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TMI Blog2016 (9) TMI 555X X X X Extracts X X X X X X X X Extracts X X X X ..... tional income of approximately 110 crores added finding thereby that there is no true and full disclosure income is untenable because the Commission has got not only power to decide the lis before them but also to find out if at all any income left out or could not be disclosed by the assessee to come to a mechanism of settlement. The settlement of lis is not only covered by the dispute arose before them but also for the dispute yet to come. So the Commission has got wide power to consider the income disclosed, add additional income after due investigation and also to add any income which is found to be valid as per report under Rule-9 submitted by the Department and finally settle the tax payable by the assessee. Where there is a term of settlement including demand by way of tax, penalty or interest and such payment has been made, but subsequently found by the Settlement Commission that it has been obtained by fraud and misrepresentation, the Commission has power to declare the said settlement as void. When the order of the Commission has been communicated to the Department, the Department could have agitated before the Commission to declare the same as void but instead as appears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax Act, 1961 (hereinafter called as 'the Act") is under challenge by the Commissioner of Income Tax, Sambalpur, the petitioner. Facts 2. The factual matrix leading to this case is that on 12.11.2009, there were search and seizure operation made under Section 132 of the Act in the business premises of Sri Kamaljeet Singh Ahluwalia and group and several incriminating documents, cash and other material were seized. The search operation was made by opposite parties 2 to 6 for the assessment years ranging from 2004-05 to 2010-11. The Ahluwalia group has got business in iron ore mining, sponge iron ore plant and rolling mill. This group has also business of manufacturing of cement. The statement of Sri Kamaljeet Singh Ahluwalia was recorded under Section 132(4) of the Act. During the search and seizure operation, Sri Ahluwalia has admitted undisclosed income of ₹ 150.00 crores but later on by letter dated 16.11.2009, Sri Ahluwalia retracted from the disclosure made on 12.11.2009. However, after the search and seizure operation, the opposite parties 2 to 6 filed an application before the Commission on 9.9.2011 for determination of the total income and fixation of tax liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dummy accounts 66.44 3.78 4.78 Sub Total (A) 75.00 2009-10 Transportation charges of rejects (B) 63.00 2010-11 Unaccounted investment in immoveable property Unaccounted cash found 1.50 0.14 Sub Total (C) 1.64 Grand Total (A+B+C) 139.64 v. M/s.Kaypee Enterprises Assessment Years Particulars Amount (In Rs.Cr) 2006-07 Unaccounted investment in immoveable property (A) 4.10 2007-08 Removal of rejects (B) 22.25 Grand Total (A+B) 26.35 6. After consideration of the report under Rule 9 of the petitioner and submission of observation and counter observation of both parties, the order was passed under Section 245D (4) of the Act by the Commission on 28.3.2012 which is under challenge in this writ petition. 7. The Commission in its report added further ₹ 110.28 crores upon the assessee group as additional income over and above the income disclosed by the assessee before the Commission. The petitioner challenges such order of the Commission by stating that the assesee has understated their income on following categories: "(i) Booking of fictitious/bogus expenditure; (ii) Suppression of sales; (iii) Unexplained cash expenditure; and (iv) Unexp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Private Limited find place to the extent of huge amount. 10. The CIT during survey also had found that many persons against whom expenses have been booked under the head removal of rejects and transportations charges of rejects during the financial years 2007 to 2009 have never been deployed and most of their names have not been heard by the assessee group. 11. The CIT also found that M/s.Merlin Tie Up (P) Limited, M/s.Mistrose Commerce (P) Limited, M/s.Mudra Vyapaar (P) Limited, M/s.Sun Suppliers (P) Limited and M/s.Upasana Vyapar (P) Limited were alleged to have rendered service for removal of rejects, but none of the company was formed and inducted as tenants in the said building at their respective address place. The CIT found that the assessee group has engaged M/s.Violet Commercial (P) Limited and M/s.Twinkle Vanijya (P) Limited, for the services rendered to the assessee group, the CIT found from the authorized signatory of such two companies that they have not rendered any service to the assessee group and they never deployed any machinery at Barbil, the place of mining sector of assessee group. 12. Similarly CIT has reported about the books expenditure claimed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not taken the investigation of the CIT/Department in correct manner, rather it has felt that the investigation, wherever it is shallow, does not help in coming to a right conclusion. In spite of the report of the CIT, the Commission has observed that without having made investigation worthwhile, when evidence were received during survey, notwithstanding the statement of parties which are evidences, being not supported by any documentary evidence or evidence at site, i.e, books of accounts or records of movement of applicants vehicle or those applicants agents etc. It is stated that when the statement of the parties are evidence, the observation of the Commission with regard to the examination of the documents or books of accounts may lead to inquiry, although the said power lies with the Commission who had opined in its order that the Department must have adequate material to support the contention and should have extensively examined with reference to contract documents and other documents, but all these observations of the Commission would lead to inquiry and the powers of conducting such inquiry only lies with the Commission during the settlement proceeding because Section 245D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n has arrived about total suppression of sales in the hands of opposite party no.2 at ₹ 333.09 crores, in the hands of M/s.KJS Ahluwalia at ₹ 49.44 crores, in the hands of opposite party no.4 at ₹ 19.95 crores totaling to ₹ 402.48 crores is totally unjustified and incorrect. However, it is stated that the Commission has not resolved the issue with regard to the transfer of the amount from the account of opposite party no.3, the assessee to the dummy account. 19. With regard to unexplained cash expenditure as submitted by CIT, the Commission estimated the gross profit of the assessee group at 47% as against 44% are disclosed by the assessee group in their settlement application, but this estimate of 47% is arbitrary and not acceptable being too low in comparison to other parties. If the Commission was not satisfied with the report of the CIT, it could have directed the CIT to investigate further as per the order of the Hon'ble Bombay High Court in the case of Major Metals Limited -V- Union of India; (2012) 19 TAXMANN 179 (Bom). Thus the Commission has not taken into account the income suppressed by the assessee as per the report of the CIT. 20. The order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee u/s 245C which is self-effacing, contradictory and devoid of logic; E. The Ld. ITSC has erred in granting immunity from prosecution and penalty when the assesses have not made a full and true disclosure of his income u/s 245H; F. The Ld. ITSC has erred in resorting to estimation of income, when the transactions coming forth from the books of accounts pertaining to the "bogus expenditures" are crystal clear that they are mere accommodation entries which should not be allowed, and at least an amount of ₹ 534.91 crores ought to have been disallowed. It is submitted that estimation of income has to be done on the basis of facts available on record, and not be merely a pure guess work, on the pretext that Department has not made proper investigation; G. The ITSC has failed in its duty to investigate the claim of the assessee or to direct investigation u/s 245D(3) by the Commissioner of Income Tax and has merely avoided its responsibility by observing that the Department has not examined the matter, without realizing that the AO/CIT could not make such enquiries once an application is filed before the ITSC; H. The Ld. ITSC has grossly erred by making further addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 245D of the Act. The writ petition was filed on 20.1.2015 although the Commission has passed the order on 28.3.2013 and in the meantime, as per the order of the Commissioner, the Deputy Commissioner of Income Tax, Rourkela Circle, has made assessment and raised the respective demand under Section 245D(4) of the Act against the opposite parties 2 to 6 and opposite parties 2 to 6 have already paid such tax and penalty demanded as per the assessment orders. It is stated that when the order the Commissioner reached its finality, there is no scope for filing this writ petition and as such, the present writ petition is devoid of any merit. SUBMISSION 23. Mr.S.K.Acharya, learned Senior Standing Counsel for the Income Tax Department submitted that the assessee have failed to fulfill the jurisdictional requirements which are indispensable preconditions for settlement of the application and accordingly he took us to the application of the assessee where according to him no full and true disclosure income was mentioned properly. If there is no full and true disclosure of the income, the pre-conditions of exercising powers under Section 245C will not be made available. He submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash expenditure and unexplained cash found as reported under Rule-9 by the CIT are concerned and reiterate that without considering such report, the Commission has passed the order which is detrimental to the interest of the Department. According to him the Commission has not given any opportunity to the petitioner to rebut the income disclosed by the opposite parties 2 to 6. Had there been consideration of the report of the CIT prepared under Rule-9 explaining about all above four issues, the order of the Commission could have come otherwise. In support of his contention, he relied upon the decision of the Madras High Court rendered in the case of Canara Bank Jewellers -V- Settlement Commission; 315 ITR 328 (Madras) wherein it has been held that the Commission has no jurisdiction to pass an order enhancing the income of the assessee and in the instant case, the Commission, without having jurisdictional requirements fulfilled by the assessee, added the income by ignoring the procedure. Unless the requirements of the SubSection 1 of Section 245C of the Act are fulfilled, the Commission has no jurisdiction to go ahead with the proceedings under Section 245C and this has been also r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there is no time limit for filing writ petition. According to him, the same view has been taken in the case of State of Karnataka -V- Y.Moideenkunhi (2009) 13 SCC 192. He also submitted that in the decision of BS Sheshagiri Shetty -V- State of Karnataka; (2015) 10 SCALE 763, the Hon'ble Supreme Court have held that substantive rights of the appellants should not be allowed to be defeated on technical grounds by taking hyper technical view of self-imposed limitations. 28. Mr.Acharya highlighted that when the Commission has no jurisdiction for passing the present impugned order, it should be quashed for the interest of substantial justice. To challenge the counter affidavit of the opposite parties, he submitted that the submission of the opposite parties that the assessment has been completed in view of the order of settlement commission is not correct because they are not assessment but only follow up action, that does not mean that the order of the Commission attains its finality. It is, therefore, prayed by Mr.Acharya to quash the impugned order of the Commission by giving finding the same as void one. 29. Countering the arguments of the learned Senior Advocate for the oppos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l authority, the High Court should interfere under the writ jurisdiction to quash the same. It is also submitted that in S.P. Chengalvaraya Naidu - V- Jagannath, AIR 1994 SC 853, it has been held that Section 44 of the Evidence Act attracted whereas the previous decision is obtained by fraud and, therefore, the Court has got right to adjudicate the matter. He also relied on the decisions in the case of Lazarus Estates Limited -V- Beasley; (1956) 1 QB 702, Rex -V- Recorder of Leicester; 1947 (1) KB 726; Bahadur Dagdu Paralkar -V- State of Maharashtra, AIR 2005 SC 3330, Ram Preeti Yadav -V- U.P.Board of High School & Intermediate Education, AIR 2003 SC 4268 and Beli Ram & Brothers -V- Chaudhri Mohammad Afzal, AIR 1948 PC 168. It is essentially stated that if there is decision obtained by fraud or collusion that will not stand on the way to adjudicate the matter because the fraud is anathema to all equitable principles and any affair tainted with fraud cannot be perpetuated or saved by the application of any equitable doctrine including res judicata. It is, therefore, submitted that when there is decision of Commission obtained by fraud or misrepresentation of facts by the opposite pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready paid the required taxes. On the other hand, he submitted that there is unreasonable delay in filing the writ petition and as such the delay cannot be condoned. Since the delay has not been explained properly with no sufficient grounds, the writ petition should also be dismissed being not maintainable. 33. It is also stated in the counter affidavit that the grounds taken by the petitioner in the writ petition have been already covered by the Commission in its order. As per Section 245I of the Act, the order of the Commission passed under subSection 4 of Section 245D shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwsie provided in this Chapter, be reopened in any proceeding under the Act or under any other law for the time being in force. When the order of the Commission has been accepted by the opposite parties 2 to 6, there is no reason as to challenge the assessment order passed under Section 245D of the Act by the Commission. The writ petition has been filed essentially to review the order passed by the Commission which is not permissible under Section 245I of the Act. The petitioner, without invoking the scope o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmer Chief Justice of India who was intrusted with the task of considering indepth and comprehensively the problem pertaining to the amendment of the provision of the Income-tax Act, and that the said Commission has already made an exhaustive report in that behalf. 39. In Chapter-2, on the title "Black money and tax evasion", the committee recommended about the settlement machinery at Paragraph-32 to 34 which is quoted hereunder: "Settlement machinery 2.32. This, however, does not mean that the door for compromise with an errant taxpayer should for ever remain closed. In the administration of fiscal laws, whose primary objective is to raise revenue, there has to be room for compromise and settlement. A rigid attitude would not only inhibit a one-time tax-evader or an unintending defaulter from making a clear breast of his affairs, but would also unnecessarily strain the investigational resources of the Department in cases of doubtful benefit to revenue, while needlessly proliferating litigation and holding up collections. We would, therefore, suggest that there should be a provision in the law for a settlement with the taxpayer at any stage of the proceedings. In the United K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision after hearing both the assessee and the Department. The Tribunal should be vested with full powers as regards discovery and inspection, enforcing the attendance of any person, compelling production of books of account or any other documents and issuing commissions. It should also have the power to investigate cases by itself or, in the alternative, to have investigation carried out on any specific point or generally, in any case through the Incometax Department. The terms of the award will be set down in writing and it will be open to the Tribunal to determine not only the amount of tax, penalty or interest but also to fix date or dates of payment. The quantum of penalty and interest will be in the discretion of the Tribunal. Similarly, the Tribunal may also in its discretion grant immunity from criminal prosecution in suitable cases. The award will be binding both on the petitioner and on the Department. The application of its decisions on questions of law will, however be confined to the case under settlement and will not in any way interfere with the interpretation of law in general. No appeal will lie against the decision of the Tribunal by the petitioner of the Depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition filed by the tax borrower, if the Department raise no objection so being entrusted. Besides the Committee has recommended that only person of high integrity and sense of justice and fairness should be the members of the Tribunal. Accordingly, Section 245B onwards till Section 245L have been included in the textbook. 44. In the instant case, it is relevant to quote Section 245C of the Act, which is as under: "245C. Application for settlement of cases An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the [Assessing] Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided : [Provided that no such application shall be made unless,- Xx xx xx xx (1A) For the purposes of sub-section (1) of this section, the additional amount of income-tax payable in res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pplication to the Commission containing full and true disclosure of his income which has not been disclosed before the Assessing Officer the manner in which such income has been derived or additional amount of income tax payable on such income. Not only this, but also according to Sub-section 4 of Section 245C of the Act, the assessee, on the date he makes an application under Subsection 1 would intimate the Assessing Officer in a prescribed manner which is prescribed in Rule-44C(1) and the same is to be made under in Form No.34B. 46. It is profitable to quote sub-sections-2 to 4A of Section 245D of the Act which is reproduced below: "245D. Procedure on receipt of an application under section 245C Xx xx xx xx (2) A copy of every order under sub-section (1) shall be sent to the applicant and to the Commissioner. (2A) Where an application was made under section 245C before the 1st day of June, 2007, but an order under the provisions of sub-section (1) of this section, as they stood immediately before their amendment by the Finance Act, 2007, has not been made before the 1st day of June, 2007, such application shall be deemed to have been allowed to be proceeded with if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, is, notwithstanding any extension of time already granted by the Settlement Commission, paid on or before the 31st day of July, 2007.] (3)The Settlement Commission, in respect of- (i) an application which has not been declared invalid under sub-section (2C); or (ii) an application referred to in sub-section (2D) which has been allowed to be further proceeded with under that subsection, may call for the records from the Commissioner and after examination of such records, if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the Commissioner to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case, and the Commissioner shall furnish the report within a period of ninety days of the receipt of communication from the Settlement Commission: Provided that where the Commissioner does not furnish the report within the aforesaid period, the Settlement Commission may proceed to pass an order under sub-section (4) without such report. (4) After examination of the records and the repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant and the Commissioner to be heard through their representative and also receive evidence after which the order will be passed under Sub-section 4. 49. Keeping in mind all these provisions, it is found from Annexure-4 that vide communication dated 26.9.2011 the Commission has passed the order to proceed with the matter as per Section 245D(1) of the Act. From the records, it appears that the Commission has submitted its report under Section 245D(1) revealing about the income disclosed and additional income. With regard to the income disclosed of different assessment years of respective individual and the firm, the Commission has considered the same. It also appears that the Commission has considered the report prepared under Rule-9 by the CIT at various paragraphs in its report. In this regard, the details of the points raised before us have been also raised before the Commission. After going through all these reports, as discussed in the above paragraphs and points raised by the applicant, the Commission gave the following findings: "36.10 We are not convinced by the use of words bogus or fictitious payments towards transportation of rejects. The words 'bogus' and fictitious a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and for how much period? In case, the CIT/Department was of the opinion that there was shamness in the above said transactions of the rejects, the scope of enquiry/investigation must have widened enough so as to prove beyond doubt and hence to come to an inference of payments as bogus/fictitious. 36.12 Once the Department enquiry is found to be lacking on many aspects or is limited to a recording of evidence in the form of statements pointing to allegedly not carrying on any such service so as to entitle the payment of 'transportation of rejects', it would at best lead to a conclusion of inflation of expenses and call for rejection of books and hence appropriate disallowance of the claim of the applicant in respect of transportation of rejects. 37. As to the routing of the money 'paid/claimed' as aforesaid as share application money of sister/associate concerns, we must say, this does constitute evidence and leads to above said conclusion of books being unreliable and fit for rejection." 50. After considering the report of the Principal Commissioner or the Commissioner and their arguments in the above manner, the Commission has made the terms of settlement on different a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal 2,39,59,28,507 12,70,00,000 33,23,00,000 2,85,52,28,507 *Income returned u/s 139(1) (I) M/s.Kaypee Enterprises (Firm) Assessment Years Income returned u/s 153A Additional amount disclosed (in Rs.) Additions made by the Bench. (Rs.) Total (Rs.) 2004-05 2,92,65,330 50,00,000 -- 3,42,65,330 2005-06 3,74,37,669 50,00,000 -- 4,24,37,669 2006-07 16,57,35,877 50,00,000 -- 17,07,35,877 2007-08 30,34,10,000 50,00,000 65,00,000 31,49,10,000 Total 53,58,48,876 2,00,00,000 65,00,000 56,23,48,876 CHARGE/WAIVER OF INTEREST: Prayer for waiver of interest is not accepted and the same will be charged as per Income Tax law. While calculating the interest, the Assessing Officer will keep in view the decision of the Hon'ble Supreme Court in Civil Appeal No.516-527 of 2004 dated 21.10.2010 in the case of Brij Lal & Ors. Vs. CIT, Jalandhar (ITR 328 pg.477) and shall charge the interest u/s 234A, 234B and 234C only till the stage/date of order under section 245D(1). Applicants request for not charging of interest u/s 234B and 234C in respect of above tax liabilities covered by the amount of seized cash, for which adjustment of tax sought by the applicants. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cant immunity from prosecution and penalty. Such immunity can, however, be withdrawn later under certain circumstances. The order of settlement will be final. There will be a bar on subsequent applications for settlement by a person if an order of settlement provides for imposition of penalty for concealment of income or if the person has, after the order of settlement, been convicted of any offence under Chapter XXII of the Act in relation to that case." 53. With due respect to the above decision, we are of the view that the Commission has got the power to compute the aggregate income of the assessee by adding the additional income to determine the liability of the assessee towards tax, penalty and interest and also the Commission under Section 245F(I) of the Act has all the powers vested in the Income Tax Authority under the Act. 54. So the allegation of the petitioner that the Commissioner made additional income of approximately ₹ 110 crores added finding thereby that there is no true and full disclosure income is untenable because the Commission has got not only power to decide the lis before them but also to find out if at all any income left out or could not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such tax or has allowed payment thereof by instalments, the assessee shall be liable to pay simple interest at 12[one and one-fourth per cent for every month or part of a month] on the amount remaining unpaid from the date of expiry of the period of thirty-five days aforesaid. (6B) The Settlement Commission may, at any time within a period of six months from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it under sub-section (4): Provided that an amendment which has the effect of modifying the liability of the applicant shall not be made under this sub-section unless the Settlement Commission has given notice to the applicant and the Commissioner of its intention to do so and has allowed the applicant and the Commissioner an opportunity of being heard. Xx xx xx xx" 59. With regard to said provisions, it is clear that where there is a term of settlement including demand by way of tax, penalty or interest and such payment has been made, but subsequently found by the Settlement Commission that it has been obtained by fraud and misrepresentation, the Commission has power to declare the said settlement as voi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have been revived from the stage at which the application was allowed to be proceeded with by the Settlement Commission and the income-tax authority concerned, may, notwithstanding anything contained in any other provision of this Act, complete such proceedings at any time before the expiry of two years from the end of the financial year in which the settlement became void." 63. From the aforesaid provisions, it is clear that where the settlement is found to be void as per sub-section 6 of the Act, all the proceedings would be heard de novo and the Commission has to complete the proceedings within a period of two years from the date of the final order in which the settlement became void. In the instant case, when the tax under Sub-section-6A of the Act has been paid by the assessee as per the demand by the Assessing Officer in consequence of the order of the Commission, it appears that the Commission has not found the order void obtained by fraud or misrepresentation. By reading the provision of Sub-section 6, 6A, 6B and 7, we are of the view that the Commission has got statutory power to implement, vary, modify and rectify its own order. So the Settlement Commission is self- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he matter relating to true and full disclosure of the income by the opposite parties 2 to 6 and also there being no order of the Settlement Commission to find the settlement as void or finding any mistake to rectify the impugned order, it must be held that the impugned order has reached its finality. Issue no.1 is answered accordingly. ISSUE NO.2 66. In the aforesaid paragraphs, it has already been observed that the impugned order of the Commission has reached its finality because of the compliance of the provisions enshrined in Sections 245C read with Section 245D of the Act. The rule of natural justice can be agitated in a writ jurisdiction but since we have already observed that appropriate opportunity of hearing has been afforded to the Department to make the report and the same has been considered. In the impugned order, there lies no ground to agitate that rule of natural justice has not been followed in this case. Moreover in view of the Judgment of R.B.Shreeram Durga Prasad (supra), the writ jurisdiction is being only limited to decide the manner of procedure of being followed by the Commission but not the decision thereto. We, therefore, are of the considered view that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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