21 October 2013.

) :

The Commissioner of Income Tax (Central), Pune has challenged an order passed by the Settlement Commission on 29 August 2013 under the provisions of sub-section (2C) of Section 245D of the Income Tax Act 1961. By the order which has been impugned, the Settlement Commission has held as follows :

"In the totality of facts available to us at present, we are satisfied about the true and full nature of the disclosure made. The manner of making undisclosed income, in the facts of the case, as stated, is on sales kept outside the books resulting in understatement to sales. Needless to say, as observed by the Hon'ble High Court in this very case, that if at a later stage of the proceedings, facts come to our knowledge showing suppression of full material facts or mis-statements thereof, the law will take its own course."

2. The Commission has accordingly held that the application filed by the Second Respondent is not an invalid application and should be allowed to be proceeded with further. Following the order which was passed by the Settlement Commission on 29 August 2013, further hearings took place before the Commission on 19 September 2013 and 7 October 2013. The grievance of the Petitioner is that the Commission has without ordering an enquiry by the Commissioner under Section 245D(3), directly proceeded under sub-section (4) and a letter was received from the Directorate of Investigation of the Settlement PNP 2/5 WP9617-21.10 Commission on 4 October 2013 requiring the inspection of the factory premises of the Second Respondent. The contention of the Revenue is that in the present case it was necessary for the Settlement Commission to cause the Commissioner to make or cause to be made a further enquiry or investigation and to furnish a report on the matters covered by the application to the Settlement Commission.

3. Section 245D(3) provides as follows :

"(3) The Settlement Commission, in respect of -

(i) an application which has not been declared invalid under sub- section (2C); or

(ii) an application referred to in sub-section (2D) which has been allowed to be further proceeded with under that sub-section, may call for the records from the Commissioner and after examination of such records, if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the Commissioner to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case, and the Commissioner shall furnish the report within a period of ninety days of the receipt of communication from the Settlement Commission; Provided that where the Commissioner does not furnish the report within the aforesaid period, the Settlement Commission may proceed to pass an order under sub-section (4) without such report."

4. The provisions of sub-section (3) of Section 245D would make it clear that where an application has not been declared to be invalid by the Settlement Commission under sub-section (2C), the Commission is empowered to call for records from the Commissioner and upon the examination of such records, if it is of the opinion that a further enquiry or investigation in the matter is necessary, it may direct the Commissioner to do so. The jurisdiction to determine as to whether a further enquiry or investigation is necessary is thus vested with the Settlement Commission. In the present case, from the compilation of correspondence which is placed on the record, it is clear that on 3 October 2013, the Commissioner of Income Tax (Central) Pune had addressed a communication to the Settlement Commission setting out that an enquiry under sub-section (3) of 245D was necessary in respect of certain specific issues. The grievance of the Petitioner, is that on 19 September 2013 at a hearing before the Commission it was indicated that the department would be heard on the issue relating to a Section 245D(3) enquiry on 7 October 2013, but as a matter of fact PNP 3/5 WP9617-21.10 the Commission has not applied its mind to whether an enquiry under Section 245D(3) should be ordered.

5. The learned senior counsel appearing on behalf of the Second Respondent on the other had has submitted that the issue as to whether an enquiry under Section 245D(3) should be ordered by the Settlement Commission has not been finally concluded by the Settlement Commission, and during the course of the proceedings, the Settlement Commission would apply its mind to that aspect. As we have noted earlier, by a letter dated 3 October 2013 to the Settlement Commission, the Commissioner of Income Tax (Central) Pune has drawn the attention of the Commission to the specific issues on which a further enquiry or investigation under Section 245D(3) would be necessary.

sub-section (4) of section 245d provides as follows :

"(4) After examination of the records and the report of the 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 Commissioner to be heard, either in person or through a representative duly authorised 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 Commissioner.

7. Under sub-section (4) of section 245d the Settlement Commission has to : (i) examine the records; (ii) examine the report of the Commissioner, if any, received under sub-section (2B) or sub-section (3), as the case may be, (or under sub-section (1) as it stood before the Finance Act 2007); (iii) examine such further evidence as may be placed before it or obtained by it. The Settlement Commission is also required to furnish an opportunity to the applicant and to the Commissioner to be heard before it passes an order under sub-section (4). A reading together of the provisions of sub-section (3) and sub-section (4) would indicate that the Settlement Commission is not as a mandate of law required to order a further enquiry or investigation by the Commissioner under Section 245D(3) in every case. Whether the facts of the case are of such a nature or PNP 4/5 WP9617-21.10 complexity as would require a further enquiry or investigation has to be determined by the Settlement Commission after it has occasion, upon calling for the records from the Commissioner and the examination of those records to decide whether a further enquiry or investigation is necessary. Undoubtedly, if the Settlement Commission holds that a further enquiry or investigation is necessary under sub-section (3), such an enquiry or investigation has to be ordered by the Commissioner because sub-section (3) confers jurisdiction on the Commissioner to conduct the enquiry or the investigation, as the case may be. Equally, it is evident both from the language of sub-section (3) and the terms of sub-section (4) that the Settlement Commission is not required in every case to cause an enquiry or investigation to be made under sub-section (3). That is evident by the use of the words "if any" in sub-section (4). Moreover, under sub-

section (4) the Settlement Commission, besides considering the report, if any, of the Commissioner under sub-section (2B) or sub-section (3) is empowered to examine such further evidence as may be placed before it or obtained by it.

Evidence placed before the Commission would include evidence which may be produced either by the assessee or by the Commissioner. Evidence obtained by the Commission would include evidence which the Commission has obtained under its own authority. In that sense the powers of the Settlement Commission are wide. Finally, it may be necessary to note that under sub-section (4) the Settlement Commission has to pass an order in accordance with the Act as it thinks fit on matters covered by the application. The Settlement Commission may also pass an order on any other matter relating to the case not covered by the application, but which has been referred to in the report of the Commissioner. Hence, if the Settlement Commission intends to pass an order in respect of any other matter which has not been referred to in the application, that matter must be of a nature such that it is referred to in the report of the Commissioner. At this stage, it would also be necessary to advert to the provisions of sub-section (2) of Section 245F under which the Settlement Commission has exclusive jurisdiction to exercise the powers and to perform the functions of the Income Tax authority under the Act, where an application made under Section 245C has been allowed to be proceeded with under Section 245D, until an order is passed under sub- section (4) of Section 245D. This is, however, made subject to the provisions of sub-section (3). Consequently, where the Commission in the course of its jurisdiction under Section 245D(3) has ordered an enquiry or investigation by the PNP 5/5 WP9617-21.10 Commissioner, the exclusive nature of its jurisdiction is subject to Section 245D(3).

8. On the record of the case, it is common ground between counsel appearing on behalf of the Revenue and learned senior counsel appearing on behalf of the Second Respondent that the Settlement Commission is yet to apply its mind to whether an enquiry under Section 245D(3) should be ordered. In view of the statement which has been made on behalf of the Second Respondent which is consistent with the scheme of the statutory provisions, we are not inclined to entertain the proceedings at this stage, save and except to clarify that the Settlement Commission shall during the course of its proceedings specifically bring to bear its consideration on whether an enquiry under Section 245D(3) should be ordered particularly having regard to the circumstances which have been set out in the letter of the Commissioner of Income Tax dated 3 October 2013. Since the proceedings are pending before the Settlement Commission, it would not be appropriate for this Court to entertain the proceedings any further. We accordingly dispose of the proceedings, having clarified the legal position.

There shall be no order as to costs.

(Dr. D.Y.Chandrachud, J.) (M.S. Sonak, J.)