U/s 245A(b), as amended by the Finance Act 2007 w.e.f. 1.6.2007, “pendency of proceedings for assessment” before the AO for one or more assessment years is a necessary condition for invoking the jurisdiction of the Settlement Commission. Held in that context by Five Member Bench of the ITSC that:

(a) 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, the proceeding for assessment can be said to be “pending”;

(b) Even 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, the proceeding for the assessment years can be said to be “pending”;

(c) The term “date of conclusion of proceeding” under clause (iv) of 245A (b) means that the proceedings for assessment can be said to be pending before the AO in respect of those assessment years only for which the AO can still take action/initiate the proceeding under the Act;

(d) If in a composite application for several years, proceeding for certain assessment year are pending but are not pending for other years, the application can be admitted for those years for which proceedings are pending and held as “invalid” for other years. The whole application cannot be treated as ‘invalid’.

It is clear from the reading of Section 36 (1) (vii) and Circular No. 551 dated 23rd January, 1990 that if the assessee has written off the debt as bad debt, that would satisfy the purpose of the Section.

Note: The judgement of the Delhi High Court in Morgan Securities & Credits 292 ITR 339 was followed.

(1) Even in the case of an assessee not maintaining books of account and to whom s. 68 does not apply, addition in respect of unexplained entries in the bank book can be made;

(2) Where the assessee was not provided copies of the seized documents and the delay in filing the block return was on that count, interest u/s 158BFA (1) is not leviable even though there is no exemption on that count in the statute.;

(3) It is a precondition to invoking s. 158BD that the AO must, in the course of s. 158BC proceedings, record satisfaction that the income belongs to the other person. In the absence of such finding, s. 158BD cannot be invoked. The satisfaction must be objective and not subjective. It must be recorded before jurisdiction is exercised. Even though no time limit is prescribed, there is an implied time limit for giving such finding i.e. the period prescribed in s. 158BE for framing the s. 158BC assessment;

(4) The note of satisfaction must indicate the undisclosed income found as a result of the search and the person to whom the income belongs before proceedings are initiated. The law laid down in the context of s. 147 is not relevant in view of the fact that s. 158BD uses the “satisfaction” and not “reason to believe”.

(5) Where the s. 158BC notice gave the assessee a period of less than 15 days to file the return though the section required a period of not less than 15 days to be given, held that the notice suffered from an incurable defect rendering all emanating proceedings illegal and null and void.

(6) The immunity conferred by the VDIS is confined to the jewellery disclosed by the assessee and does not extend to the sale of such jewellery. It is also not correct to say that s. 68 does not apply to sales proceeds of an asset credited in the books of account. The AO is entitled to go into the genuineness of transactions of sales of such declared jewellery.

Held, by 3 judge Bench, resolving conflict of opinion amongst other benches of the SC, that:

(1) merely because in some cases the revenue has not preferred appeal that does not operate as a bar for the revenue to prefer an appeal in another case where there is just cause for doing so or it is in public interest to do so or for a pronouncement by the higher Court when divergent views are expressed by the Tribunals or the High Courts.

(2) If the assessee takes the stand that the revenue acted mala fide in not preferring appeal in one case and filing the appeal in other case, it has to establish mala fides.

But See: CIT vs. J. K. Charitable Trust (Supreme Court)

Where the High Court was satisfied that the assessment order had been back-dated and directed that a fresh order be passed by a different AO and the assessee filed an appeal arguing that the assessment proceedings should have been declared null and void, held:

(a) All irregular or erroneous or even illegal orders cannot be held to be null and void as there is a fine distinction between the orders which are null and void and orders which are irregular, wrong or illegal. Where an authority making order lacks inherent jurisdiction, such order would be without jurisdiction, null, non est and void ab initio as defect of jurisdiction of an authority goes to the root of the matter and strikes at its very authority to pass any order and such a defect cannot be cured even by consent of the parties. However, exercise of jurisdiction in a wrongful manner cannot result in a nullity – it is an illegality, capable of being cured in a duly constituted legal proceedings.

(b) Proceedings for assessment under a fiscal statute are not in the nature of judicial proceedings, like proceedings in a suit inasmuch as the assessing officer does not adjudicate on a lis between an assessee and the State and, therefore, the law on the issue laid down under the civil law may not stricto sensu apply to assessment proceedings.

(c) Despite scathing observations by the High Court on the conduct of the assessing officer, it was a case of an irregularity in assessment proceedings by the officer, who was not bereft of authority to assess the appellant. At best, it was an illegality, which defect was capable of and has been cured by the High Court by setting aside the orders and by granting consequential relief.

Where the Appellate Commissioner disposed of the appeal by a non-reasoned order, held that a statutory appeal could not be disposed of in that manner. Reason is the heartbeat of every conclusion. It introduces clarity in an order and without the same it becomes lifeless. Failure to give reasons amounts to denial of justice.” “Reasons are live links between the mind of the decision-taker to the controversy in question and the decision or conclusion arrived at Right to reason is an indispensable part of a sound judicial system; reasons at least sufficient to indicate an application of mind to the matter before court. Another rationale is that the affected party can know why the decision has gone against him. One of the salutary requirements of natural justice is spelling out reasons for the order made; in other words, a speaking-out.

Where the High Court dismissed the appeals filed against a PSU on the ground that an application for permission of the COD had not been obtained within the period of 30 days as laid down in ONGC’s case, held that there was actually no rigid time frame indicated by the Supreme Court. The emphasis on one month’s time was to show urgency needed. Merely because there is some delay in approaching the Committee that does not make the action illegal. The Committee is required to deal with the matter expeditiously so that there is no unnecessary backlog of appeals which ultimately may not be pursued. In that sense, it is imperative that the concerned authorities take urgent action otherwise the intended objective would be frustrated. There is no scope for lethargy. It is to be tested by the Court as to whether there was any indifference and lethargy and in appropriate cases refuse to interfere.

Where the returned income was Rs. 7.25 crores but the assessed income was Rs. 58.68 crores and the assessee had filed a stay application before the Addl. CIT but the same was disposed of by the DCIT, a junior functionary, held:

(i) In accordance with Instruction No.96 dated 21st August, 1969 issued by the CBDT where the income determined is substantially higher than the returned income, that is, twice the latter amount or more, then the collection of tax in dispute had to be held in abeyance till the decision on the appeal is taken;

(ii) The Assessee would, in normal course, be entitled to an absolute stay of the demand on the basis of the above Instruction though it voluntarily agreed to pay 15% of the demand;

(iii) As the Addl. CIT was the AO, he had the power and duty to deal with a stay petition u/s 220 (6). He could not abdicate or relinquish the statutory power nor could he suo motu divest himself of this power and confer it upon a junior functionary such as the DCIT;

(iv) The fact that the assessee had acquiesced in the power of the DCIT could not confer jurisdiction upon the DCIT;

(v) In view of the unreasonable stance of the department, it was directed to pay costs of Rs. 15,000.

See Also: Legrand vs. UOI (Bom) and Mahindra & Mahindra vs. AO (Bom).

Where the assessee was assessed at Delhi but a notice u/s 148 was issued by the AO in Ghaziabad and the assessee had protested the usurpation of jurisdiction from the beginning, held:

(i) The assessee was entitled to challenge the exercise the exercise of jurisdiction by the AO at Ghaziabad and on facts that AO did not have jurisdiction;

(ii) The notice u/s 148 being without jurisdiction, cannot be saved by s. 292B;

(iii) As the notice is void, the consequent assessment order is void as well.