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TMI Blog2015 (5) TMI 1060X X X X Extracts X X X X X X X X Extracts X X X X ..... e orders passed by the Settlement Commission.Thus, all interlocutory applications as well as the writ petition are disposed of. The matter is remanded to the Settlement Commission for fresh decision. This writ petition is hereby, allowed to the aforesaid extent as the impugned orders are at Annexure6 and 7 are hereby, quashed. - W.P.(T) No. 6904 of 2013 With I.A. No. 835 of 2015 With I.A. No. 2153 of 2015 With I.A. No. 8553 of 2013 - - - Dated:- 18-5-2015 - MR. D.N. PATEL AND MR. RATNAKER BHENGRA, JJ For the Petitioner : Mr. Biren Poddar, Sr. Advocate, M/s Mahendra Choudhary, Darshana Poddar, Piyush Poddar, Amrita Sinha, Advocates For the Respondents : Mr. Deepak Roshan, Advocate ORDER Per D.N. Patel, J.: 1. This writ petition has been preferred challenging the order passed by the Settlement Commission dated 27th/28th June, 2013 under Section 245D(4) of the Income Tax Act, 1961 (hereinafter referred to as the Act, 1961 for the sake of brevity) which is at Annexure6 to the memo of this writ petition. By this order additions have been made of ₹ 62,50,000/and ₹ 73,50,663/in respect of assessment years 201011 and 201112 respectively, over an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive effect to the order passed by the Settlement Commission. Two garnishee notices both dated 27th January, 2015 were issued by the respondentsIncome Tax Department under Section 226(3) of the Act, 1961 for attaching the bank account of this petitioner. Thus, being aggrieved by the order passed by the Settlement Commission dated 27/28th June, 2013 as well as against the order passed by the Settlement Commission dated 24th September, 2013 and also being aggrieved by the notices issued by the respondents, the present writ petition alongwith I.A. No. 835 of 2015 has been preferred by this petitioner. 3. Arguments canvassed by the counsel for the petitioner : It is submitted by the counsel for the petitioner that the Settlement Commission has exceeded its jurisdiction, by additions of ₹ 62,50,000/and ₹ 73,50,663/for the assessment years 201011 and 201112 respectively, over and above the income declared by the petitioner, while passing an order dated 27/28th of June, 2013 which is at Annexure6 to the memo of this petition. Looking to the order passed by the Settlement Commission dated 27th/28th June, 2013 the whole calculation arrived at by the Settl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment years 201011 and 201112, over and above the income declared by the petitioner and that too on the basis of the presumptions and surmises and in absence of any cogent and convincing evidence on record tantamounts that Settlement Commission is of the opinion that there is not full and true to the income by the applicantpetitioner and therefore, instead of wear a rob of Assessing Officer Settlement Commission should have rejected the application preferred by this petitioner for settlement and thereafter, the matter will be upon for the Assessing Officer for assessing the income of the petitioner for the assessment years 201011 and 201112. Counsel appearing for the petitioner is relied upon the decision rendered by the Madras High Court reported in [2009] 315 ITR 328(Madras). On the basis of this judgment it is submitted by the counsel for the petitioner that the Settlement Commission cannot play the role of the Assessing Officer. Power under Section 245F is given to the Settlement Commission only for adopting the procedural powers vested in the Income Tax Authorities and not the substantive powers which are vested in the Income Tax Authorities can be grabed by the Settleme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court may not interfere with the order passed by the Settlement Commission dated 27th/28th June, 2013 and rest of the consequential orders passed by the department in the form of notice under Section 3 of Section 226 of the Act, 1961 and therefore, neither this petition nor the I.A. may be allowed by this Court. Both deserves to be dismissed. Counsel for the respondents is heavily relied upon paragraph no. 16 of the counter affidavit filed by the respondents Income Tax Department and has submitted that once the order is passed by the Settlement Commission, this type of writ petitions are not tenable at law. Reasons: 5. Having heard counsels for both the sides and looking to the facts and circumstances of the case, we hereby, quash and set aside the orders passed by the Settlement Commission dated 27th/28th June, 2013 (Annexure6 to the memo of this petition) as well as the orders passed by the Settlement Commission dated 24th September, 2013 (Annexure7 to the memo of this petition as well as the notice issued by the Income Tax Department under Section 226(3) of the Act, 1961 dated 27th January, 2015 mainly on the following facts and reasons:( i) The petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch decision of Hon'ble Calcutta High Court in the case of OUTOTEC Group. The disclosure made in the application also, prima facie, cannot be considered as 'not full and true'. The other prescribed conditions have also been complied with. We, therefore, allow the application to be further proceeded with u/s 245D(2C) of the I.T. Act. 9. Secretary, ITSC, will call for a report under Rule 9 of the ITSC (Procedure) Rules, 1997, from the CIT as per proceedings. (iv) Thus, in view of paragraph nos. 8 and 9 of the aforesaid order passed by the Settlement Commission the application preferred by this petitioner has been, prima facie, accepted by the Settlement Commission. This is always a step no. 1 in the proceedings before the Settlement Commission. It is also popularly known as Admission of the application before the Settlement Commission. Thus, prima facie, it cannot be said that there is no full and true disclosure by the applicant. Now procedure for step no. 2 starts. (v) In a 2nd step the Settlement Commission will call for the report under Rule 9 of the Income Tax Settlement Commission (Procedure) Rules, 1997. Under this Rule Commissioner of Income Tax h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing out the additional income which needs to be taxed in the A. Yr. 201011. Similarly, the gross profit from the turnover of ₹ 1.98 crore has to be taken into account in respect of A.Yr. 201112. 7. As stated above, the books of account maintained by the applicant are no good. We find that for A. Yr. 201011, the applicant has shown net profit of ₹ 7,80,388/on sales of ₹ 5,49,25,594/which works out to 1.42%. It is not possible to accept that the profitability in the trade that the applicant is engaged in would be so low. For the A.Yr. 201112, the net profit shown on turnover of ₹ 7,02,29,797/is ₹ 10,06,898/which works out to 1.43%. In our view, it would be reasonable to apply an estimated gross profit rate of 12% to both the disclosed as well as the undisclosed turnover. 8. Applicant's contention that the entire undisclosed income of F. Yr. 200910 is embedded in the undisclosed trade debtors of ₹ 88,59,517/as on 31.03.2010 is not acceptable, particularly because this is not a search case and the possibility of a part of the clandestinely earned income having been spent, invested elsewhere cannot be discounted. An addition of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the graph. This is how estimated unaccounted turnover for the assessment year 201011 has been arrived at. There ought to be evidence on record otherwise any figure can be arrived at by the Settlement Commission for the assessment year 201011. Not necessary that, as per extrapolation of graph, the turnover should be lessor than the turnover of the assessment year 201112 and should be lessor than for the assessment year 201213 e.g. in the assessment year 201011 the market may be favourable for this assessee who is a sole proprietor of M/s Prasad Hardware for his trading in the hardware items and there may be recession for the assessment year 201112 and for the assessment year 201213. In this eventuality the estimated unaccounted turnover for the assessment year 201011 may be double or triple than the turnover of the year 201112 or 201213. All depends upon the market also. There may be a very good period for this type of trading business in the year 201011 and for subsequent assessment year the market might have fallen therefore, presumption on the part of the Settlement Commission that next two years turnover is ₹ 1.98 crores and ₹ 2.31 crores and therefore, for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iscretion given without guidance such type of exercise of discretion leads to discrimination. For few assessees percentage of the profit may be presumed 10% and for some of the assessees it may be 12% and for rest of the assessees it may go even higher to 12%. There is no basis why the Settlement Commission has chosen profit rate of 12%, otherwise as per Section 45AF of the Income Tax Act 12% presumption of a profit is not permissible. For the ready reference section 44AF of the Income Tax Act, 1961 read as under: 44AF. Special provisions for computing profits and gains of retail business .-(1) Notwithstanding anything to the contrary contained in sections 28 to 43C, in the case of an assessee engaged in retail trade in any goods or merchandise, a sum equal to five per cent of the total turnover in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum as declared by the assessee in his return of income shall be deemed to be the profits and gains of such business chargeable to tax under the head Profits and gains of business or profession : Provided that nothing contained in this subsection shall apply in respect of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Settlement Commission has to take all evidences before arriving the conclusions about additions which is missing in this case. (xi) For the assessment year 201112 the percentage of profit, as submitted by the counsel for the petitioner, may be covered under Section 44AD of the Act, 1961, but, that is never travelled beyond 8% whereas Settlement Commission has presumed profit at the rate of 12%. For the ready reference Section 44AD of the Income Tax Act 1961 reads as under: 44AD. Special provision for computing profits and gains of business on presumptive basis .-(1) Notwithstanding anything to the contrary contained in Sections 28 to 43C, in the case of an eligible assessee engaged in an eligible business, a sum equal to eight per cent of the total turnover or gross receipts of the assessee in the previous year on account of such business or, as the case may be, a sum higher than the aforesaid sum claimed to have been earned by the eligible assessee, shall be deemed to be the profits and gains of such business chargeable to tax under the head Profits and gains of business or profession . (2) Any deduction allowable under the provisions of Sections 30 to 38 shall, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 245F is concerned, though the Settlement Commission is empowered to have all powers which are vested in an Incometax Authority under the Act, in addition to the power conferred under Chapter XIXA, but such power can be exercised for the purpose of procedure of settlement of application under section 245C and not for reassessment of tax of a particular year which is vested with the Assessing Authority. 12. For the reasons aforesaid, while we cannot uphold the impugned order dated 2151998 passed by the Settlement Commission, for the same reason, the order passed by the learned Single Judge dated 2822001 deserves to be set aside. We order accordingly, and set aside the order dated 2151998 passed by the Settlement Commission and the order dated 2822001 passed by the learned Single Judge. However, this judgment shall not stand in the way of the Assessing Officer/Competent Authority to proceed in accordance with law, if otherwise it is not barred by limitation. We may also add that we have noticed the provision of section 153(3)(v) of the Incometax Act as referred to by the learned Senior Standing Counsel. The writ appeals are allowed with the aforesaid observations, but there shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect of an application made on or after the 1st day of June, 2010, within eighteen months from the end of the month in which the application was made. (5) .............................. ........................... (Emphasis Supplied) (b) The conditions precedent for application for this Section 245D(4) is existence of the evidence before the Settlement Commission over and above the reports of the Commissioner of Income Tax. This is an essential ingredients or sine qua non for applicability of this sub section 4 of Section 245D which is not present in the facts of the present case. This essential ingredients is missing. (c) There is also a presumption on the part of the Settlement Commission about presumption of 12% of the gross profit. No law prescribes this formula and much less the Income Tax Act and the Rules made thereunder. 6. As a cumulative effect of the aforesaid facts, reasons and judicial pronouncements, we hereby, quash and set aside the order passed by the Settlement Commission dated 27th/28th June, 2013 (Annexure6 to the memo of this petition). As the order at Annexure6 is hereby, quashed and set aside, the consequent orders passed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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