On receipt of the CIT's further report, the case papers including the application for settlement, its annexure, the CIT's report etc., are given to the Additional Director of Investigation/Joint Director of Investigation  for preparation of a report. Following guidelines have been issued to the ADI/JDI or processing the cases and submission of their reports to the Commission :-

• Investigation and enquiry should be generally confined to matters raised in the statement of facts or by the Commissioner of Income-tax in his report, but such other legal or factual issues which comes to the notice of the ADI/JDI in the course of verification of facts, should also be dealt with and brought out in his report;

• In cases where original computation of income is to be made by the Settlement Commission, draft computation of income must be insisted upon from the applicants in respect of each year admitted by the Commission. If the ADI/JDI finds any deficiencies in their Statement of Facts as required by the Rules he should promptly bring it to the notice of the Commission through the Director of Investigation.

• The ADI/JDI should be selective in recommending cases for reference under section 245D(3) to the Commissioner of Income-tax. It is only in cases where there is no cooperation from the applicants or where there are large differences in valuation of assets or a disclosure has been made before the CIT under section 273A or the CIT himself wants to make some enquiries before giving his report, that a recommendation in this regard may be made. It is not in all cases of search and seizure that a reference under section 245D(3) is required since with the help of appraisal report of the ADI and the order u/s 132(5), the ADI/JDI would be able to examine the issues and formulate his reports. It may be borne in mind that the machinery of section 245D(3) is not an alternative to the hearing by the Commission;

• While there should be a full and frank discussion with the applicant by the  ADI/JDI and all the evidence gathered has to be made known to the applicant and his reaction obtained, the ADI/JDI should desist from persuading or coercing the applicant with the object of obtaining a settlement proposal ;

• The proforma for report by the ADI/JDI approved by the Commission is intended to be a framework in which the reports are to be made without affecting narrative form of the report. In Part-III of the proforma where the issues raised in the Statement of Facts and CIT's report are to be discussed, the intention is that all the issues are focused in brief before the ADI/JDI takes up discussion of the same so that at the time of hearing not much time is wasted in knowing what are the issues to be settled. Similarly, in Part-IV of the proforma while dealing with the issues, the ADI/JDI will highlight the areas of agreements and disagreements. It may be clarified that the ADI/JDI need not close the issue in case of agreement between the applicant's version and the Department's view in case he feels that the matter should be dealt with in some other manner. In Part V of the proforma, the ADI/JDI should give tentative computation of income based on his recommendations. Similarly, calculations of penalty and interest should be based on the taxes and income as computed by the ADI/JDI.

• In the course of hearing the ADI/JDI should not give any commitment to the applicant or give an impression that his recommendations are final or represent the views of the Commission. The ADI/JDI will of course examine the entire case but based on concrete evidence and not on surmises and conjectures.

• After the DI has approved and submitted the report prepared by the ADI/JDI, the case is considered by the Commission for passing final orders under section 245D(4). Before such an order is passed, an opportunity of being heard is given both to the applicant and the CIT. The DI and the ADI/JDI are also present in the court to assist the Commission. The DI will orally brief the Commission about the ramifications of the cases before the hearing.

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