2024 (4) TMI 663 - HC - Income Tax

Validity of order passed by the ITSC - Settlement of a case - Bogus purchases and Accommodation entries - ITSC allowed certain amounts to be capitalized with depreciation - ITSC also granted immunity from penalties and prosecution - scope of intervention by a High court, in its jurisdiction u/Article 226 of the Constitution of India - HELD THAT - As in Jyotendrasinhji 1993 (4) TMI 1 - SUPREME COURT Hon ble Apex Court held that the High Court under Article 226 can interfere with an order of the ITSC only when the order is contrary to provisions of the Act and that such contravention has prejudiced assessee. ITSC is empowered to pass, after hearing the applicant and the Commissioner, and after examining such further evidence as may be placed before it or obtained by it, such order as it thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner under Sub Section (1) or (3) of Section 245C of the Act. ITSC also has power to grant immunity from penalty and prosecution, with or without conditions. The ITSC need not give any reasons and even if it gives any reason the scope of enquiry cannot go beyond - The court should be concerned with the legality of procedure followed and not with the validity of the order. The judicial review is concerned not with the decision but with the decision making process. Even if the interpretation placed by the ITSC on documents is not correct, it would not be a ground for interference since a wrong interpretation of documents cannot be said to be a violation of the provisions of the Act. There are no allegation of bias or fraud or malice alleged in the petition against the Commission. The Hon ble Apex Court in Kotak Mahindra Bank Ltd. 2023 (9) TMI 1231 - SUPREME COURT held that the High Court cannot sit in appeal as to the sufficiency of the material and particulars placed before the Commission, based on which the Commission proceeded to pass its orders. While discussing the legislative intent on the provisions of Chapter XIX-A, the Hon ble Apex Court in Kotak Mahindra Bank Ltd. 2023 (9) TMI 1231 - SUPREME COURT held that frequent interference with the orders or proceedings of the ITSC should be avoided and the High Court should not scrutinize an order or proceeding of the ITSC as an appellate court. The conspectus of the law therefore would be that the court could not interfere with the order if otherwise proper on the ground that the decision appeared erroneous. Wrong or right decision was binding, if it be reached fairly after giving adequate opportunity to the parties to place their case in the manner provided by the Act. The court should be concerned not with the decision but the decision making process. If grave procedural defect such as violation of the mandatory procedural requirements of the provisions of Chapter XIX-A and/or violation of rules of natural justice is made out or if it is found that there is no nexus between the reasons given and the decision taken only then the court may interfere. Claim of deduction u/s 80IB(10) - As undisputed the projects carried out by assessee at Vasundhara, Samarpan and Country Park III qualified for deduction u/s 80IB(10) and that disallowance of expenditure by way of bogus purchases and towards business promotion and travelling expenses on Adhoc basis would go to increase the profits of the eligible projects - additional deduction as also noted in the impugned order for A.Y. 2009-10 comprises of additional income arising on account by disallowance of bogus purchases and additional income arising on account of Adhoc disallowance of expenses made by the Revenue for A.Y. 2005-06, 2006-07, 2007-08, 2008-09 in the Assessment Order passed u/s 143(3) r.w.s. 153A of the Act for those years. Detailed working and explanation in respect of the same was already available as a part of the settlement application and submissions made before the ITSC. The issue raised being question of fact as to the quantum of deduction to be allowed under Section 80IB(10) of the Act can never qualify as ground for interference by this court under jurisdiction of Article 226 of the Constitution of India. Capitalization - According to Revenue, the ITSC, before allowing capitalization of the expenditure incurred by assessee on acquisition of fixed assets by way of civil work, furniture and air conditioning system at its office premises on the 10th floor at Atrium benefits the assessee ought to have conducted an enquiry or investigation on the issue as these factual issues required verification to ascertain whether the amount was spent on the assets as stated, its actual cost, year of purchase, etc. - It does not appear that any such request for verification of these aspects were made by the Revenue in the reports or statements that were filed before the Commission. Moreover, the discretionary power under Section 245D(3) discussed above will apply here also. Further, the Revenue had accepted that the seized diary discloses the correct facts in respect of the cash generated by assessee on account of bogus purchases. In view thereof, Revenue should also accept utilization of such cash as narrated in the said diary/document seized at the time of search. It is assessee s case that assessee has its office on 10th Floor at Atrium and the expenses have been incurred on civil work, furniture and air conditioning system at the said office and the said office premises has been used in the previous year relevant to A.Y. 2011-12. Assessee has been allowed deduction by way of depreciation on the other capital expenditure incurred with respect to the said office premises. The ITSC has accepted the issue of capitalization of expenditure incurred and granted the relief. Seized diary showed that part of the cash generated by the company from bogus purchases was utilized for the purposes of incurring capital expenditure at its office premises on the 10th Floor in Atrium - Such expenses incurred on civil work, furniture and air conditioning system. Further enquiry or investigation on the utilization of the amount need not be entertained because Revenue has, relying upon the same documents, accepted the fact of generation of cash by way of bogus purchases. Therefore, the manner of utilization of the cash as noted in the seized diary also has to be accepted as correct. This is the position prevailing as per Section 132 (4A) and 292C of the Act which mandates that the contents of seized documents are true. The enquiry under Section 245D(3) of the Act was subjected to discretion of the ITSC as it relates to question of fact and is not amenable to the jurisdiction of this court. ITSC was entitled to exercise discretion and has rightly exercised its discretion. We find nothing wrong in the judicial decision making process of the Commission. When the department relies on the seized records for estimating the undisclosed income, we see no reason why the expenditure stated therein should be disbelieved. We find support in P. D. Abraham Alias Appachan And Another 2014 (6) TMI 15 - KERALA HIGH COURT Moreover there was no justification for doubting the entries found in seized records pertaining to expenditure while accepting the income found recorded therein. There is neither violation of any mandatory procedure prescribed under any of the sections of Chapter XIX-A of the Act nor any violation of any of the Rules of natural justice. Further, it cannot be said that the reasons assigned by the ITSC for granting relief sought for by assessee have no nexus to the decision taken. Apex Court in Kotak Mahindra Bank Ltd. 2023 (9) TMI 1231 - SUPREME COURT interference with the orders of the ITSC should be avoided, keeping in mind the legislative intent. The scope of interference is very narrow and certainly the High Court should not scrutinize an order of the ITSC as an appellate court. Rule discharged. Petition dismissed

Summary

Issues Involved:
1. Adjustment under Section 80IB(10) of the Income Tax Act.
2. Capitalization of expenditure incurred on acquisition of fixed assets.

Summary:

Adjustment under Section 80IB(10) of the Income Tax Act:
The Revenue contended that the Income Tax Settlement Commission (ITSC) should have directed further enquiry u/s 245D(3) regarding the deduction claimed by the assessee under Section 80IB(10) of the Act. The Revenue argued that the deduction claimed for A.Y. 2009-10 was higher than the amount disclosed for bogus purchases. However, the court found that the difference represented adhoc disallowances made by the Assessing Officer (A.O.) in previous assessment years, which resulted in a decrease in work in progress and an increase in income for A.Y. 2009-10. The court held that the ITSC's discretion to call for further enquiry u/s 245D(3) was not mandatory and that the Revenue had not requested such an examination during the ITSC proceedings. Therefore, the claim of deduction was correctly allowed, and the issue raised by the Revenue did not qualify for interference under Article 226 of the Constitution of India.

Capitalization of Expenditure:
The Revenue challenged the ITSC's decision to allow capitalization of Rs. 8,33,53,000/- incurred on renovation, air conditioners, and furniture, arguing that the ITSC should have conducted further enquiry or investigation. The court noted that the Revenue had accepted the seized diary's entries regarding cash generated from bogus purchases and should also accept the utilization of such cash as narrated in the seized documents. The court emphasized that the ITSC had the discretion to presume the contents of the seized documents to be true u/s 292C(1)(ii) and 132(4A) of the Act. The court found no procedural defect or violation of natural justice in the ITSC's decision-making process and held that the ITSC's discretion was rightly exercised. The court also highlighted that the ITSC is a forum for self-surrender and seeking relief, not for challenging the legality of assessment orders. Therefore, the court found no reason to interfere with the ITSC's order on capitalization.

Conclusion:
The court dismissed the petition, upholding the ITSC's decisions on both issues, and emphasized the narrow scope of judicial review over ITSC orders, which should not be scrutinized as an appellate court. The court reiterated that the ITSC's discretion and findings, based on the material and particulars placed before it, should be respected unless there is a clear contravention of the Act's provisions or procedural defects.