Income Tax Search and Seizure & Income Tax Settlement Commission (ITSC)- Detection of any undisclosed income subsequent to the final order of ITSC

Income Tax Search and Seizure & Income Tax Settlement Commission (ITSC)- Detection of any undisclosed income subsequent to the final order of ITSC

Introduction:- Chapter XIX – A of Income Tax Act, 1961 provides for settlement of cases. Income Tax Settlement Commission was set up in the year 1976 on the recommendation of the Direct Tax Enquiry Committee headed by former Chief Justice of India, Shri K. N. Wanchoo. Chapter XIX – A of Income Tax Act, 1961 comprises Section 245A to 245M.

Section 245C of the Act empowers the assessee to move an application at any stage of a case relating to him and thereby to make a full and true disclosure of income, which has not been disclosed before the Assessing Officer subject to rider contained in section 245C of the Act. The Settlement Commission may allow or reject the application, but in any case in view of the provision contained in section 245C of the Act, the application moved under sub-section (1) of the said section, cannot be allowed to be withdrawn by the applicant.

The application so moved under section 245C of the Act should be processed by the Settlement Commission in view of the procedure prescribed in section 245D of the Act within the specified period provided therein. The provision contained in section 245D provides that the Settlement Commission shall give the opportunity to the applicant and to the Settlement Commission, which includes personal hearing or hearing through representative and then pass such order as it thinks fit on the matters covered by the application, which includes any other matter relating to the case not covered by the application but referred to in the report of Commissioner, Income-tax. Thus, it shall be obligatory on the part of the Commissioner, Income-tax while submitting its report to bring entire material facts before the Settlement Commission to avoid any multiplicity of litigation or concealment of facts by the assessee. Further by virtue of Section 245D(6) , 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. By virtue of Section 245D(7), in case the settlement becomes void as provided under sub-section (6) of section 245D of the Act, then the proceedings with respect to the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission and the income-tax authority concerned, may, notwithstanding anything contained in any other provision contained in the Act, completes such proceedings at any time before the expiry of two years from the end of the financial year in which the settlement became void. For the sake of brevity, it is important to reproduce Section 245D(4), 245D(6), and 245D(7) of the act, which are as under:-

Section 245D(4):

“245D(4) After examination of the records and the report of the [Principal Commissioner or] 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 Principal Commissioner or Commissioner to be heard, either in person or through a representative duly authorized 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 Principal Commissioner or Commissioner.”

Section 245D(6):

“245D(6) Every order passed under sub-section (4) shall 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 shall be paid and all other matters to make the settlement effective and shall also provide that 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.”

Section 245D(7):

“245D(7) Where a settlement becomes void as provided under sub-section (6), the proceedings with respect to the matters covered by the settlement shall be deemed to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission and the income-tax authority concerned, may, notwithstanding anything contained in any other provision of this Act, complete such proceedings at any time before the expiry of two years from the end of the financial year in which the settlement became void.”

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