Conditions u/s 245E For Reopening Of Completed 'Cases'

Commissioner of Income-tax vs Paharpur Cooling Towers Pvt. Ltd.

219 ITR 618 (SC)

The applicant filed an application for settlement for assessment year 1975-76. The Commissioner had stated that he had no objection to the processing of the application by the ITSC. Thereafter, the applicant filed a Statement of Facts indicating enhanced value of opening stock, disclosed by it and requested that the enhanced value should be appropriately spread over five earlier assessment years, also and for that purpose, it would agree to reopening of assessments for those years. Th Settlement Commission, holding by majority that it had jurisdiction to do so reopened the earlier assessments and also passed orders directing that penalty proceedings pending for those years be dropped.

The Supreme Court, after examining the entire material set aside the order of the ITSC to the extent it had waived the penalties for earlier years (i.e 1971-72 to 1974-75). It was held that Commission had not only to act in accordance with the provisions of law but that its jurisdiction was limited to matters covered by the application before it. Once an application is admitted in respect of specific pending case, the Commission takes over all proceedings relating to that case only. Section 245E empowers it to reopen completed proceedings connected with the case before it but such power is circumscribed by the requirement that such reopening was necessary for proper disposal of the case pending before it. Two further limitations on this power are :

a) Such reopening has to be with the concurrence of the applicant.

b) It cannot extend beyond 8 years from the year to which the settlement relates. In essence, reopening of completed proceedings is not for the benefit of the assessee but in the interests of revenue. This section cannot be read as empowering the Commission to do indirectly what cannot be done directly.
In the present case, even the applicants' request was for a limited purpose of spread over of enhanced value of stock and not a concurrence to reopen the entire assessment & penalty proceedings relating to those earlier years which were not before the Commission. Accordingly, partial set aside of Commission's order was ordered.

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Shri Dev Kumar Agarwal 
S.A.No. 5/VI/8/IT/91-92

ITSC Special Bench
Order dt. 02.05.1997
228 ITR (AT) 36
94 Taxman 464

(a) Should the conditions specified for invoking the jurisdiction u/s 245E be considered with reference to the factual position as on the date of settlement application or with reference to the position as obtaining at the time of deciding the appropriateness of section 245E ?

Provisions of section 245E can be invoked by the Commission at any time after an application u/s 245C(1) is allowed to be proceeded with u/s 245D(1). The status of completed assessments to be reopened has to be seemed at the time when the power u/s 245E is sought to be exercised.

(b) If the answer to the above question is that, the factual position as obtaining at the time of application would alone be considered to invoke section 245E, then how can the objective be effectuated when the reassessments are made and are the subject matter of appeals before the ITAT ? Can all the actions taken subsequent to the furnishing of the settlement application in respect of various asst. years and their consequences, be annualled particularly in the context of Supreme Court's observations in Express Newspaper case (206 ITR 446).

It is necessary to obtain the position of pendency of proceeding at the time of filing of the application. This is a primary requirement for invoking the provisions of section 245E by the Commission. Unless the Commission has reopened the proceedings u/s 245E the Income Tax Authorities are at liberty to reopen the assessments or to make regular assessments. In the present case, since the assessments/reassessments have been made validly even though subsequent to the furnishing of settlement application, they cannot be annualled.

(c) What would be the just and proper course of action at this juncture in regard to the request for invoking section 245E in respect of assessment year 1981-82, 1982-83 and 1983-84 ?

The request of the applicant for invoking section 245E in respect of assessment years 1981-82, 1982-83, 1983-84, 1985-86, 1988-89, 1989-90 & 1990-91 cannot now be considered because for the assessment year 1990-91 the proceedings had not been completed as on the date of application and for the others they were reopened u/s 147 before the exercise of power u/s 245E by the Commission but the Bench passing the order u/s 245D(4) may make such observations as they considered proper in the light of the findings they give with regard to the rival claims of the applicant and the Department.

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