Settlement Commission – CA Final DT Question Bank

Settlement Commission – CA Final DT Question Bank is designed strictly as per the latest syllabus and exam pattern.

Settlement Commission – CA Final DT Question Bank

Question 1.
An assessee’s case is pending in appeal before the Income Tax Appellate Tribunal for assessment year 2015-16. Since the appeal is pending, the assessee wishes to file an application to the Settlement Commission for disclosing additional income, the income-tax on which is ₹ 55 lakh. Is it possible to make such application? Will your answer be different if the Tribunal sets aside the case and restores the matter to Commissioner (Appeals)? [CA Final May 2005] [3 Marks]
Answer:
For moving an application to the Settlement Commission, the case of the assessee must be pending only in assessment proceedings u/s 143(3)/144/147/ 153A before the Assessing Officer or in case of fresh assessment in pursuance of an order u/s 254/263/264, setting aside or cancelling an assessment. Settlement application is not maintainable if the case is pending before CIT(A), ITAT or a Court.

Therefore, in the given question the assessee cannot make an application to the Settlement Commission in case appeal is pending before the Income Tax Appellate Tribunal.

Even if the Tribunal sets aside the case and restores the matter to the Commissioner (Appeals), the assessee cannot make an application to the Settlement Commission.

Settlement Commission – CA Final DT Question Bank

Question 2.
Does the Settlement Commission have the power to reduce or waive interest levied u/ss 234A, 234B and 234C of the Income-tax Act? Discuss. [CA Final Nov. 2005] [6 Marks]
Answer:
The issue relating to the power of the Settlement Commission to reduce or waive interest chargeable u/ss 234A, 234B and 234C has been settled by the Supreme Court in CIT v. Anjum M.H. Ghaswala (2001).

It was held in this case that sub-section (6) of section 245D is only procedural in nature which provides for fixing the term by which the amounts settled under sub-section (4) will have to be paid. It does not empower the Commission either to reduce or waive the interest. Any settlement made by the Commission must be in accordance with the provisions of the Act.

The levy of interest u/ss 234A, 234B and 234C is mandatory in nature and therefore any settlement made must include the interest under these sections. The Settlement Commission does not have the power to reduce or waive the interest levied u/ss 234A, 234B and 234C.

However, section 245F gives the Settlement Commission all the powers which are vested in an income-tax authority. Therefore, Settlement Commission I can grant relief from the aforesaid interest to the extent of the powers given vide the circulars issued by CBDT u/s 119.

Settlement Commission – CA Final DT Question Bank

Question 3.
On an application made by Mr. Pandey, an order was passed by the Settlement Commission on 30.01.2021 u/s 245D(4). The said order had a mistake apparent on record. The Settlement Commission passed an amended order dated 30.04.2021 which resulted in modifying the liability of Mr. Pandey. Mr. Pandey is of the view that order of the Settlement Commission is final and conclusive and it has no power to rectify the said mistake.

You are required to examine the following:
(i) Correctness of claim made by Mr. Pandey
(ii) Validity of the order amended by the Settlement Commission. [CA FinatMay 2012] [5 Marks]
Answer:
(i) The Settlement Commission has been conferred all the powers vested in an income-tax authority under the Act by virtue of section 245F(1). Further, section 154, gives an income-tax authority the power to amend any order passed by it in order to rectify any mistake apparent from the record. Therefore, the Settlement Commission’s power to amend an order to rectify any mistake apparent from the record has been embedded in section 245F(1).

Also, Section 245D(6B) specifically provides that the Settlement Commission may, at any time within a period of six months from the date of the order, amend any order passed by it u/s 245D(4) to rectify any mistake apparent from the record. As in the given case, the rectification order was passed by the Settlement Commission within 6 months of passing the original order, the claim made by Mr. Pandey is not correct.

(ii) As per the proviso to section 245D(6B), the Settlement Commission, before passing the amended order which has the effect of modifying the liability of applicant should –

  1. give a notice to the applicant and the Commissioner of its intention to make such an amendment; and
  2. allow the applicant and the Commissioner an opportunity of being heard.

If these conditions are fulfilled, the order amended by the Settlement Commission would be a valid order, since the amended order is passed by the Settlement Commission within the permitted time limit i.e., within six months from the date of its original order.

As in the instant case, the Settlement Commission has not given a notice to the applicant Mr. Pandey, the rectification of order is not proper in law.

Settlement Commission – CA Final DT Question Bank

Question 4.
X & Co. Ltd. had made an application to the Settlement Commission. The issue in the said application related to cash credits in the books of account. The Commission passed an order making addition to the income on the basis of difference in gross profit rate adopted, which was neither an issue in the application nor in the report of the Commissioner of Income-tax. Discuss the validity of the order of the Settlement Commission. [CA Final May 2014] [4 Marks]
Answer:
Section 245D(4) provides that the Settlement Commission, after examination of records and report of the Commissioner and after examining such further evidence as may be placed before it or obtained by it, may pass such order as it thinks fit.

Further, section 245D(5) provides that the materials brought on record before the Settlement Commission shall be considered by the Members of the concerned Bench before passing any order u/s 245D(4).

In case of Supreme Agro Foods Pvt. Ltd. v. Settlement Commission (2013) (P&H), it was observed that “consideration” for the purpose of section 245D(5) means an independent examination of the evidence and material on record before the Settlement Commission by the members and application of mind thereto.

In this case, since the material was available before the Settlement Commission and such material has been taken into consideration for a finding which is relevant for determining the undisclosed income of the applicant, the addition made on the basis of difference in gross profit rate adopted is justified and the order of the Settlement Commission is proper.

Settlement Commission – CA Final DT Question Bank

Question 5.
M/s. A Ltd. has received a notice u/s 148 for the A.Y. 2017-18 on 02-02-2021. They also anticipate similar notices for the A.Ys. 2015-16 and 2016-17 for which they have already furnished return of income. On examination of the books of account produced, you noticed huge amounts of concealed income. As a consultant, what is your advice to A Ltd.? [CA Final May 2016] [4 Marks]
Answer:
An assessee may make an application to the Settlement Commission u/s 245C at any stage of a case relating to him. “Case” means any proceeding for assessment which may be pending before an Assessing Officer on the date on which such application is made. Thus, in order to make an application before the Settlement Commission, there must be a proceeding for assessment pending before an Assessing Officer on the date on which the application is made.

A proceeding for assessment or reassessment or re-computation u/s 147 shall be deemed to have commenced from the date on which a notice u/s 148 is issued. And once notice u/s 148 is issued for any assessment year, the case also becomes pending for any other assessment year(s) for which a notice u/s 148 has not been issued, but such notice could have been issued on such date, if the return of income for the other assessment year(s) has been furnished u/s 139 or in response to a notice u/s 142.

In this case, M/s. A Ltd. has received a notice u/s 148 for the A.Y. 2017-18 and also anticipates similar notices for the A.Y. 2015-16 and A.Y. 201617, for which return of income has been furnished. Thus, a proceeding for assessment is pending before an A.O. i.e., the basic condition for approaching Settlement Commission is satisfied.

Moreover, since after examination of the books of account, huge amount of concealed income is also noticed, it is presumed that the second condition that the additional amount of income-tax payable on the income disclosed in the application should exceed ₹ 10 lakhs has also been satisfied.

Based on these facts, our advice as consultant to M/s. A Ltd. would be to approach the Settlement Commission to have his case settled and apply for grant of immunity from penalty and prosecution.

Settlement Commission – CA Final DT Question Bank

Question 6.
“Orders of the Settlement Commission are binding in nature”. Explain the binding character of orders of the Settlement Commission in the context of the provisions contained in the Income-tax Act. [CA Final Nov 2016] [4 Marks]
Answer:
Order of Settlement Commission to be conclusive:
As per Sec. 245-1, the matters covered by the order of Settlement Commission cannot be reopened in any proceeding under the Act or under any other law, since the order of the Settlement Commission is final and conclusive.

Also, no appeal is possible against such order before CIT(A) or ITAT.

However, the settlement shall be void, if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts.

However, the High Court’s power of judicial review’ would remain unaffected irrespective of the scope of powers of the Settlement Commission and the provision that the decision of the Settlement Commission is final and conclusive. But inspite of such power of High Court, the decision of the Settlement Commission could be interfered with only where there are grave procedural defects or violation of rules of natural justice. The High Court cannot interfere either with an error of fact or error of law alleged to have been committed by the Settlement Commission.

Further, the order that the Settlement Commission may pass though is binding between the parties, does not lay down a ratio or a precedent.

Thus, the orders of Settlement Commission are binding in nature.

Settlement Commission – CA Final DT Question Bank

Question 7.
Seizures were made from Mr. Sunder pursuant to a search conducted in his premises. He filed an application for settlement by claiming to have received the amount by way of loans from several persons. The Settlement Commission accepted his statement and made an order. The CBI, however, conducted enquiry at the instance of the Revenue regarding the claimed amount of loans and opined that the alleged lenders had no means or financial capacity to advance such huge loans™to Mr. Sunder and were P mere name lenders only.

The Commissioner filed an application u/s 245D(6) praying for the order to be declared void and for withdrawal of benefit granted Mr. Sunder, however, contended that the order of the Settlement Commission was final and any fresh analysis would amount to sitting in judgment over an earlier decision, for which the Settlement Commission was not empowered. Discuss the correctness of Mr. Sunder’s contention. [CA Final May 2017, May 2011] [6 Marks]
Answer:
The Supreme Court in CIT v. Om Prakash Mittal (2005) observed that section 245D(6) clearly states that every order passed by the Settlement Commission under sub-section (4) has to provide for:

  1. the terms of settlement; and
  2. that the settlement would become void, if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts.

The decision that the order has been obtained by fraud or misrepresentation is that of the Settlement Commission. However, there is no requirement that the action be initiated by the Settlement Commission, suo motu.

Settlement Commission – CA Final DT Question Bank

The Revenue can move the Settlement Commission for decision on an issue if it has material to show that the order was obtained by fraud or misrepresentation of facts. The Supreme Court held that merely because section 245-1 provides that the order of settlement is conclusive, it does not take away the power of the Settlement Commission to decide whether the settlement order has been obtained by fraud or misrepresentation of facts. If the CIT is able to establish that the earlier decision was void because of misrepresentation of facts, then it is open for the Settlement Commission to decide the issue.

By any stretch of imagination, it cannot be said that a fresh analysis on such ground is a review of the earlier judgment by the Settlement Commission or that the subsequent Bench sitting in appeal over the earlier Bench’s decision. Hence, Mr. Sunder’s contention is not tenable in law.

Settlement Commission – CA Final DT Question Bank

Question 8.
Discuss whether the statement “The Settlement Commission may suo motu amend any order passed by it to rectify any mistake apparent from the record” is correct or not. [CA Final Nov. 2011, Nov. 2015] [2 Marks]
Answer:
The statement is correct.
As per Sec. 245D(6B), the Settlement Commission may, with a view to rectifying any mistake apparent from the record, amend any order passed by it u/s 245D(4) within 6 months from the end of the month in which the order is passed.

However, an amendment which has the effect of modifying the liability of the applicant shall not be made unless the Settlement Commission –

  1. has given notice to the applicant and the Principal CIT or CIT of its intention to do so and
  2. has allowed the applicant and the Principal CIT or CIT an opportunity of being heard.

Settlement Commission – CA Final DT Question Bank

Question 9.
Whether the Commissioner (Appeals) is empowered to consider an appeal filed by an assessee challenging the order of assessment in respect of which the proceedings before the settlement commissioner abates? Examine with the relevant provisions of law? [CA Final May 2018 (New Syllabus)] [3 Marks]
Answer:
As per Sec. 251, in disposing of an appeal against the assessment order in respect of which the proceedings before the Settlement Commission abates u/s 245HA, the CIT(A) has the power to confirm, reduce, enhance or annul the assessment, after taking into consideration the following:

  1. All the material and other information produced by the assessee before the Settlement Commission in the course of the proceeding before it;
  2. The results of the inquiry held by the Settlement Commission in the course of the proceeding before it;
  3. The evidence recorded by the Settlement Commission in the course of the proceeding before it; and
  4. Such other material as may be brought on his record.

As per Sec. 245HA, where a proceeding before the Settlement Commission abates, the A.O. before whom the proceeding at the time of making the application was pending shall dispose of the case in accordance with the provisions of this Act as if no application u/s 245C had been made. Therefore, after abatement, the A.O. shall dispose off the case as per the provisions of the Act and passed the order of assessment u/s 143(3) or 144 or 147 or 153A.

As per Sec. 246A, any assessee aggrieved by the order of assessment u/s 143(3), 144, 147 or 1 53A may prefer an appeal to the CIT(A).

Since, after abatement, the A.O. shall passed the order of assessment u/s 143(3) or 144 or 147 or 153A and as per sec. 246A, the assessee aggrieved by the order of assessment u/s 143(3) or 144 or 147 or 153A, may prefer an appeal to CIT(A), it is possible for the assessee to challenge the order of assessment in respect of which the proceedings before the settlement commission abates as there is no restriction u/s 246A that the assessee cannot challenge the order of assessment in respect of which the proceedings before the settlement commissioner abates.

Settlement Commission – CA Final DT Question Bank

Question 10.
The business premise of Mr. Armit was subjected to a survey u/s 133A of the Act. There were some incriminating materials found at the time of survey. The assessee apprehends reopening of assessments of the earlier years. He wants to know whether he can approach the Settlement Commission. Explain briefly the basic conditions to be satisfied and the benefits that may accrue to Mr. Amit by approaching the Settlement Commission. [CA Final Nov. 18 (New Syllabus), May 2015] [4 Marks]
Answer:
An assessee may make an application to the Settlement Commission u/s 245C at any stage of a case relating to him. “Case” means any proceeding for assessment which may be pending before an Assessing Officer on the date on which such application is made. Thus, in order to make an application before the Settlement Commission, there must be a proceeding for assessment pending before an Assessing Officer on the date on which the application is made.

A proceeding for assessment or reassessment or re-computation u/s 147 shall be deemed to have commenced from the date on which a notice u/s 148 is issued. And once notice u/s 148 is issued for any assessment year, the case also becomes pending for any other assessment year(x) for which a notice u/s 148 has not been issued, but such notice could have been issued on such date, if the return of income for the other assessment year(s) has been furnished u/s 139 or in response to a notice u/s 142.

Settlement Commission – CA Final DT Question Bank

In this case, no notice u/s 148 has been issued to Mr. Amit and thus no case is pending for assessment before the A.O. Hence, Mr. Amit cannot approach the Settlement Commission merely due to his apprehension that assessment of earlier years may be reopened. Therefore, he has to wait for the A.O. to issue notice u/s 148 and then he can make an application to the Settlement Commission u/s 245C as then it would be a “case pending” before the A.O. on that date.

Further, he can make application only if

  • the additional amount of income-tax payable on the income disclosed in the application exceeds ₹ 10 lakh and
  • such tax and interest thereon should be paid on or before the date of making the application and
  • proof of such payment should be attached with the application.

If the Settlement Commission is satisfied that Mr. Amit has co-operated in the proceedings and made true and full disclosure of his income and the manner in which it has been derived, following benefits may accrue to Mr. Amit –

  1. Immunity from prosecution for any offence under the Income-tax Act, 1961/Wealth-tax Act, 1957, where the proceedings for such prosecution have been instituted on or after the date of receipt of application u/s 245C; and
  2. Immunity from imposition of penalty under the Income-tax Act, 1961, either wholly or in part, with respect to the case covered by the settlement.

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