By K. B. Bhujle
Advocate
23. Dy.
CIT (International Taxation) vs. Hitachi Power Europe GMBH [2020] 428 ITR 208 (Mad.) Date of order: 4th September,
2020 A.Ys.: 2015-16 to 2018-19
Settlement of cases – Section 245D – Powers
of Settlement Commission – Difference between sub-sections (2C) and (4) of
section 245D – Procedure under sub-section (2C) summary – Issues raised in
application for settlement, requiring adjudication – Application cannot be
rejected under sub-section (2C) of section 245D
An application for
settlement of the case was rejected u/s 245D(2C). On a writ petition
challenging the order, a Single Judge Bench of the Madras High Court set aside
the rejection order. On appeal by the Revenue, the Division Bench upheld the
decision of the Single Judge Bench and held as under:
‘i) It is important to take note of the
legislative intent and scope of power vested with the Settlement Commission
under sub-section (2C) and sub-section (4) of section 245D. The power to be
exercised by the Commission under sub-section (2C) of section 245D is within a
period of fifteen days from the date of receipt of the report of the
Commissioner. The marked distinction with regard to the exercise of power of
the Settlement Commission at the sub-section (2C) stage and sub-section (4)
stage is amply clear from the wording in the statute. The Commission can
declare an application to be invalid at the sub-section (2C) stage. Such
invalidation cannot be by a long-drawn reasoning akin to a decision to be taken
at the stage of section 245D(4). This is so because sub-section (4) of section
245D gives ample power to the Commission to examine the records, the report of
the Commissioner received under sub-section (2B) or sub-section (3) or the
provisions of sub-section (1), as they stood immediately before their
amendments by the Finance Act, 2007. However, if on the material the Settlement
Commission arrived at a conclusion prima facie that there was no true
and full disclosure, it had the right to declare the application invalid.
ii) There were four issues which the assessee
wanted settled by the Commission; the first among the issues was with regard to
the income earned from offshore supply of goods. The Commission was largely
guided by the report of the Commissioner, who reported that the composite
contracts for offshore and onshore services were artificially bifurcated. The
Settlement Commission held that the contention of the assessee that it was
separate and that this was done by the NTPC was held to be not fully true. In
other words, the Settlement Commission had accepted the fact that the contracts
were bifurcated by the NTPC, the entity which invited the tender, but the
Commission stated that the bifurcation done by the NTPC was only for financial
reasons.
iii) The question was whether such a finding could
lead to an application being declared as invalid u/s 245D(2C) on the ground
that the assessee had failed to make full and true disclosure of income. This
issue could not have been decided without adjudication. In order to decide
whether a contract was a composite contract or separate contracts, a deeper
probe into the factual scenario as well as the legal position was required. If
such was the fact situation in the case on hand, the application of the
assessee could not have been declared invalid on account of failure to fully
and truly disclose its income. Thus, what was required to be done by the
Commission was to allow the application to be proceeded with u/s 245D(2C) and
take up the matter for consideration u/s 245D(4) and take a decision after
adjudicating the claim.
iv) The issues which were
requested to be settled by the assessee before the Commission, qua the
report of the Commissioner, could not obviously be an issue for a prima
facie decision at the sub-section (2C) stage. The rejection of the
application for settlement of case was not justified.
v) Decision of the Single Judge Bench affirmed.
