SETTLEMENT COMMISSION

SETTLEMENT COMMISSION A premier Alternative Dispute Resolution Body in India with the mandate to resolve tax dispute in respect of Income Tax and Wealth Tax Laws between two disputing parties – Income Tax Department on one side and Litigating tax payer on the other side

SCOPE & POWER OF ITSC ITSC mechanism allows taxpayer to disclose additional income before it over and above what has been already been disclosed before Income Tax Authority. The applicant has to pay full amount of tax and interest on additional income disclosed before ITSC before filing application

SCOPE & POWER OF ITSC ITSC decides upon the admissibility of applications and carries out the process of settlement in time bound manner by giving opportunity to both the parties Object of Chapter XIX-A is not to give amnesty to tax evader from paying tax due but to see that protracted litigation is avoided and Revenue is collected earlier CIT Vs Anjum Ghaswala 252 ITR 1 (SC) CIT Vs Om Prakash Mittal 273 ITR 326 (SC)

WHEN ONE CAN APPROACH ITSC An applicant can approach ITSC in respect of a “Case” if no assessment order is passed by concerned IT authority in respect of the assessment year/s and the statutory time limits for passing of assessment order for that assessment year has not lapsed. Definition of “Case” includes cases of Search u/s 132 Requisition of books of accounts u/s 132A Reassessment Revision and set aside or cancelled assessment

WHEN ONE CAN APPROACH ITSC An applicant can approach ITSC in respect of proceedings which are pending. However, one can not approach ITSC once the assessment order is passed or time for passing the order has expired

APPLICATION TO ITSC U/S 245C Application to ITSC is in Form 34B The application must contain a “Full and True” disclosure of his income which has not been disclosed before the AO. This is the most important criteria. The applicant must explain the manner in which such income has been derived. “Manner” of deriving undisclosed is one of the most important criteria. Additional tax and interest thereon which would have been paid under the provisions of Act had the income disclosed in the application been declared before the AO on the date of application must be paid before the date of making application

APPLICATION TO ITSC U/S 245C In cases where proceedings for assessment in Search Cases are initiated u/s 153A, 153B, 153C the additional amount of income tax payable on income disclosed in the application should exceed Rs 50 Lacs. It does not include interest. In any other case the additional amount of tax on the income disclosed in application should exceed Rs. 10 Lacs

APPLICATION TO ITSC U/S 245C w.e.f. 01/6/2011 new category of applicant “Specified Persons” has been added for the purpose of additional tax payable in case the applicant is related to person who is searched or requisition of books is made and proceedings under section 153A, 153B, 153C are initiated against such person. In such case additional income tax payable shall be Rs. 10 Lakhs.

SEC 245D PROCEDURE ON RECEIPT OF APPLICATION Section 245D of the I T Act set out the procedure which is to be adopted by ITSC on receipt of an application u/s 245C On receipt of application u/s 245C the ITSC shall within 7 days from the date of receipt of application shall issue a notice to the applicant requiring him to explain as to why the application made by him be allowed to be proceeded with ITSC within a period of 14 days from the date of application by order in writing, reject the application or allow the application to be proceeded

SEC 245D PROCEDURE ON RECEIPT OF APPLICATION ITSC can reject the application if the applicant does not satisfy the essential conditions mentioned in section 245C A copy of the application is to be sent to IT Authority on the date of application failing which it may be rejected. An applicant can not withdraw the application after filing before ITSC Section 245C(3)

SEC 245D PROCEDURE ON RECEIPT OF APPLICATION An application can be rejected by Commission during the course of proceedings u/s 245D(1) within 14 days of filing of application As per proviso to section 245D(1) if the application is not rejected within 14 days it is deemed to have been admitted Application can be rejected if applicant does not satisfy the essential condition mentioned in section 245C

SEC 245D PROCEDURE ON RECEIPT OF APPLICATION On receipt of application Commission shall issue the notice within seven days to the applicant requiring him to explain as to why the application made by him allowed to proceeded with. On hearing the applicant Commission shall within a period of 14 days from the date of application by an order in writing reject or allow the application to be proceeded with

SEC 245D PROCEDURE ON RECEIPT OF APPLICATION A copy of every order u/s 245D(1) shall be sent applicant and Pr. CIT or CIT Settlement Commission shall call for a report from Pr. CIT or CIT within 30 days of receipt of communication from Commission

SEC 245D PROCEDURE ON RECEIPT OF APPLICATION Where a Report of Pr. CIT or CIT called for u/s 245D(2B) has been furnished the Commission may on the basis of the Report and after giving an opportunity of hearing to both sides, within a period of 15 days by an order under s. 245D(2C) in writing, declare the application as valid or invalid and send the copy of the same to the applicant and Pr. CIT or CIT

SEC 245D PROCEDURE ON RECEIPT OF APPLICATION Section 245D(3) –Commission in respect of an application which has not been declared as invalid may call for the records from PR. CIT and after examination of such records if Commission is of the opinion that any further inquiry or investigation may direct the PR. CIT or CIT to furnish the report to be furnished within period of 90 days

SEC 245D PROCEDURE ON RECEIPT OF APPLICATION Settlement Commission after examination of the records and the Report of the Commissioner, if any, received under sub-section (2B) or Sub-Section (3) and after giving an opportunity to the applicant as also to Commissioner may pass such order in accordance with the provisions of the Act on the matters covered by the applicant and any other matter relating to case not covered by the applicant but referred to in the report of the commissioner

SEC 245D PROCEDURE ON RECEIPT OF APPLICATION Order u/s 245D(4) must be passed in 18 months from the date of application. Section 245(6) every order passed u/s 245D(4) is to 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 is to be paid and all other matters to make the settlement effective.

SEC 245D PROCEDURE ON RECEIPT OF APPLICATION In the Order u/s 245D(4) Commission is specifically to be provided that the settlement would be void if it was subsequently found by ITSC that it had been obtained by fraud or misrepresentation of facts. CIT Vs Om Prakash Mittal 273 ITR 326 (SC)

Whether disclosure made in application can be revised? A scheme of Chapter XIX-A does not contemplate revision of the income so declared in the application. Revision would amount to fresh application not permitted under the scheme. True & Full Disclosure of income not declared before AO, “Manner of deriving undisclosed income and payment of tax on additional income are pre-requisite of a valid application. Ajmera Housing 326 ITR 642 (SC)

FULL & TRUE DISCLOSURE AND MANNER The applicant is required to make “Full & True Disclosure” of additional income and the “Manner” of deriving the undisclosed income in the application which is a vital point for an application to be allowed to be proceeded with. The settlement application passes through several stages before the final order u/s 245D(4) is passed by ITSC Issue of “Full & True Disclosure” & “Manner” is open till final order u/s 245D(4)

EFFECT OF FILING APPLICATION TO ITSC Once the application is filed before ITSC, the gets shifted to ITSC for assessment proceedings. The jurisdiction shifts not form the date of admission but from the date of submitting application.

CHALLENGE TO ITSC ORDER The Order of ITSC can be challenged in court of law by filling a writ petition when Principles of natural justice are violated Mandatory procedural requirements of law were not complied with. Normally High Court does not go into the merits of the case unless order is perverse.

RECTIFICATION OF ORDER U/S 245D(4) Whether the Final Order passed u/s 245D(4) can be rectified? Section 245D(6B) Finance Act 2011 permits rectification of order within six months from the date of order Order can be rectified on application by Pr. CIT or applicant within 6 months from the receipt of application

APPLICATION TO ITSC –ONCE IN LIFE TIME OPPORTUNITY Benefit of settlement application can be availed by taxpayer only once in life time As per section 245K(2) provides that where a person has made application on or after 1st June 2007 and if such application is allowed to be proceeded with u/s 245d(1) such person or any related person shall not be subsequently entitled to make an application An applicant whose application has been rejected u/s245D(1) can still file application for settlement. CIT Vs Bhaskar Picture Place 247 ITR 391 (SC)

BENEFITS OF SETTLEMENT COMMISSION Department to get over long and continued litigation in complicated cases with doubtful revenue Time consuming litigation in regular appellate procedure is avoided by Department & assessee as well Application is processed in time bound manner in 18 months. If the disclosure of the applicant is “Full and True” benefit immunity from penalties and prosecution are available to the assessee Confidentiality of assessee’s disclosure is maintained as the same could be used only in the settlement Commission