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2021 (9) TMI 162 - HC - Income TaxValidity of order passed by the Income Tax Settlement Commission ITSC u/s 245D(4) - proof of procedural error committed by the ITSC or any error with regard to the decision making process - full and true disclosure - learned Single Judge has set aside the order of ITSC - appropriate valuation method to be treated to be a perverse decision - Whether assessees having satisfied the requisite conditions provided u/s 245H and having cooperated with the proceedings before the ITSC and made full and true disclosure of their income, they were granted immunity from penalty and prosecution under the Act? - whether the filing of applications by the assessees for settling the cases is a genuine attempt of the assessees wherein the assessees fully and truly disclosed all material particulars bearing in mind that it is they who approached the ITSC to settle the dispute? - HELD THAT - We find that the reasons assigned by the ITSC for coming to such a conclusion as to what would be the appropriate valuation method cannot be treated to be a perverse decision. With regard to the aspect as to whether the there was a full and true disclosure by the assessee, this has been considered by the ITSC, which recorded that the assessee cooperated with the proceedings before the ITSC. In fact, this has also been recorded so by the learned Single Judge in the impugned order - ITSC also noted the conduct of the assessee during the course of the proceedings. As pointed out earlier, the first report as per Rule 9 of the said Rules was submitted in June 2013, the comments were filed by the assessee before the ITSC to the said first report on 05.7.2013 and thereafter, a verification report was submitted and the comments were furnished to the assessee where the assessee offered additional sum by way of further disclosure. Aspects were noted by the ITSC and the conduct of the assessee was examined qua the aspect of full and true disclosure and in paragraph 7.4, while dealing with the aspect as to whether the assessee would be entitled for immunity, the ITSC clearly recorded that the assessee readily agreed to abide by the directions that would be issued by the ITSC and that the direction for further disclosure was not because the assessee accepted any understatement of income, but basically with a view to bring quietus to the matter and in the spirit of settlement - further disclosure pursuant to the verification report submitted before the ITSC, which was a further report u/s 245D of the Act cannot be construed to non suit the assesssee that she has not made a full and true disclosure before the ITSC at the first instance. If a very rigid approach is taken in this regard, then the very purpose of enacting Sub-Section (6) of Section 245D of the Act would lose its purpose. In any event, we find that there is no error in the decision making process and as pointed out, we are not expected to substitute the decision of the ITSC, which has taken note of the conduct of the assessee, who was in the spirit of settlement subject to conditions - we are of the view that the order passed in the said writ petition calls for interference. Assessee had raised a preliminary objection with regard to the maintainability of the said writ petition filed at the instance of the Revenue against challenging the order passed by the ITSC - this issue had come up before us in other appeals as well and certain writ appeals were admitted to decide this question of law as to the maintainability of writ petitions filed by the Department questioning the order passed by the ITSC. In the case on hand, we have not ruled on the aspect regarding maintainability of the said writ petition, as we are fully satisfied that there is no error in the decision making process committed by the ITSC nor the order passed by the ITSC can be construed to be perverse or illegal warranting interference under Article 226 of The Constitution of India. Therefore, the question of law as regards maintainability of writ petitions as against orders passed by the ITSC is left open to be agitated in the proper proceedings at appropriate stage.
Issues involved:
1. Maintainability of the writ petition filed by the Revenue against the order of the Income Tax Settlement Commission (ITSC). 2. Whether the assessee made a full and true disclosure before the ITSC. 3. Validity of the ITSC's decision to accept one set of books of accounts over another. 4. Appropriateness of the valuation method adopted by the ITSC. Detailed Analysis: 1. Maintainability of the writ petition: The assessee raised a preliminary objection regarding the maintainability of the writ petition filed by the Revenue, arguing that the Writ Court should not act as an Appellate Court over the ITSC's decision. The assessee cited several Supreme Court rulings to support this contention. However, the Court did not rule on the maintainability issue, stating that the question of law regarding the maintainability of writ petitions against ITSC orders is left open for future proceedings. 2. Full and true disclosure by the assessee: The ITSC had directed the assessee to offer additional income during the settlement proceedings, which led the Writ Court to conclude that the assessee did not make a full and true disclosure initially. However, the High Court disagreed, noting that the ITSC's process allows for additional disclosures to settle disputes. The Court emphasized that the ITSC's role includes assessing the conduct of the assessee and noted that the assessee cooperated with the proceedings and made disclosures in the spirit of settlement. Thus, the High Court found no error in the ITSC's decision to accept the additional disclosures. 3. Acceptance of one set of books over another: The Revenue argued that the ITSC should have either accepted or rejected the entire set of duplicate books rather than accepting parts of it. The ITSC had found the other set of books to be incomplete and unreliable, citing several discrepancies and errors. The High Court upheld the ITSC's decision, stating that the ITSC provided plausible reasons for its choice and that the Writ Court should not substitute its views unless there was a serious error in the decision-making process. The Court found no such error or perversity in the ITSC's reasoning. 4. Valuation method adopted by the ITSC: The ITSC adopted the 'net accretion to asset method' for valuing the undisclosed income, which the Revenue contested. The ITSC reasoned that the excess stock found during the search represented accumulated undisclosed income over several years, not just the year of the search. The High Court found the ITSC's approach logical, reasonable, and acceptable. The ITSC also addressed the Department's errors in its valuation method and concluded that the 'weighted average cost method' used by the assessee was appropriate for this line of business. The High Court agreed with the ITSC's findings and found no perverse decision in its valuation method. Conclusion: The High Court allowed the writ appeal, set aside the Writ Court's order, and restored the ITSC's order dated 31.7.2013. The Court found no error in the ITSC's decision-making process and upheld the ITSC's conclusions on full and true disclosure, the acceptance of books of accounts, and the valuation method. The question of the maintainability of writ petitions against ITSC orders was left open for future proceedings.
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