of any proceeding initiated before the Commission. Importantly, the Division Bench observed that there may be cases where it is possible for the Commission to record a finding that the disclosure made in the application is full and true. At the same time, there could also be situations in which the Commission may not be able to, at the stage of admission of the application, record a finding with any amount of certainty. It is in such a situation that it would be permissible for the Commission to keep the question open to be examined at a later stage or at the stage of disposal of the application. As in the case ofTrue Woods Pvt. Ltd. (supra), this is exactly what has happened in the present case. The Settlement Commission has noted the rival contentions of the Revenue and the applicants with regard to the issues of full and true disclosure and the manner of deriving the undisclosed income and has taken a prima facie view in favour of the applicants. It is not a definitive or final view and it is for this reason that the Settlement Commission, in its wisdom, left the issues open to be determined at the stage of final hearing under Section 245D(4) of the said Act. It may very well be that the Settlement Commission, at that stage, may agree with the Revenue on the basis of the material on record and the report submitted by the Commissioner of Income-tax that the applications were not maintainable under Section 245C(1) of the said Act. In fact, the Settlement Commission may, at any stage till it passes a final order under Section 245D(4), examine the issues and if there is sufficient material on record, determine the question of full and true disclosure and the manner in which the undisclosed income was derived conclusively and, depending on such a decision, the applications may be thrown out or they may be proceeded with further.

24. We are of the view that the order of the Supreme Court in K. Jayaprakash Narayanan (supra) and the decision of the Division Bench of this Court in True Woods Pvt. Ltd. (supra) clinch the issue in favour of the respondents. As such, this Court ought not to interfere with the impugned orders. However, we need to examine the decision of the Supreme Court in the case of Ajmera Housing(supra) which has been strongly relied upon by the learned counsel for the petitioner. In fact, the learned counsel for the petitioner went to the extent of submitting that in view of the decision of the Supreme Court in Ajmera Housing (supra), the orders/decisions in K. Jayaprakash Narayanan(supra) and True Woods Pvt. Ltd. (supra) would no longer be good law.

25. In Ajmera Housing (supra), an order had been passed by the Income Tax Settlement Commission under Section 245D(1) on 17.11.1994, allowing the settlement application filed on behalf of the assessee to be proceeded with. That order was not challenged by the Revenue. The Settlement Commission proceeded with the said settlement application and passed a final order under Section 245D(4) of the said Act on 29.01.1999. That settlement order was challenged by the Revenue before the Bombay High Court which set aside the same on, inter alia, the ground that no finding had been returned by the Settlement Commission as to whether there was a full and true disclosure of income on the part of the assessee/applicant. The Bombay High Court also held that the order dated 17.11.1994 passed under Section 245D(1) of the said Act was void and remitted the case to the Settlement Commission for a decision afresh and kept all the questions open. The applicant/assessee, being aggrieved by the said decision of the Bombay High Court, went up in appeal before the Supreme Court which, by an order dated 11.07.2006, set aside the Bombay High Court order and remitted the matter to the High Court for a fresh decision. In the second round, the Bombay High Court again set aside the Income Tax Settlement Commission's order dated 29.01.1999 and remanded the case to the Settlement Commission for fresh adjudication. While doing so, the Bombay High Court observed as under:—

"In view of the facts and the legal position noted above, even though we find that the respondents had not made full and true disclosure of their income while making applications under Section 245C, it would not be proper to set aside the proceeding. However, at the same time, the Commission appears to have misdirected itself on several important aspects while passing the final order. The Settlement Commission had not supplied the annexure Dated 19.9.1994 declaring additional income of Rs. 11.41 crore and thus, due opportunity was not given to the Revenue to place (sic) its stand properly. Huge amount of unexplained expenses, unexplained loans and unexplained surplus, total of which is more than Rs. 14 crore, was not taken into consideration while passing the final order. Thirdly, the Settlement Commission has imposed token penalty of Rs. 50 lakhs while in its own assessment leviable penalty would be 562.87 (sic Rs. 562.87). In fact if the amounts, which were not taken into consideration while assessing the total undisclosed income, are also taken into consideration, the amount of leviable penalty may be much more. Taking into consideration the multiple disclosures and the fact that the respondents had failed to make true and full disclosure initially as well as at the time of second disclosure, we do not find any justifiable reasons to reduce or waive the amount of penalty so drastically.

Taking into consideration all these circumstances, in our considered opinion, it will be in the interest of justice to set aside the final order passed by the Settlement Commission and to remand the matter back to the Settlement Commission for hearing parties afresh and to pass orders as per law. Facts and circumstances noted in respect of writ petition No. 2191 of 1999 are also relevant for the remaining writ petitions and, therefore, it will be necessary that the final orders passed in all these proceedings should be set aside.

34. The learned counsel for the petitioner had also taken a point that the settlement applications of respondents 3 and 4 had been rejected for failure to pay the additional tax and therefore the subsequent applications of the said respondents 3 and 4 filed on 23.11.2012 ought not to have been entertained. In our opinion, the learned counsel for the respondents 2 to 5 has given a complete answer to this argument. He has referred to Section 245K(2) of the said Act which stipulates that where a person has made an application under Section 245C on or after the first day of June, 2007, and if such application has been allowed to be proceeded with under Section 245D(1), such person shall not subsequently be entitled to make an application under Section 245C. It was contended by the learned counsel for the respondents 2 to 5 that this bar from making another application under Section 245C would only apply if the earlier application had been allowed to be proceeded with under Section 245D(1). But, in the present case, the earlier applications filed by respondents 3 and 4 had not been allowed to be proceeded with under Section 245D(1) and had been rejected at the threshold for want of payment of the full amount of the additional tax and interest due. Prima facie, we are in agreement with the submission made by the learned counsel for the respondents. However, since we are not inclined to interfere with the impugned orders, we feel that this issue can also be left open to be decided by the Settlement Commission at the time of further proceedings till the order under Section 245D(4) is passed. For all these reasons, we agree with the learned counsel for the respondents 2 to 5 that this is not the stage at which this Court ought to interfere with the impugned orders and the proceedings pending before the Settlement Commission. The writ petition is accordingly dismissed. We make it clear that we have not expressed any opinion on the merits of the issues as to whether the respondents 2 to 5 had made a full and true disclosure and had indicated the manner in which the undisclosed income had been derived. Those and related issues on merits are for the Settlement Commission to decide. There shall be no order as to costs."

22. Similar view is taken by the Bombay High Court in the case of CIT v. Income Tax Settlement Commission [2013] 40 taxmann.com 201 which reads as under:—

"The Commissioner of Income Tax (Central), Pune has challenged an order passed by the Settlement Commission on 29 August 2013 under the provisions of sub-section (2C) of Section 245D of the Income Tax Act 1961. By the order which has been impugned, the Settlement Commission has held as follows:

In the totality of facts available to us at present, we are satisfied about the true and full nature of the disclosure made. The manner of making undisclosed income, in the facts of the case, as stated, is on sales kept outside the books resulting in understatement to sales. Needless to say, as observed by the Hon'ble High Court in this very case, that if at a later stage of the proceedings, facts come to our knowledge showing suppression of full material facts or mis-statements thereof, the law will take its own course.

2. The Commission has accordingly held that the application filed by the Second Respondent is not an invalid application and should be allowed to be proceeded with further. Following the order which was passed by the Settlement Commission on 29 August 2013, further hearings took place before the Commission on 19 September 2013 and 7 October 2013. The grievance of the Petitioner is that the Commission has without ordering an enquiry by the Commissioner under Section 245D(3), directly proceeded under sub-section (4) and a letter was received from the Directorate of Investigation of the Settlement Commission on 4 October 2013 requiring the inspection of the factory premises of the Second Respondent. The contention of the Revenue is that in the present case it was necessary for the Settlement Commission to cause the Commissioner to make or cause to be made a further enquiry or investigation and to furnish a report on the matters covered by the application to the Settlement Commission.

3 Section 245D(3) provides as follows :

(3) The Settlement Commission, in respect of —

(i)		an application which has not been declared invalid under sub-section (2C); or
(ii)		an application referred to in sub-section (2D) which has been allowed to be further proceeded with under that sub-section, may call for the records from the Commissioner and after examination of such records, if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the Commissioner to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case, and the Commissioner shall furnish the report within a period of ninety days of the receipt of communication from the Settlement Commission;

Provided that where the Commissioner does not furnish the report within the aforesaid period, the Settlement Commission may proceed to pass an order under sub-section (4) without such report.

4. The provisions of sub-section (3) of Section 245D would make it clear that where an application has not been declared to be invalid by the Settlement Commission under sub-section (2C), the Commission is empowered to call for records from the Commissioner and upon the examination of such records, if it is of the opinion that a further enquiry or investigation in the matter is necessary, it may direct the Commissioner to do so. The jurisdiction to determine as to whether a further enquiry or investigation is necessary is thus vested with the Settlement Commission. In the present case, from the compilation of correspondence which is placed on the record, it is clear that on 3 October 2013, the Commissioner of Income Tax (Central) Pune had addressed a communication to the Settlement Commission setting out that an enquiry under sub-section (3) of 245D was necessary in respect of certain specific issues. The grievance of the Petitioner, is that on 19 September 2013 at a hearing before the Commission it was indicated that the department would be heard on the issue relating to a Section 245D(3) enquiry on 7 October 2013, but as a matter of fact the Commission has not applied its mind to whether an enquiry under Section 245D(3) should be ordered.

5. The learned senior counsel appearing on behalf of the Second Respondent on the other had has submitted that the issue as to whether an enquiry under Section 245D(3) should be ordered by the Settlement Commission has not been finally concluded by the Settlement Commission, and during the course of the proceedings, the Settlement Commission would apply its mind to that aspect. As we have noted earlier, by a letter dated 3 October 2013 to the Settlement Commission, the Commissioner of Income Tax (Central) Pune has drawn the attention of the Commission to the specific issues on which a further enquiry or investigation under Section 245D(3) would be necessary.

6. Sub-section (4) of Section 245D provides as follows :
"(4) After examination of the records and the report of the Commissioner, if any, received under —

(i)		sub-section (2B) or sub-section (3), or
(ii)		the provisions of sub-section (1) as they stood immediately before their amendment by the Finance Act, 2007,

and after giving an opportunity to the applicant and to the Commissioner to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the "Settlement Commission may, in accordance with the provisions of this Act, pass such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner."

7. Under sub-section (4) of Section 245D the Settlement Commission has to : (i) examine the records; (ii) examine the report of the Commissioner, if any, received under sub-section (2B) or sub-section (3), as the case may be, (or under sub-section (1) as it stood before the Finance Act 2007); (iii) examine such further evidence as may be placed before it or obtained by it. The Settlement Commission is also required to furnish an opportunity to the applicant and to the Commissioner to be heard before it passes an order under sub-section (4). A reading together of the provisions of sub-section (3) and sub-section (4) would indicate that the Settlement Commission is not as a mandate of law required to order a further enquiry or investigation by the Commissioner under Section 245D(3) in every case. Whether the facts of the case are of such a nature or complexity as would require a further enquiry or investigation has to be determined by the Settlement Commission after it has occasion, upon calling for the records from the Commissioner and the examination of those records to decide whether a further enquiry or investigation is necessary. Undoubtedly, if the Settlement Commission holds that a further enquiry or investigation is necessary under sub-section (3), such an enquiry or investigation has to be ordered by the Commissioner because sub-section (3) confers jurisdiction on the Commissioner to conduct the enquiry or the investigation, as the case may be. Equally, it is evident both from the language of sub-section (3) and the terms of sub- section (4) that the Settlement Commission is not required in every case to cause an enquiry or investigation to be made under sub-section (3). That is evident by the use of the words "if any" in sub-section (4). Moreover, under sub- section (4) the Settlement Commission, besides considering the report, if any, of the Commissioner under sub- section (2B) or sub-section (3) is empowered to examine such further evidence as may be placed before it or obtained by it. Evidence placed before the Commission would include evidence which may be produced either by the assessee or by the Commissioner. Evidence obtained by the Commission would include evidence which the Commission has obtained under its own authority. In that sense the powers of the Settlement Commission are wide. Finally, it may be necessary to note that under sub-section (4) the Settlement Commission has to pass an order in accordance with the Act as it thinks fit on matters covered by the application. The Settlement Commission may also pass an order on any other matter relating to the case not covered by the application, but which has been referred to in the report of the Commissioner. Hence, if the Settlement Commission intends to pass an order in respect of any other matter which has not been referred to in the application, that matter must be of a nature such that it is referred to in the report of the Commissioner. At this stage, it would also be necessary to advert to the provisions of sub- section (2) of Section 245F under which the Settlement Commission has exclusive jurisdiction to exercise the powers and to perform the functions of the Income Tax authority under the Act, where an application made under Section 245C has been allowed to be proceeded with under Section 245D, until an order is passed under sub- section (4) of Section 245D. This is, however, made subject to the provisions of sub-section (3). Consequently, where the Commission in the course of its jurisdiction under Section 245D(3) has ordered an enquiry or investigation by the Commissioner, the exclusive nature of its jurisdiction is subject to Section 245D(3).

8. On the record of the case, it is common ground between counsel appearing on behalf of the Revenue and learned senior counsel appearing on behalf of the Second Respondent that the Settlement Commission is yet to apply its mind to whether an enquiry under Section 245D(3) should be ordered. In view of the statement which has been made on behalf of the Second Respondent which is consistent with the scheme of the statutory provisions, we are not inclined to entertain the proceedings at this stage, save and except to clarify that the Settlement Commission shall during the course of its proceedings specifically bring to bear its consideration on whether an enquiry under Section 245D(3) should be ordered particularly having regard to the circumstances which have been set out in the letter of the Commissioner of Income Tax dated 3 October 2013. Since the proceedings are pending before the Settlement Commission, it would not be appropriate for this Court to entertain the proceedings any further. We accordingly dispose of the proceedings, having clarified the legal position. There shall be no order as to costs."

23. Similar view is taken by the High Court of Andhra Pradesh in the case of CIT v. Vijayawada Settlement Commission (IT & WT) [2014] 49 taxmann.com 165. Para 24 and 26 are relevant which reads as under :—

"11. As a matter of fact, what all is required by the Settlement Commission at the stage of entertaining the application is whether a prima facie case is made out or not and in that context only subsequent amendments which have been brought in Sections 245C and 245D of the Act had dispensed with even issuing a preliminary notice to the Commissioner of Income Tax leaving it to the absolute discretion of the Settlement Commission to entertain a case or not for its consideration. The reasons for giving such discretion to the Commission cannot be lost sight particularly keeping in view of the objects of establishment of Settlement Commission and to settle the disputes between the taxpayer and the department in an amicable manner. As a matter of fact, the recent legislative efforts in bringing Section 268A of the Act and in issuing various circulars whereby restraining the department officials to file appeals and further appeals in all and sundry cases recognising futility of such exercise may be noticed. A close perusal of the order passed by the Settlement Commission, both at the stage of admission and also at the stage of passing of the final order, we find, as a matter of fact, ample opportunity was given to the Department to file their objections and also the representatives of the department were heard before passing the orders and in that view of the matter, we are unable to concur with the contention of the learned counsel for the petitioner that the order is vitiated on account of violation of principles of natural justice. Inasmuch as we are satisfied that it was within the discretion of the Settlement Commission at the stage of Section 245D(1) of the Act to admit a case for consideration based on the prima facie view, the aspect of admission of a case by the Settlement Commission except in exceptional circumstances cannot be the subject matter of a judicial review. This becomes clear from the law laid down in catena of judgments with reference to the restricted scope of interference by the Courts even with the final orders of the Settlement Commission. In that view of the matter, we do not see any reasons to order the amendment petition. Accordingly, the W.P. M.P. No. 28188 of 2002 is dismissed."

24. In the case of CIT v. Income Tax Settlement Commission [2013] 33 taxmann.com 313/216 Taxman 246 (Guj.) para 6 is relevant which reads as under:—

"6. We are of the opinion that by such order, the Settlement Commission did not finally decide the merit or demerit of the rival contentions. It only allowed the application to be proceeded with. All contentions of both the sides would necessarily be gone into the Commission before passing any final order. The order of Settlement Commission was only in the nature of permitting further enquiry into application of the assessee for settlement. In that view of the matter, no interference is called for. Petition is dismissed. Rule is discharged.

25. In reply, Shri R.L. Jain, learned Senior counsel for the petitioners has submitted that no order has been passed by the Commissioner under Section 245D (2C) regarding admitting the application for settlement filed by the respondent No. 1 and department has only received a notice by which they came to know about it. He has also drawn our attention to the relevant provisions of the Act and definition as defined in Chapter XIX and submitted that application must contained a full and true disclosure of the income of the assessee, which has not been disclosed before the assessing officer, the manner in which such income has been derived as required under 245(C) (1) of the Act.

26. His next submission is that before passing of order standing counsel of the department should he heard. He also drawn our attention to the news item Annexures P/1 and P/11 and submits that the disclosure made by the respondent No. 1 was not full and true and thus, the learned authority has committed an error in accepting the application. In support of the aforesaid contention he placed reliance on the following casesCIT v. B.N. Bhattacharjee [1979] 118 ITR 461/1 Taxman 348 (SC), CIT v. Anjum M.H. Ghaswala[2001] 252 ITR 1/119 Taxman 352 (SC), CIT v. Express Newspaper Ltd. [1994] 206 ITR 443/72 Taxman 438 (SC), Ajmera Housing Corpn. v. CIT [2010] 193 Taxman 193 (SC), Kuldeep Industrial Corpn. v. ITO [1997] 223 ITR 840/90 Taxman 132 (SC), Income Tax Settlement Commission (supra),CIT v. Godwin Steels (P.) Ltd. [2013] 353 ITR 353/[2012] 206 Taxman 96/19 taxmann.com 16 (Delhi),Hassan Ali Khan v. Settlement Commission [2008] 168 Taxman 78 (Bom.), CIT v. Income-tax Settlement Commission [2009] 310 ITR 10/[2008] 170 Taxman 172 (Mad.) and CIT v. Om Prakash Mittal [2005] 273 ITR 326/143 Taxman 373 (SC).

27. To counter the aforesaid allegations learned counsel for the respondent No. 1 has drawn our attention to Annexure P/1, the stand taken by the department. Statutory report which is at page 53 and para 3.0 and 5.0 of the report. His contention is that no notice to either side is required at the time of considering the application. The rule of the department will start one the application is accepted and notice is issued to them. At the time of admission no objection of any kind was raised as is evident from the report which has been reproduced in the preceding paragraph and submits that interest of the department is well protected. The department just to linger on the proceeding before the Settlement Commission has filed this writ petition whereas they can raise all these objections before the Settlement Commission and in view of the law laid down by the Apex court in the case of K. Jayaprakash Narayanan (supra). The Hon'ble Apex Court has granted liberty to the department to raise the contention before the settlement Commission who would be entitled to examine that question on the final hearing of the matter.

28. Since the matter is pending before Settlement Commission and it has to decide as to whether full disclosure was made or not, it is not for the court to enter into it and petitioner is at liberty to raise all objection regarding the maintainability of the application before the commission. With the aforesaid observations, we vacate the ad-interim order dated 9.1.2015 by allowing I.A. No. 378/2015 filed by the respondent No. 1.

29. It may be mentioned that we have not decided any issue on merits of the case and any observation made in the order will not in any way affect the subject matter pending for consideration before the settlement Commission.

30. With the aforesaid, I.A. No. 378/2015, filed by the respondent No. 1 is allowed and disposed of.