2017 (7) TMI 500 - HC - Income Tax

Payments made towards illegal gratification and bribes - block assessment - validity of Income Tax Settlement Commission - Held that - Unfortunately the linkage between the material seized from the assessee s premises and those from UPDA s premises as well as the statement of Sh. Miglani was not established through any objective material. It is now settled law that block assessments are concerned with fresh material and fresh documents which emerge in the course of search and seizure proceedings; the revenue has no authority to delve into material that was already before it and the regular assessments were made having regard to the deposition the inability of the revenue to establish as it were that the assessee s expenditure claim was bogus or it had underreported income and that it resorted to over invoicing and diversion of funds into the funds allegedly maintained by the UPDA was not established. The findings of the Commission therefore cannot be faulted as contrary to law. Suppression of profits for various financial years - Held that - Commission was of the opinion that the documents relied upon were work estimates and projections that revealed tentative profitability in respect of the assessee s activities towards sale of country liquor i.e. that the documents did not reflect actual figures. The documents reflected profit methods for both years which left the Commission to infer they were in fact not based upon actuals but alternative projections. Here again the view taken by the Commission cannot be said to be unreasonable as to warrant interference.The assessee s managing director prepared these estimates. The Commission accepted this contention and concluded that the revenue s arguments were based upon surmise; the Commission also felt that the documents did not disclose that any payments made were illegal. Furthermore it relied upon the document observing that it contained no writings highlighting that in case a means was made in further expenses would have been incurred in respect of various divisions of the assessee. Here too the interpretation of the documentary evidence by the Commission which is to be viewed with caution does not appear to be contrary to law or unreasonable. In the circumstances the revenue s contentions on this aspect too cannot be accepted. Bogus expenditure claimed - Held that - The court is of the opinion that while expenditure claimed by itself might be suspect the revenue had a further obligation to investigate further and more deeply into the matter having regard to the fact that the agreement between the assessee and Rimjhim was disclosed earlier. The mere statement of one employee of Rimjhim would not have discredited the agreement itself. It was incumbent upon the revenue-had it suspected the expenditure (in the over four-month period given to it to furnish its report under Rule 9) to elicit particulars from the concerned AO having jurisdiction over Rimjhim as to whether that concern in fact had received the amounts towards the assessee s claim. The omission in this regard and lack of any particulars to discredit the services and expenditure claimed by the assessee justified the Commission s conclusion that the addition of 9.11 crores demanded by the revenue or other arguments on the basis that the assessee did not disclose such amount was not warranted. The Commission s findings are not contrary to law or unreasonable.On an overall assessment of the materials that the Commission was confronted and had to deal with its findings are neither unreasonable nor contrary to law. The findings are based on a proper appreciation of facts which this court affirms.

Issues Involved:
1. Validity of the Income Tax Settlement Commission's (the "Commission") order dated 13.03.2008.
2. Alleged concealment of income by the assessee.
3. Treatment of documents and evidence regarding illegal payments made by the assessee.
4. Jurisdiction and scope of judicial review over the Commission's findings.

Detailed Analysis:

1. Validity of the Commission's Order:
The revenue filed a writ petition under Article 226 of the Constitution challenging the Commission's order dated 13.03.2008, which settled the assessee's concealed income at ?30 crores. The revenue contended that the Commission ignored relevant evidence and reasoning presented in its Rule 9 report, which alleged a concealment of ?177.84 crores. The Commission's order also granted immunity from prosecution and penalties to the assessee, which the revenue argued was unjustified due to the lack of full and true disclosure by the assessee.

2. Alleged Concealment of Income:
The revenue argued that the assessee did not make a full and true disclosure of its income and the manner in which it was derived, as required under Section 245C(1) of the Income Tax Act, 1961. The revenue pointed out that the assessee's application contained vague statements and lacked a clear basis for the ?27.50 crores of concealed income offered in the settlement application. The Commission, however, increased the undisclosed income by ?2.5 crores, settling it at ?30 crores, indicating an application of mind.

3. Treatment of Documents and Evidence:
The revenue's primary grievance was regarding the clandestine payments to the Uttar Pradesh Distiller's Association (UPDA) and the statements of its Secretary General, Sh. R.K. Miglani. The Commission treated the documents found at UPDA's premises and Miglani's statements as third-party documents, requiring corroboration with materials seized from the assessee's premises. The revenue argued that the documents and statements were credible and fully corroborated the illegal payments made by the assessee. However, the Commission found no independent corroborative evidence linking the assessee to the payments and noted that no opportunity was given to cross-examine Miglani.

4. Jurisdiction and Scope of Judicial Review:
The court emphasized the limited jurisdiction to interfere with the Commission's findings, which are final and conclusive unless contrary to the provisions of the Act or tainted by bias, fraud, or malice. The court referred to precedents, including Jyotendra Sinhji vs. S.I Tripathi & Ors and R.B. Shreeram Durga Prasad & Fatechand Nursing Das v. Settlement Commission, highlighting that even wrong appreciation of facts cannot justify interference. The court found that the Commission's findings were based on a proper appreciation of facts and were neither unreasonable nor contrary to law.

Conclusion:
The court dismissed the writ petition, affirming the Commission's findings and order. The court concluded that the Commission's treatment of the evidence and its decision to settle the concealed income at ?30 crores were reasonable and in accordance with the law. The court also noted the lack of corroborative evidence linking the assessee to the alleged illegal payments and the revenue's failure to establish the linkage between the materials seized from the assessee's premises and those from UPDA. The Commission's findings on the alleged bogus expenditure and suppression of profits were also upheld, as the revenue did not provide sufficient fresh material to discredit the assessee's claims.

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