M/S.SHRINIWAS MACHINE CRAFT PVT.LTD., vs. THE INCOME TAX SETTLEMENT COMMISSION

ASN 1/20 IN THE HIGH COURT  OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL   JURI ICTION WRIT PETITION NO.750 OF 2013 M/s. Shriniwas Machine Craft Pvt. Ltd a Company incorporated under the Companies Act, 1956 and having its office at EL­31/12/2, “J” Block, MIDC, Bhosari, Pune 411026. ..Petitioner. vs.

CNR No : HCBM020062132013 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13

ASN 2/20 JUDGMENT (Per M. S. Sanklecha, J.):­ At the request of the Counsel for both sides the petition is being disposed of at the stage of admission.

The relevant  facts leading to this petition are : a)

The petitioner   is engaged in the fabrication of sheet metal canopies for diesel generating sets. b)

On 6 November 2012 a Survey under Section 133A of the Act was conducted on the petitioner.  During the course of the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13

ASN 3/20 above survey certain papers, books of account and  purchase bills were impounded.  However, consequent to the                 above survey, no proceedings were taken either under Section 132(1) of the Act or under Section153A or 153C of the Act. c) On 7 March 2013, the petitioner filed an application for settlement under Section 245C of the Act before the Settlement Commission in the prescribed form being Form 34B   for   the assessment years 2007­08 to 2012­13. d) Thereafter,   the   Settlement   Commission   in   terms   of Section245D(1) of the Act issued a notice to the petitioner calling upon the petitioner to explain why the application for settlement dated  7 March 2013 relating to assessment years2007­08 to 2012­ 13   should be  admitted. In response to the above notice, the petitioner appeared before the Settlement Commission. So far as Assessment Years 2007­08 to 2009­10 were   concerned     it   was pointed out that the same satisfies the definition   of   case   under Section 245A(b) of the Act as the  assessment   proceedings   were pending before  the Assessing Officer.   This  was  on   the  basis that the time for assessment/  re­assessment

proceedings under Section147/148   of   the   Act   had  not   yet   expired.  In support   of   the   submissions   that   assessment   proceedings   for Assessment   Years   2007­08   to2009­10   were   pending   before   the Assessing Officer, reliance was placed upon Circular No.3­2008 dated 12 March 2008  issued by the Central Board of Direct Taxes Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13

ASN 4/20 (CBDT) and the decision of  the Special Bench of the Settlement Commission in Rescuwear Corporation  217 CTR 597. e) On 15 March 2013, the Settlement Commission passed an   order   under   Section   245D(1)   of   the   Act   accepting   the petitioner's application for settlement  dated 7 March 2013  in so far as it related to  assessment year 2010­11, 2011­12 and 2012­

ASN 5/20

3) Mr. Sharan Jagtiani, learned  Counsel  in support of the petition submitted as under: a) The petitioner's assessment proceedings for assessment years 2007­08 to 2009­10 were pending proceedings as defined in Section 245A(b) of the Act when the application for   settlement was filed on 7 March 2013. This was for the reason that on 7 March   2013   it   was   open   to   the   Assessing   Officer   to   initiate proceedings for assessment/reassessment under Section 147/148 of the Act and no such notice had been   issued  till  the filing of the application for settlement. It was only on issue   of notice   under   Section   147/148   of   the   Act   for assessment/reassessment for a particular year that the assessment proceedings   were   excluded   from   the   purview   of   pending proceedings for the  purpose of case as provided under   proviso to Section 245A(b) of the Act. Thus, the settlement

application dated 7 March 2013 for the assessment  years 2007­08 to 2009­10 could not have been rejected. b) The Settlement Commission itself by a Special bench decision in the matter of Rescuwear Corporation  (supra) has   held that the assessment would be deemed to be pending before an Assessing Officer for a particular assessment year upto   the time the Assessing Officer has power to initiate proceedings   under the Act. In this case it is still open to the Assessing Officer to issue notice for reassessment under Section 147/148 of the Act for Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13

ASN 6/20 the assessment years 2007­08 to 2009­10 and no such proceedings were initiated till 7 March 2013. c) The CBDT Circular No. 3/2008 dated 12 March 2008 while explaining the provisions of Finance Act 2007 specifically clarified   that   an   assessment   proceeding   before   the   Assessing Officer would be considered pending proceedings even if the time limit   to   issue   a   notice   under   Section   143(2)   of   the   Act   for finalizing assessment under Section 143(3) of the Act has expired. Further, it is clarified in the above Circular that the assessment shall be deemed to have been completed only on the date of service of assessment order on the assessee. In this case by placing reliance upon the above Circular, it is submitted that no assessment order has yet been served upon the petitioner and therefore,   assessment   proceedings   are     pending   before   the Assessing officer. Besides, the Circular issued by the CBDT are binding upon the revenue and the revenue cannot act contrary to the binding Circulars of CBDT. d) Reliance   was   also   placed   upon   clause   (iv)   of   the Explanation to Section 245A(b) of the Act which clearly provides that   the   proceedings   before   the   Assessing   Officer   shall   be concluded on the date on which the assessment is made. In this case, it is the submission of the petitioner that no assessment as yet has been made by the Assessing Officer for assessment years 2007­08 to 2009­10 and therefore, the proceedings of assessment Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13

ASN 7/20 for   the   assessment   years   2007­08   to   2009­10continue   to   be pending proceedings before the Assessing Officer. e) The   challenge   to   the   two   notices   dated   30   March 2013issued under Section 147/148 of the Act is consequential to the challenge to the order dated 15 March 2013 of the Settlement Commission. This is because if the challenge to the order dated 15 March 2013 of the Settlement Commission   is     upheld then the two notices dated 30 March 2013 are ex­facie without juri iction. 4) As   against   the   above,   Mr.   Tejveer   Singh   Counsel appearing for the revenue in support of  the impugned order dated 15 March 2013  submitted as under: a) The   decisions of the Gujarat High Court in Amrish Kumar Shukla (supra)   and  Kolkatta  High Court in Autolec Ltd. (supra) on which the impugned order places reliance conclude the issue raised by the  petitioner in favour of the revenue. b) It is an undisputed position that the time to make an assessment order for the assessment years 2007­08 to 2009­10 has already expired under Section 153 of the Act. Consequently no assessment   order   in   regular   assessment   proceedings   could     be made   by   the   Assessing   Officer   on   7   March   2013   when   the settlement application was filed.  Therefore the proceeding for Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13

ASN 8/20 assessment years 2007­08 to 2009­10 cannot be said  to be pending proceedings for the purpose of Chapter XIXA of  the   Act. (Settlement Provisions). c) The Circular   No.3/2008 dated 12/3/2008 issued by CBDT has  no application to the present facts  as it explains the situation in the context of regular pending assessment proceedings where the time to pass an assessment order has not expired. It does not cover situations where the time to make an assessment has already expired. In view of the above, it was submitted that there is no reason   to interfere with the order dated 15 March 2013 of the Settlement   Commission   passed   in   respect   of   assessment   years 2007­08 to 2009­10 and the consequent notices dated 30 March 2013 issued under Section 147/148 of the Act for the assessment years 2008­09 and 2009­10. 5) We have considered the submissions. It is an admitted position that  in view of Section 153 of the Act the time to make an assessment for the return of income filed by the petitioner for assessment years 2007­08 to 2009­10 had already expired before 7 March 2013 when the settlement application was filed by the petitioner.   It is relevant to note that prior to 1 June 2007 the definition of case as provided under Section 245A(b) of the Act meant any proceeding before any Income Tax Authority and was Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13

ASN 9/20 not   restricted   to     assessment   proceedings   before   an   Assessing Officer. Besides, proceedings for assessment/reassessment or by way of an appeal and/or revision in connection with any such assessment or reassessment were all considered to be proceedings pending   before   the   Income   Tax   authorities,   permitting   an application   to   be   made   under   Chapter   XIXA   of   the   Act   for settlement of cases. However, post 1 June 2007, definition of case was  amended  and  it   was  restricted  to  only   mean   proceedings pending before an Assessing officer on the date on which the application   for   settlement   was     made     to   the   Settlement Commission. The newly added proviso and explanation thereto (2007

Amendment)

excluded

proceedings

for assessment/reassessment under Section 147/148 of the Act from the purview  of  pending proceedings before the Assessing Officer. Thus, post 2007, it is only proceedings for those assessment years which are pending before the Assessing Officer which are entitled to avail of the facility of settlement provided in Chapter XIXA of the Act. 6) Keeping in view the above change of law with effect from   1   June   2007,   we   shall   now   consider   the   respective submissions of the Counsel for the parties. The linchpin of the petitioner's   submissions   is   that   on   7   March   2012   assessment proceedings   for   assessment   years   2007­08   to   2009­10   were pending before the Assessing Officer for the reason that it was still open   to   the   Assessing   officer   to   issue   notices   under   Section Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13

ASN 10/20 147/148 of the Act for assessment/reassessment proceedings in respect of the subject years i.e assessment years 2007­08 to 2009­

ASN 11/20 long   expired   before   7   March   2013   when   the   application   for settlement   was   made   by   the   petitioner   to   the   Settlement Commission. Therefore, on the date of filing of the application i.e. 7 March 2013 before the Settlement Commission there were no assessment   proceedings   pending   with   Assessing   Officer   as   the same stood terminated by efflux of time.

8) In any case, where the proceedings have to be initiated for   reassessment   under   Section   147/148   of   the   Act   then   the Assessing Officer has to come to reasonable belief before issuing the notice, that income chargeable to tax has escaped assessment. Therefore, there is a fresh application of mind to an assessment which is not pending and thereafter reaching a prima facie view that there is reason to believe, that income chargeable to tax, has escaped assessment. Thus in these facts, it would not be possible to accept the petitioner's contention that the assessment proceeding for the Assessment Years 2007­08 to 2009­10 were pending before the Assessing Officer on 7 March 2013, when the application for settlement was filed with the Settlement Commission. 9) It  may  be  mentioned  that  during the  course  of his submissions Mr. Jagtiani the learned counsel for the petitioner did in passing refer to the fact that under Section 147 of the Act proceedings can be initiated not only for reassessment but also for assessment   and   therefore   the   proceedings   for   assessment   are pending in this case. The occasion for assessment under Section Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13

ASN 12/20 147 of the Act in accordance with Explanation 2 thereto arises only when there is a failure to file a return of income under Section 139 of the Act or there has been no assessment made and subsequently it is noticed that income has been understated. In the aforesaid two   situations   among   others   mentioned   therein   it   would   be deemed that income chargeable to tax has escaped assessment. However these are juri ictional issues which would arise as and when a notice is issued under Section147/148 of the Act. The issue arising in this case is whether the assessments were pending on 7 March 2013 when the application for settlement was filed. The answer to the same, in our view is an unmistakable NO for the reason that by virtue of Section 153 of the Act the assessment proceedings   before   the   Assessing   Officer   stand   terminated   by efflux of time. 10) Mr.   Jagtiani     submitted   that   the   legislative     intent supported  the petitioner's view as was evident from explanation (i) to Section 245A of the Act. The aforesaid explanation excludes the   assessment/reassessment proceeding from the definition of case from the date of the issue of notice under Section 147 of the Act.   It was vehemently submitted that till such time a notice can be issued under Section 148 of the Act, it was open to a party to file an application for settlement. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13

ASN 13/20 Though the argument may  prima facie appear to be attractive,  on a close scrutiny it cannot be accepted. This for the reason pointed out hereinabove, that notice can be issued under Section 148 of the Act only when assessment is over either by an order   under Section 143(3) of the Act or terminated  by efflux of time under Section 153 of the Act. On issuing a notice under Section 148 of the Act the proceedings cease to be a case and an application for settlement  will not lie.  The likelihood of a future action, which may or may not take place and which action is solely dependent upon   the   Assessing   officer   cannot   make   a   dead/terminated proceedings a pending proceedings. Thus, there was no assessment proceeding pending  before the  Assessing Officer on 7 March 2013 when the application for settlement was made by the petitioner.

11) The petitioner in  support  of  its  contention  that the assessment proceedings for the assessment years 2007­08 to 2009­ 10 are pending proceedings before the Assessing Officer placed strong reliance upon the Circular No.3/2008 dated 12 March 2008 issued by the CBDT and particularly emphasized Para 6.2 thereof which reads as under: “Under   the   existing   provisions,   as   assessee may maker on application to the Commission of any stage of the proceedings in his case pending before any income tax authority. After 31st  May 2007 an assessee can make an application to the commission   only   during   the   pendency   of   the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13

ASN 14/20 proceeding before the Assessing Officer, it is further clarified that   (a)since   intimation under section 143(1) is not an assessment order there will be no bar   in   filing   an   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”. (emphasis supplied) However, on a close reading of the above Circular, it is clear that the Circular  is dealing with a situation where time to issue   a   notice   under   Section   143(2)of   the   Act   for   making   an assessment   under   Section   143(3)   of   the   Act   (   6months)   has expired. In such a case, the circular clarifies that it would still be considered pending proceeding for the purpose of Chapter XIXA of the Act till an   assessment order is made.   However, such an assessment order can only be made when the time to make such an assessment order   has not expired under Section 153 (two years) of the Act. Therefore, the Circular No.3/2008 dated 12 March 2008  does not deal with a fact situation as arising in the present case viz. Where the time to make an assessment order has expired under Section 153 of the Act, would it still be considered as a pending proceeding? Therefore, in our view above Circular No.3/2008   dated   12   March   2008   is   of   no   assistance   to   the petitioner in the present facts. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13

ASN 15/20

12) The   petitioner   thereafter   placed   reliance   upon Explanation (iv) to Section 245A(b) of the Act to contend  that for the purposes of Chapter XIXA of the Act which   to the extent is relied upon reads as under: “a proceeding for assessment for any assessment year   …..........shall   be   deemed   to   have commenced from the 1st  day of the assessment year and concluded on the date on which the assessment is made” On the above basis it is contended that for the purpose of Chapter XIXA of the Act, Section 153 of the Act should be ignored and the assessment continue to be pending till the date the   assessment   is   made.   This   does   not   appear   to   be   correct. Chapter   XIXA   of   the   Act   does   not   provide   that   the   period   of limitation as provided under Section 153 of the Act has to be ignored for the purposes of considering an assessment to be a pending   assessment   before   the   Assessing   Officer.   The   above explanation  (iv) to Section 245A(b) of the Act nowhere provides that the period of limitation as provided under Section 153 of the Act   gets   extended     till   an   order   of   assessment   is   made.   The reasonable   construction   to   be   put   on   the   explanation   (iv)   to Section   245A(b)   of   the   Act   would   be   the   date   of   making   an assessment before the expiry of the time limit provided under Section 153 of  the Act. On the expiry of the time limit to make an assessment it would be impossible for the Assessing officer to make Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13

ASN 16/20 an assessment. Thus the words “concluded” on the date on which the assessment is made in Explanation (iv) to Section 245A(b) of the Act has to be read with conjunction with Section 153 of the Act i.e. the assessment  has to be made prior to expiry of the time to make an assessment under the Act. 13) The  petitioner also  placed  strong  reliance  upon the decision of the Special Bench of the Settlement Commission in Rescuwear Corporation (supra) to contend that an assessment can be said to be pending till such time the Assessing Officer can initiate action for assessment under the Act. In particular, reliance was placed upon the following observation in the order passed in Rescuewear  Corporation (supra) as under: “In   the   circumstances,   we   are     more empowered   with the view, strongly propounded by the CIT(DR) and endorsed by Dr. Debiprasad 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 proceeding for assessment can be said to be pending before as Assessing Officer in   respect   of   those   assessment   years   only   for which   the   Assessing   Officer   can   still   take action/initiate the proceeding under the Act”. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13

ASN 17/20 It   is   clear   from   the   above   observation   that   an assessment would be pending before Assessing Officer when such Assessing Officer   has power to take action in respect of those assessment years. However, the power to take action in respect of the assessment for a particular assessment year, comes to an end, on the expiry of the period under Section 153 of the Act to make an assessment. Moreover, the question posed to the Special Bench of the Settlement Commission in Rescuewear (supra) was not the issue arising here viz. Whether an assessment proceeding can be said to be pending even when the period to make an assessment has expired under Section 153 of the Act? Therefore, the above decision of the Special   Bench in Rescuewear (supra) is of no assistance to the petitioner. 14) We have, independent of the view of the Gujarat High Court in Amrish Kumar Shukla (supra)and Kolkatta   High Court decision in the Outotec (supra), on examining the submissions concluded   that the application for settlement filed on 7 March 2013   for   the   assessment   year   2007­08   to   2009­10   before   the Settlement Commission in the present facts, is not maintainable. However,   as   the   Settlement   Commission   in   the impugned order dated 15 March 2013 relied upon  the  decision of  the  Gujarat  High  Court  in  Amrish  Kumar Shukla (supra) and   Kolkatta   High   Court  order  in    Outotec (supra)   and submissions were also made thereon before us, we are examining Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13

ASN 18/20 the same. The issue before Gujarat High Court arose from an order of the Settlement Commission which held that even where no proceedings were pending in respect of assessment years 2005­06 to   2008­09   yet     they   could   be   considered   to   be   pending proceedings in view of the decision of the Special Bench of the Settlement Commission in the matter of   Rescuwear Corporation (supra). This decision was challenged before the Gujarat  High Court   by   the   revenue.   The   Gujarat   High   Court   upheld   the challenge of the revenue while agreeing with the view taken by the Kolkatta   High   Court   in   the   matter   of     Outotec     (supra)   that assessment could not be said to be pending before the Assessing Officer even  where  the   time  for  making   an assessment  had expired, on the date the assessee filed its application for settlement before the Settlement Commission. In fact the Gujarat High Court while agreeing with the view of the Kolkatta  High Court held as under :

“19. We are in respectful agreement with the view expressed   above.   To   our   mind,   accepting   the proposition that even where by efflux of time , it is not open to the assessing Officer to pass an order of assessment, merely because the return was accepted under Section 143(1) of the Act, the case of the assessee   should   be   deemed   to   be   pending   for assessment   only   because   the   final   order   of assessment under section 143 (3) was not passed, would   run   counter   to   the   statutory   amendments made in section 245A(b) of the Act.” Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13

ASN 19/20 Thus on the above ground also there  is no reason to interfere with the order of the Settlement Commission dated 15 March 2013. 15) In view of the fact that we are upholding the decision of the Settlement Commission dated 15 March 2013 rejecting the application for settlement for the Assessment years 2007­08 to 2009­10,   it follows that in view of Section 245HA of the Act, proceedings before the Settlement Commission shall abate under Section 245HA(1)(i) of the Act in respect of those years. As a consequence thereof, in terms of Section 245HA(2) of the Act, the papers and proceedings shall be restored to the Assessing officer in whose possession the papers relating to assessment years 2007­08 to 2009­10 were i.e. status quo ante.  Thereafter i.e. post 15 March 2013,   the   Assessing   Officer   is   entitled   to   issue   notices  for   re­ opening   of   Assessment   under   Section   147/148   of   the   Act. Therefore,   the   Assessing  Officer   was  entitled   to   issue   the   two impugned notices dated 30 March 2013 under Section 148 of the Act, in respect of the Assessment years 2008­90 and 2009­10. It is made   clear   that   the   period   from   11   December   2013   when admittedly challenge to the notice under Section 148 of the Act was made  till today shall be excluded from computing the period of   limitation   to   complete   the   assessment/reassessment   under Section 147 of the Act. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13

ASN 20/20

16) In view of the above, we see no reason to entertain the petition. Accordingly, the petition is dismissed with no order as to costs. CHIEF JUSTICE

(M.S. SANKLECHA, J.) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:13 Powered by TCPDF (www.tcpdf.org)