Government of India
Settlement Commissioner (Income Tax & Wealth Tax)
Additional Bench
10C, Middleton row. 2nd Floor,
Kolkata- 700 071
1. Name and address of the
application
M/s. Rescuwear Corporation 75, Ganesh
Chandra Avenue
Kolkata- 700 013.
2. Settlement Application No. WB/KoL-XL/2008-09/01/11
3 Status Firm
4 Assessment year (S) 2004-05,2005-06,2007-08 & 2008-09
5 Permanent Account No. AADFR7504D
6 Date of filing of Settlement
Application
22.04.2008
7 CIT s jurisdiction CIT-XI, Kolkata
8 Proceeding relating to Determinarion of total income and fixation
of tax liabilities thereon
9 Proceeding relating before ITO ward, 31(1) Kolkata
10 Place of hearing Kolkata
11 Date of hearing 13.06.2008
12 (a) present for the applicant
(b) Present as Intervener
Dr. Debiprosad Pal, Sr. Advocate
S/Shri. A. K. Todani, FCA and
Shreya Loyalka, ACA Avra Mazumdar
S.R.Wadhwa, Patron, ITSC Bar
Association New Delhi
S. Bandyopadhyay, Advocate
13 Present for the department Shri. L. S. Negi, CIT (DR), Kolkata
14 Officers of the Settlement
Commissioner present
Shri. Sudhir Kumar, Secretary
15 Order passed u/s. 245D(2C)
16 Date of Order 13.06.2008
(ALL SECTION REFERED TO IN THE ORDER RELATE TO THE INCOME TAX
ACT. 1961 UNLESS OTHERWISE STATED)
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1. A Settlement application in this case for assessment years 2004-05, 2005-
06,2006-07, 2007-08 and 2008-09 was filed on 22.04.2008. As no order u/s.
245D(I) was passed within the Prescribed period by this Bench the application
is deemed to have been allowed to be proceeded with in terms of proviso to
section 245D(1) of the Act. The report of the commissioner called for under
sub-section 2B of the Section 245D of the Act, was received on 02.06.2008
consequently, an order under sub-section 2C the Section 245D of the Act
declaring the application in question as “invalid”, if any has to be passed on
or before 17.06.2008.after hearing the applicant.
2. As the application involved important issues relating to the very
interpretation of word “case” as defined in section 245A(b) of the Act, the
Chairman of the Commission was requested to constitute a Special Bench
consisting of five members to hear the Settlement Application and decide the
issue involved. Consequently, by his order u/s. 245BA(5A) of the Act., the
chairman constituted a Special Bench consisting of five members of
commission to hear the Settlement Application on 13.06.2008 at 11 AM in
Kolkata. The issue to be determined by the Special Bench have been
identified in the said order as under.
i) For the year for which returns have been filed but have neither
been processed u/s 143(1) of the Act nor notices have been issue
u/s. 143(2) of the Act, whether proceeding for the assessment are
pending or not?
ii) For the years for which returns have been processed u/s 143(1) of
the Act but now no time is left for issue of notices u/s 143(2) of the
Act, whether proceeding for the assessment years are pending or
not?
iii) The meaning of “date of conclusion of proceeding” under clause
(iv) of sub- section (b) of Section 245A of the Act:
iv) If in this composite application for five years, proceeding for
certain assessment year are pending but are not pending for other
years, whether the application can be admitted for those years for
which proceedings are pending and held as “invalid” for other
years of the same has to be held as “invalid’ in totality for the
years?
3. The Settlement Application was heard on 13.06.2008. at 11 A.M. by the
Special Bench. During the course of hearing Dr. Debiprosad Pal, Sr.
Advocate and Shri. A. K. Todani, FCA appeared on behalf of the applicant
Shri. S.R. Wadhwa and Shri. S. Badyopadhyay, Advocates appeared as
interveners. The Department was represented by Shri. L. S. Negi CIT(DR).
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4 The Ld. CIT (DR) at the outset, stated that as per clause (iv) of explanation to
section 245A(b) the proceeding for assessment for any assessment year, other than
the proceeding for assessment or reassessment, referred to in clause (i)-(iv) of the
proviso to the said section, shall be deemed to have commenced from the first of the
assessment year and concluded on the date on which the assessment is made The Ld.
CIT(DR) stated that apparently there was a contradiction between the main provision
of the said section and clause (iv) of the explanation. According to him authoritative
interpretation of expression ‘pending proceeding’ is available in judicial precedence.
In this connection he referred to Stroud Judicial Dictionary, fourth edition vol. 4 Page
1975, where word “pending” is thus defined, “A legal proceeding is “pending” as
soon as commenced and until it is concluded. i.e. so long as the court having original
cognizance of it can make an order on the matters is issue, or to be dealt with therein”
To the similar effect are the observations of Jessel M. R. In re Clagett’s Fordham V.
Clgett {(1882) 20 Ch. D. 637-651} “What is the meaning of the “pending”? In my
opinion, it includes every insolvency in which any proceeding can be any possibility
be taken. That I think is the meaning of the word “pending”……A cause is said to be
pending in a Court of justice when any proceeding can be taken in it. That is the test.”
Relaying on the above import of the expression “ Pending”, the Supreme Court has,
in Asgarali Nazarali Singaporewalla v. State of Bombay {AIR 1957 SC 503}, held
that the case was “pending” even though prosecution has closed its case but the
accused had not yet been called upon to enter his defense.
4.1 The Ld. CIT (DR), further, stated that in the present case no notice has been
issued by the AO u/s. 143(2) and 142(1) though the return of income has been
processed u/s. 143(1). Admittedly the limitation for issue of notice u/s.143 (2) has
already lapsed for some of the assessment years. Therefore according to him since no
proceeding can be taken in the case for assessment u/s. 143(3)/ 144 in those years the
assessment proceeding cannot be said to be pending at least for those years.
4.2 The Ld. CIT (DR), further argued that applying the above definition of word
‘pending’ as provided in Stroud’s Dictionary and also applying the test as laid down
by Hon’ble Jessel M. R. in re- Clagetts; Fordham vs. Clagett (supra), which has been
approved by the Hon’ble Supreme Court in the case of Asgar Alli Singaporewalla,
referred to in the earlier Para, it can be emphatically stated that in this case in the
assessment years in which limitation period for issue of notice u/s. 143(2) has already
expired no proceedings can be said to be pending. According to him as per section
245(b), for bringing a case within ht ambit of jurisdiction of the Settlement
Commission, the first requirement is that assessment proceeding for one or more
years be pending before the AO. As per clause (iv) of the explanation to the said subsection
proceeding is deemed to have commenced from the first day of the
assessment year and conclude on the date assessment is made. There is an in-built
contradiction between sub-section (b) and explanation (iv) because the word”
assessment proceeding pending” in clause (b) of section 245A impliedly requires
that there is possibility of assessment order being passed. Whereas according to
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clause (iv) of the explanation the case is deemed to be pending until the assessment
order is passed, even if limitation for passing of such an order has already expired.
In this case as “strict literal construction’ leads to absurdity, principle of ‘harmonious
construction has to be preferred to the “strict literal construction. He relied on various
judicial pronouncements in this respect. {CIT v. J.H. Gotla, (1985) 156 ITR 323(SC),
Calcutta Electric Supply Corporation Ltd. V. CIT, (1989) 179 ITR 580, 587 (Cal),
Swastik Gear Ltd. V. ITO, (1989) 175 ITR 384, 403 (All)} also see, R Rudrajah V
State of Karnataka, JT 1998(1)SC 435,443}. Also an interpretation which would
create an unfair, irrational or unreasonable result, should if possible, be a avoided,
and the statutory provision salvaged by giving the enacted section a subdued and
subordinate content, but one , but one which is fully constitutional. This basic
approach should influence the court in the interpretational exercise to be adopted in
relation to fiscal statute too {Achamma George v. IAC, (1989) 180 ITR 57, 60 (Ker)}
It is now a well settled rule of construction that where the plain literal interpretation
of statutory provision produces a manifestly absurd and unjust result which could
never been intended by the Legislature, the court may modify the language used by
the Legislature or even “do some violence” to is so as to achieve the obvious
intention of the legislature, and produce a rational construction{ Luke v. inland
Revenue Commissioners, (1964) 54 ITR 692,709-10(HL)}. The court may also in
such a case read into the statutory provision a condition, which though not
expressed, is implicit as constituting the basic assumption underlying the statutory
provision ( K. P. Varghese v. ITO( 1981) 131 ITR 597, 605-06 (SC)}
4.3 The Lt. CIT(DR) further referred to various case laws as under:-
(i) Devidas v. Union of India(1993) 200 ITR 697,703 (Bom) { If is well settled
that when from construction of a statute two views are possible, one which
result in anomaly and other not, it the duty of the court to adopt the letter and
not the former}
(ii) C.W.S. (India)Ltd. v. CIT (1994) 208 ITR 649, 656 (SC) { Where a literal
interpretation leads to absurd or unintended result, the language of the statute
can be modified to accord with the intention of Parliament and to avoid
absurdity}
(iii)Sachina Nand Singh v. State for Bihar, (1998) 2 SSC 493, 498 { it is a settled
proposition that if the language of a legislation is capable of more than one
interpretation the one which is capable of causing mischievous consequences
should be averted}
4.4 The Ld. CIT (DR), further, argued that the issues before the Hon’ble Settlement
Commission have been squarely covered by the decisions of the Hon’ble Settlement
Commission, Additional Bench Mumbai in the case of M/s. Shagun Enterprise (No.
MH/MUC-21/187/2007-08/IT) and Dr. Pradeep Talwalkar (No. MH/MUC-
11/186/2007-08/ IT). He pointed out that the Hon’ble Bench in the case of Dr.
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Pradeep Talwalkar has observed that where the case has been processed u/s. 143( 1)
and no notice u/s. 143(2) has been served upon the applicant within the limitation
period, it can be said that no proceeding for the assessment year was pending on the
date when the application before the Settlement Commission was filed. Since, in the
present also, the limitation for issue of notice u/s. 143(2) has already lapsed at least
for few years, it can said that no assessment proceedings were pending for those
years when the application before the settlement Commissions was filed.
5 The LD. A.R. and sr. Advocate, Dr. Debiprosad pal arguing the case of the applicant
submitted that in the present case when the application was filed proceeding were
pending. Dr. pal relied upon the circular issued by the CBDT ( No. 3 of 2008 dated
12.03.2008.) appearing in 299 ITR at pg. Para 61.2 “ Under the existing provisions, as
assesses may make an application to the Commission at any stage of the proceedings in
his case pending before any income tax authority. After 31st May, 2007. an assesses
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 as assessment order there will be no bar in filing as 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”.
5.1 The Ld. A. R. submitted that this circular issued by the CBDT is contemporaries
and is binding on all authorities administering the Income Tax Act. The Ld. Counsel
referred to the decision in the case of K. P. Vargees v ITO 139 ITR 597 where the
Hon’ble court has observed that the two circular of the CBDT are binding on the
Income Tax authorities, in this connection he also referred to the decision in the case
Navnit Lal C. javeri v. K. K. Sen, AAC (1965) 56 ITR 198 wherein the Honourable
Supreme Court held that even if a circular is inconsistent with the same has to be
followed. The Hon’ble Supreme Court in the case of UCO Bank v. CIT 237 ITR 899
(on pg. 897-898) has observed that “circular of the Central Board of Direct taxes are
legally binding on the Revenue and this binding character attaches to the circular even
if they be found to be not in accordance with the correct interpretation of the section
and they depart or deviate from such construction”
5.2 The Ld. A.R. further, observed that the Income Tax Settlement Commission,
Additional Bench Mumbai, Which delivering the decisions in the case of M/s. Shagun
Enterprises and Dr. Pradeep Talwalkar did not have benefit of this circular as it issued
on 12.03.2008 where as the order I these cases were passed in January 10,2008 The
A.R. further, stated that if the judgment delivered by the Additional Bench of Income
Tax Settlement Commission, Mumbai does not propound correct position of law, the
Present Bench, being a larger Bench, is not bound to follow the same . He further,
argued that there is no inherent contradiction between the main clause (b) of section
245A and clause (iv) of the explanation. Proceeding can be stated to be pending when a
proceeding can be taken/initiated by the AO Looking into the fact and circumstances of
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the present case it can be stated that proceeding were pending for the assessment years
for which application was filed before the Settlement Commission.
5.3 Shri. A. K. Todani, FCA appearing on behalf of the applicant, stated that chapter
XIXA is a separate chapter in respect of Settlement of case. A case pending before the
AO has been defined in clause (b) of Section 245A and proviso (i) to (iv) listed out the
case where proceeding shall not be pending for assessment of the purpose of clause (b).
Clause (iv) of explanation clearly state that proceeding for assessment for any
assessment year shall be deemed to have commenced from the first day of the
assessment year and concluded on the date on which the assessment is made. For the
purpose of determining as to what is pending before the AO a strict interpretation to
clause(iv) of the explanation has to be given which says that he assessment shall
demand to have concluded only on the date on which the assessment is made. We do
not have to looks beyond what has been stated in clause (iv) In this connection he
referred to the Circular issued by the CBDT wherein it has been stated that assessment
shall be deemed to have been completed only on the date of service of assessment order
to the applicant. Therefore, in this case, where the assessment order has not been served
upon the applicant for any of the years under consideration, proceeding can be said to
be pending for all the years. The Ld. A.R. further stated that the opportunity of filing an
application before the Settlement Commission is now available once in a life time,
therefore, the intention of the legislature is that the applicant can come before the
Settlement Commission and file a application for all the assessment years for which
assessment have not been made and assessment orders have not been served.
6 Shri. S.R. Wadhwa, Advocate and intervener, appearing on behalf of the Income Tax
Settlement Commission Bar Association, New Delhi stated that the “Golden Rule” of
interpretation is the rule of strict construction” the Ld. Counsel argued that where the
statute is explicit and clear, the strict interpretation has to be followed. In this connection
he referred to the decision of the Supreme Court in the Case of CIT v. Kasturi 237 ITR
24 and fed of APCCI v State of Andhra Pradesh (2001) 247 ITR 36 ( SC).
The Ld. Counsel further state that there was no contradiction between the main section
245A(b) and clause (iv) of the explanation According to him the explanation to the main
clause makes clear the meaning of “case pending” before the AO. This clause clearly
state that proceeding for assessment for any year shall be deemed to have commenced
from the first day of the assessment years and shall conclude on the date on which the
assessment in made.
In this context Mr. Wadhwa, further argued that in a case where assessment has not been
made, It can be stated that the proceeding are still pending though the AO may be barred
by limitation from issue of notice u/s. 148 read with section 147. According to the Ld.
Counsel such limitation means non-availability of remedy in the hands of the AO but the
liability on the part of assesses does not seize He, Therefore, emphasized that an
applicant can come forward and file the application before the Settlements Commission
under the new provision for any number of years by going back to any period of time. He
called upon the bench to consider this issue and given its tax finding since it has
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according to him very wide ramifications from the point of view of the tax payers who
are allowed only one opportunity in life time to come clean before the authorities
According to him cause no harm to the department if an assesses wants to come clean
and pay taxes on his income, escaped in earlier years which is beyond the period of
action.
6.1 The next intervener Shri S. Bandyopadyay, Advocate emphasized that the main
issue before us was pendency of proceeding and there has been no definition of the
expression “pending proceeding” He, further, submitted that the expression “pending
proceeding” can have different meaning in different context under different laws. The
decision which have been referred to by the Ld. CIT (DR) are with reference to
proceeding pending under criminal laws, He, further, stated that the meaning of the
expression “pending proceeding” has to be found out within the chapter XIXA and clause
(iv) of the explanation to section 245A (b) If the assessment order has not been made the
proceeding are not concluded and therefore such proceeding can be treated as pending
before the AO. The Ld. Counsel, further, argued that if the deeming clause proceeding
are accepted to have communed from the firs day of assessment year, logically as per the
deeming provision it should also accepted that they shall conclude on the date when the
assessment is made.
7 The Ld. CIT(DR) Shri. Negi, in his rejoinder, submitted that the contention raised by
Shri. S. R. Wadhwa that “Rule of strict construction is no a higher pedestal than the
“Rule of harmonious construction” is not correct. According to him if the Department
cannot take any action any more a proceeding cannot be said to be pending limitation
under the Act. Is important.
8 We have heard the rival submissions. The CIT (DR) Shri. L. S. Negi has argued the
case at length on behalf of the Department Dr. Debiprosad Pal Sr. Advocate and Shri. A.
K. Todani FCA argued forcefully on behalf of the applicant Shri, S. R. Wadhwa and Shri.
Banyopadhyay, Advocate and Intervener dealt with, at length on various issued raised in
this case. We have also gone through the various case laws cited by both sides. The
issued which have been referred to before the Special bench are answered in the context
of the fact and circumstances of the present case as under:-
(i) First issue: YES, Pending
(ii) Second issue: YES, Pending in view of the CBDT circular explaining the provisions,
referred to above and discussions in respect of the third issue below.
(iii) Third issue: As per the provisions of section 245A(b) pendency of proceedings
for assessment before the Assessing Officer for one or more assessment year is a
necessary condition for invoking the jurisdiction of the Commission in respect of a
Statement Application Clause(iv) of the explanation to the said section clearly states that
a proceeding for assessment shall be deemed to have commenced on the first day of the
assessment year and concluded on the date on which assessment is made.
Before us, on the hand it has been argued that the “literal and strict interpretation” of the
relevant provision will Cleary lead us to conclude that proceeding fore assessment
commencing on the first day of the assessment year shall continue to be pending till the
assessment is made in terms of the circular of CBDT referred to earlier, it would mean
that they shall conclude only when the assessment order is served on the application. On
the other hand it has also been argued that this interpretation may lead to an absurd
situation where proceeding may by deemed to be deemed to be pending before the
Assessing Officer for certain years although under the Act,. The Assessing Officer may
not be empowered to take any action in respect of those years. In the circumstances we
are more empowered with the view, strongly propounded by the CIT (DR) and endorsed
by Dr. Debiprosad 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
proceedings for assessment can be said to be pending before as Assessing Officer in
respect of those assessment years only for which the assessing officers can still take
action/initiate the proceeding under the Act.
(iv) Fourth issue: YES whole of the application need not be declared ‘invalid if
proceeding for assessment are pending before the Assessing Officer for some of the years
and not for other years. The settlement Application can be proceeded with for those years
for which proceeding for assessment are pending before the assessing Officer.
In view of the answers given to the issues, mentioned above, we decide we that the
settlement Application shall not be declared “invalid”
(RAJ KISHORE) (R. SHARAN) (B.P.SAH) (S.N.SHUKLA) (U.P. SINGH)
MEMBER MEMBER MEMBER MEMBER MEMBER.
