2017 (5) TMI 427 - HC - Income Tax

Settlement application as abated on account of it not being true and full disclosure of unaccounted income - report submitted by the Income Tax Department i.e. Volumetric Report relied upon - Held that - The petitioner s application has been wrongly treated as not being full and true by the Settlement Commission merely on the basis of the report dated 24/07/2012. All the facts were fully disclosed before the Settlement Commission including the factum of wrong allegation of excess mining being levied by the Income Tax Department on incorrect facts and the Settlement Commission has not even discussed how the contentions of the petitioner are wrong in so far as secondary evidences were concerned. It has simply reproduced in a columnar form the submissions of the Income Tax Department and the averment of the petitioner without pointing out how the petitioner is at fault. The Settlement Commission thereafter, proceed to determine that the private Architect is an expert, his report is based on latest technology and the fact of withdrawal of petition by the petitioner and thereafter the application was treated as not being full and fair disclosure of facts. The Settlement Commission has even dismissed the report dated 17/06/2013 prepared by the State Government at the direction of this Court. The Settlement Commission has also dismissed the statutory mining plan prepared under The Mines and Minerals (Development and Regulation) Act, 1957 and approved by IBM. The entire order does not discuss the petitioner s submission or why the submissions were not true and full and this approach shows that the Settlement Commission was predetermined not to pass the final order but proceeded with singe minded determination to send the petitioner back to the Assessing Officer. This Court is of the considered opinion that the order passed by the Settlement Commission dated 17/02/2017 passed under Section 245D(4) deserves to be quashed and is accordingly quashed. The volumetric report dated 24/07/2012 prepared by the Income Tax Department through a private architect is also quashed and the matter is remanded back to the Settlement Commission to process the petitioner s application and to pass a final order afresh ignoring the volumetric report dated 24/07/2012. The Settlement Commission shall consider all the documents recovered during the search and seizure and other material produce by the department and shall be free to pass appropriate order in accordance with law.

Summary

Issues Involved:
1. Legitimacy of the Volumetric Report prepared by the Income Tax Department.
2. Competence of the private Architect who prepared the Volumetric Report.
3. Validity of the Settlement Commission's decision to abate the settlement application.
4. Admissibility of the survey report for assessing undisclosed income.
5. Treatment of the mining plan approved by IBM.
6. Errors in the Volumetric Report's methodology and calculations.
7. Impact of the withdrawal of the writ petition on the validity of the Volumetric Report.

Detailed Analysis:

1. Legitimacy of the Volumetric Report Prepared by the Income Tax Department:
The petitioners challenged the Volumetric Report dated 24/07/2012, prepared by the Income Tax Department through a private Architect, arguing that it was not based on true and full disclosure of unaccounted income. The court found that the report was prepared without issuing notice to the petitioners or providing them an opportunity to be heard, violating procedural fairness.

2. Competence of the Private Architect:
The court noted that the private Architect, Mr. Manish Pilliwar, who prepared the Volumetric Report, did not possess the necessary qualifications of a mining expert under the MMDR Act or the Income Tax Act. The court highlighted that Mr. Pilliwar was only authorized to value immovable property other than agricultural lands, plantations, forests, mines, and quarries, and thus, was not competent to conduct volumetric analysis of mines.

3. Validity of the Settlement Commission's Decision:
The Settlement Commission's decision to abate the settlement application was based on the Volumetric Report. The court found this decision to be perverse and devoid of merit, as it relied on a report prepared by an incompetent person. The court emphasized that the Settlement Commission failed to consider the statutory mining plan approved by IBM and other relevant documents.

4. Admissibility of the Survey Report:
The court held that the survey report dated 24/07/2012 could not be used for assessing undisclosed income for the period from 2006 to 2012, as it was not an incriminating material obtained as a result of the search. The court referred to the Delhi High Court's decision in CIT Vs. Kabul Chawla, which stated that completed assessments could only be interfered with based on incriminating material unearthed during the search.

5. Treatment of the Mining Plan Approved by IBM:
The court criticized the Settlement Commission for brushing aside the mining plan approved by IBM in 1998 and 2008. The mining plan, being a statutory document prepared under the MMDR Act, has a statutory force and should have been considered by the Settlement Commission.

6. Errors in the Volumetric Report's Methodology and Calculations:
The court identified several fundamental errors in the Volumetric Report, such as incorrect calculation of the stripping ratio and miscalculation of overburden. The report's finding that Manganese Ore constituted 83% and waste 27% was found to be impossible and indicative of gross inaccuracies.

7. Impact of the Withdrawal of the Writ Petition:
The court clarified that the withdrawal of Writ Petition No.8898/2013 did not close the petitioners' rights to challenge the Volumetric Report before the Settlement Commission. The withdrawal was permitted with a specific liberty to raise all contentions before the Settlement Commission, and thus, the objections to the validity of the Volumetric Report remained alive.

Conclusion:
The court quashed the order dated 17/02/2017 passed by the Settlement Commission under Section 245D(4) and the Volumetric Report dated 24/07/2012. The matter was remanded back to the Settlement Commission to process the petitioners' application afresh, ignoring the Volumetric Report, and to pass a final order in accordance with law. The court emphasized the need for the Settlement Commission to consider all documents recovered during the search and seizure and other material produced by the department.