2014 (5) TMI 818 - HC - Income Tax

Order of settlement commission - Failure to make full and true disclosure - Interpretation of the receipt Held that - Revenue was of the view that the receipt indicates an amount by way of interest whereas the assessee contended that it was not received by way of interest and was the principal amount of loan which was received - the Settlement Commission has taken the view that the amount of ₹ 6.00 crores as mentioned in the receipts were loans taken by assessee payable @1.25% for the period of six months. As to what degree can the Court interfere when two possible interpretations are placed before it with regard to a document which is of vital importance and when one of the interpretations has been accepted by the Settlement Commission Held that - Relying upon R.B. Shreeram Durga Prasad v. Settlement Commission & Another 1989 (1) TMI 4 - SUPREME Court - in the exercise of power of judicial review of a decision of the Settlement Commission, the Court is concerned with the legality of procedure followed and not with the validity of the order - the Supreme Court observed that the High Court ought not to gone into a factual issue while exercising writ jurisdiction and should not have substituted its opinion against the opinion of the Settlement Commission. The scope of review under Article 226 of the Constitution insofar as an order passed by the Settlement Commission u/s 245 D (4) of the Act is concerned, is a very limited one - This Court cannot substitute its view in place of the Settlement Commission particularly on point of interpretation of a particular document - Interference can only be made if there is a fault in the decision making process and not with the decision itself - The interpretation which has been placed by the Settlement Commission on the documents, first of all, results in a finding of fact which cannot be interfered with - the interpretation is not so outlandish to be categorized as arbitrary or perverse so as to call for interference - the interpretation sought to be placed by the Revenue may be a possible interpretation but, so, too, would be the interpretation placed by the Settlement Commission which has also been espoused by the learned counsel for respondent No.1. In such a situation no interference with the Settlement Commission s order is warranted. - Decided against the revenue.

Summary

Issues Involved:
1. Full and true disclosure by the respondent.
2. Interpretation of receipts found during the search operation.

Detailed Analysis:

1. Full and True Disclosure by the Respondent:
The petitioner, Commissioner of Income Tax, challenged the orders of the Income Tax Settlement Commission dated 21.05.2012 and 20.11.2012. The primary contention was that the respondent did not make a full and true disclosure of income, a mandatory requirement under Section 245C of the Income Tax Act, 1961. The Revenue argued that the respondent declared Rs. 7.6 crores as undisclosed investment in a property at Motia Khan, Karol Bagh, which was already decided in a related case (Commissioner of Income Tax v. Vineeta Gupta). The second contention was regarding five receipts totaling Rs. 6.00 crores found during a search operation on 15.01.2009. The Revenue claimed these receipts were interest on loans amounting to Rs. 80.00 crores, which the respondent failed to disclose as the principal amount.

2. Interpretation of Receipts Found During the Search Operation:
The entire controversy revolved around the interpretation of these receipts. The Revenue interpreted the receipts as interest payments, suggesting a principal loan amount of Rs. 80.00 crores. In contrast, the respondent claimed the receipts represented loans received, which were disclosed as income because the lenders would not confirm the cash loans. The Settlement Commission concluded that the receipts were loans taken by the respondent at an interest rate of 1.25% for six months, and since the respondent had already offered Rs. 6 crores as additional income, no further action was required.

Judicial Review and Interpretation:
The court examined whether it could interfere with the Settlement Commission's interpretation. The Supreme Court precedents emphasized that judicial review focuses on the legality of the procedure rather than the validity of the order. The court's role is to ensure the decision-making process is legal, not to substitute its interpretation for that of the Settlement Commission. The court noted that both interpretations of the receipts were possible and that interference was unwarranted unless the interpretation by the Settlement Commission was arbitrary or perverse.

Conclusion:
The court found that the Settlement Commission's interpretation was reasonable and not arbitrary. The Revenue's argument of misrepresentation was based on its interpretation, which was not accepted by the Settlement Commission. Consequently, the court dismissed the writ petition, affirming the Settlement Commission's orders and concluding that no interference was warranted.