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TMI Blog2016 (11) TMI 1257X X X X Extracts X X X X X X X X Extracts X X X X ..... y fact that has been admitted by the respondents even in the counter affidavit is that the source of income of the petitioners is from the BCCL. This Court does not find any cogent material produced by the petitioners with regard to the manner in which the income has been derived and thus we see no reason to consider the conclusion of the Commission as suffering from any infirmity. For the aforesaid reasons we also do not find any substance in the submission of learned counsel for the petitioners that the Settlement Commission has shirked its responsibility by leaving it to the Assessing Officer to decide the issue on the same facts. Since the basic requirements of Section 245C have been found to have been not met by the Settlement Commission in view of the materials before it, there could have been no question of the Settlement Commission to have proceeded further in the matter except to reject the applications of the petitioners. - Civil Writ Jurisdiction Case No.21039 of 2014, Civil Writ Jurisdiction Case No. 20793 of 2014, Civil Writ Jurisdiction Case No. 21032 of 2014 - - - Dated:- 23-11-2016 - Ramesh Kumar Datta And Smt. Anjana Mishra, JJ. For the Petitioner s : M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department had adjusted ₹ 29,67,59,788/- ₹ 2,87,36,350/- and ₹ 53,27,597/- respectively as advance tax for the assessment year 2012-13. The petitioners also sought adjustment of ₹ 28,32,94,682/-, ₹ 2,52,80,605/- and ₹ 19,46,065/- respectively towards additional tax and interest payable as per the returns filed in response to notice under Section 153A for the assessment years 2006-07 to 2011-12 and against the remaining sum of ₹ 28,45,37,128/-, ₹ 2,84,16,893/- and ₹ 51,66,810/- respectively for assessment year 2012-13 as per the return filed under Section 139 of the Act. The three petitioners thereafter filed settlement applications under Section 245C (1) of the Income Tax Act, 1961 on 5.3.2013 with respect to assessment years 2006-07 to 2012-13 disclosing additional income of ₹ 1,89,85,266/-, ₹ 58,92,328/- and ₹ 52,45,901/- respectively and requested the additional tax of ₹ 57,54,326/-, ₹ 21,27,103 and ₹ 16,24,430/- and additional interest of ₹ 12,26,064/-, ₹ 6,96,970/- and ₹ 4,48,694/- respectively totaling to ₹ 69,80,390/-, ₹ 28,24,073/- and ₹ 20,73,10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipts disclosed in their settlement applications. After noting the same and relying upon a decision dated 10.11.2005 of the Delhi High Court in Central Excise Vs. True Woods Pvt. Ltd. Ors., the Commission held that the issue of disclosure being full and true will remain alive even during the course of 245D(4) proceedings and further under Section 245D(6), the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts and further noting that the assessee may be prosecuted for the offence and at the same time taxed upon the profits arising out of its commission and if at any stage, i.e., even under Section 245D(4), it appeared that the applicants had not made full and true disclosure, the proceedings may not determine under Section 245D(4). In the circumstances, the settlement applications filed by the applicants were held as not invalid by the order dated 20.5.2013 passed under Section 245D(2C) of the Act and the issue of disclosure under Section 245D(4) remained alive. Thereafter a report under Rule 9 of the Income Tax Settlement Commission Rules, 1997 was submitted by the CIT on 2/6.8.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er from this infirmity too. The C.I.T. has submitted that in any case, as there is misappropriation of funds, no expenditure was allowable. The learned A.R on the other hand submitted that the applicant had owned all the bank accounts, and utilized Tally‟ software to incorporate all banks deposits, transfers, withdrawals and capital expenditure to re- construct account. The expenditure had been claimed on the basis of internal vouchers. The Department‟s allegations were too general in nature, and on the one hand, it was stating that the Department was not in possession of any evidence of expenditure, while concluding that such expenditure was for illegal gratification. However, if the nature of receipts is illegal, the expenditure incurred‟ on the basis of internal vouchers would also be questionable. 35. Before concluding, in the proceedings some attempts have been made by both sides to reconcile receipts and entities belonging to applicants. The DIT (Inv. s) report is on record. The Commission had desired that the figures of turnover by the applicant group be reconciled for F. Yr. 2005-06 to F. Yr. 2011-12. The D.I.(Inv.) has reported that the report was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are handed back to the contractors/vendors for keeping with them. It is pertinent to note that Addl. General Manager does not have the authority to pass the bill. Prima facie the genuineness of so claimed bills appear to be doubtful. 2. It has been argued on behalf of the applicants that as and when amount will receive, same will be offered as an income in relevant assessment years. The similar argument was taken for liabilities shown by BCCL in their Books of Accounts. 3. As far as contingent liability is concerned, same is only part of notes of accounts of BCCL. Further, the A.R. has submitted that if any amount is received in future, same will be offered as an income in relevant assessment years. Regarding contingency bill, Shri Manoj Kumar Gupta has stated on 22.04.2014 that a committee has been constituted to find out the payability of the bills. 4. As far as difference in gross receipts for financial year 2006-07, 2007-08 and 2008-09 is concerned, the A.R. has submitted that the department has taken the figure on the basis of letter from BCCL which represented the figures of payments made by the BCCL to all contractors. Further, the amount actually received in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... F.Yr. 2005-06 in the case of Shri Lal Bahadur Singh and the gross profit and net profit rates exceeding 98% in the same F.Yr. i.e., 2010-11. In the case of Shri Bharat Singh, the receipts peak at ₹ 15 crore and odd in F.Yr. 2010-11. However, the gross profit percentage rate and the net profit percentage rate fluctuate because of unverifiable audit expenses in the form of labour charges claimed. In the case of Shri Kumbh Nath Singh too, the receipts peak to ₹ 24 crore in F.Yr. 2011-12 and the expenditure claimed in the form of labour expenses remains unverifiable. Needless to add, these figures do not include the disputed receipts referred to in para 35, sought to be included by the CIT in his report. ......... ........ Consequently, the year-wise accretion to net capital is similarly unrealistic, skewed and defies patterns of normal growth, without any exceptional reason. It is also noted by us that immediately after the dates on which the payments were received, the amounts had been withdrawn. Immediately thereafter, substantial round sums were invested in FDRs in the name of various family members. It has already noted by us in the earlier paras that althoug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould face the rigours of the law, including possible penalties and prosecutions as suggested in Justice Iyer‟s judgment. Under the circumstances, the applicant(s) do not meet the twin requirements of full and true disclosure and the manner in which such income is derived of Section 245C. 38. It may be added, that where these twin conditions are not met, the proceedings could be allowed to abate at any stage of the proceedings. The relevant extracts of the decision of the Delhi High Court in the case of Commissioner of Central Excise vs. True Woods Pvt. Ltd. are reproduced as under : It is true that the foundation for settlement is an application from the assessed in which the assesse must make a full and true disclosure as required under the provisions of section 245C of the Income Tax Act or Section 32E of the Central Excise Act, but it is equally true that the requirement of the full and true disclosure need not be examined and authoritatively determined at the threshold of any proceeding initiated before the Commission under Chapter - V. There may be case where it is possible for the Commission to require a finding that the disclosure made in the applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon the enquiry report of the CIT and that aspect of the matter had stood settled by the order under Section 245D(2C). It is urged that it was not open to the respondents to have argued regarding the source of income and manner in which it was derived as it is admitted in the counter affidavit that the receipts came from BCCL and the source is definite. Learned counsel also submits that it was not open to the Settlement Commission to rely upon the legality of the transactions as there is no allegation by BCCL of any misappropriation except a small amount, in comparison to the amount of settlement exceeding ₹ 200 crores, of ₹ 1.23 crore against two of the petitioners only and even after all these years there being no such enquiry regarding siphoning of the amount of ₹ 200 crores of the BCCL, the same is merely a conjecture of the Settlement Commission. It is urged by learned counsel that in any view of the matter so far as the illegality part of the transaction is concerned, criminal proceedings can be taken which has not been done except with respect to a petty amount of ₹ 1.23 crores and such issues are not at all relevant before the Settlement Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer to decide on the same facts. It is further submitted by learned counsel that the amendments made to the provisions of Chapter 19A of the Act from time to time, and specifically to Section 245D, relating to Settlement Commission clearly indicates a change in legislative thinking and enlargement of the scope of proceedings from time to time, the precondition for such proceedings being conferred only to the question of making a true and full disclosure and also disclosure of the manner of income before the Commission and the proceedings could be rejected only on the said ground and not with reference to any so called misrepresentation or criminality involved. In this regard learned counsel has sought to support the petitioners having made full and true disclosure by stating that the petitioners had reported their income on cash basis of payments made after deduction of income tax at source by the BCCL which came to ₹ 211.87 crores, whereas the impugned order takes into account bills which were either not accepted or rejected by the BCCL or not paid and thus there was no discrepancy in reporting of true and full particulars of the income by the petitioners. It is urg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in a petition under article 226. The provision for settlement would show that it is in the nature of statutory arbitration, to which a person may submit himself voluntarily. Therefore, it appears to us that the scope is much more restricted than the power of the Court to interfere within arbitration award. Regarding the jurisdiction of the civil court to deal with an arbitration award, the Supreme Court in the case of Coimbatore District Podu Thozillar Samgam v. Bala Subramania Foundry (sic) has stated thus: The Court was also entrusted with the power to modify or correct the award on the ground of imperfect form or clerical errors, or decision on questions not referred, which were severable from those referred. The Court had also power to remit the award then it had left some matters referred undetermined or when the award was indefinite, where the objection to the legality of the award was apparent on the face of the award. The Court might also set aside the award on the ground of corruption or misconduct of the arbitrator, or that a party had been guilty of fraudulent concealment or willful deception. But the Court could not interfere with the award if otherwise proper o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... doubted; if a settlement machinery is not provided for, the investigational machinery of the State would be under a considerable strain and in fact resources may be wasted in pursuing cases where success is doubtful - this again is not doubted; a rigid attitude would lead to needless litigation and will hold up collections - again not doubted. Taking all these factors into consideration, it was recommended that there should be a provision for settlement with a taxpayer. 23. Similarly, even the Supreme Court has made certain assumption in favour of the revenue and given a justification for having settlement machinery. In CIT v. Express Newspaper Ltd. (1994) 206 ITR 443 the Supreme Court noted that there may be certain cases that need to be given a quietus to, once and for all, and they should not be fought through the usual channels. For example, there may be cases that are complex or cases that may require a prolonged investigation or cases that may require a cumbersome investigation etc., and it is these kinds of cases that may be entertained by the Settlement Commission. 24. That the assumptions made by the Wanchoo Committee and the Supreme Court are valid even today a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d encourage officers with integrity and wide knowledge and experience to accept assignments on the Tribunal and so the status and emoluments of its members should be as of the members of the Central Board of Direct Taxes ( the CBDT‟). The Act requires that the members of the Settlement Commission must be persons of integrity and outstanding ability, having special knowledge of, and experience in, problems relating to direct taxes and business accounts‟. [Section 245B(3)]. In contrast, once the settlement application abates, the fate of the Petitioners will be in the hands of an Assessing Officer or a Commissioner of Income- tax (Appeals). Both these categories of officers are no doubt persons of integrity, but they certainly do not have the wide knowledge and experience that a member of the CBDT would have. The fate of the Petitioners would, therefore, be placed in the hands of far less experienced and knowledgeable persons, to their detriment and prejudice. This may not be objectionable, per se, but coupled with other factors, it would have an adverse impact on the Petitioners. Proceedings before the Settlement Commission are conducted by a Bench of independent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has made a provision for it, with power being vested for granting immunity in the Commissioner of Income-tax, through the insertion of section 273AA and Section 278AB in the Act. There is a fundamental distinction between a settlement under Chapter XIX-A of the Act and a regular assessment through adjudication under the provisions of the Act. As far as the Petitioners are concerned, this has considerable relevance to the way in which the problem is viewed and addressed by the appropriate authority. The Assessing Officer to whose jurisdiction the Petitioners are relegated on the abatement of the settlement application, is himself a litigant before the Settlement Commission having a right to oppose (and in many cases having opposed) admission of a settlement application. If the assessment of the Petitioners‟ income is to be made by someone who has opposed the case of the Petitioners, it is not possible or realistic for them to expect to get fair or even handed treatment from such an Assessing Officer. The petitioners ask: how can a litigant expect a fair adjudication from a party opposing its case? In addition to the above, even if a Petitioner succeeds before the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at were strictly within the domain of the Settlement Commission prior to the Finance Act, 2007 can now be used against the Petitioners for all purposes including for assessment proceedings, penalty proceedings and for prosecution purposes also. This appears to us to be clearly arbitrary. 55. In our opinion, the learned Additional Solicitor General has overlooked that the confidential information was and continues to remain within the exclusive domain of the Settlement Commission during the pendency of the settlement application in the Settlement Commission, even after it is disclosed to the Commissioner. Whatever information is disclosed by the Petitioners before the Settlement Commission can be used and will be used only by persons of integrity and experience and exclusively for the purpose of settling the dispute raised by the Petitioners before the Settlement Commission. The confidential information cannot be used for any purpose other than for the settlement of application filed under section 245C(1) of the Act. The procedure having been set into motion by the Petitioners by filing settlement application under section 245C of the Act, they are precluded from withdrawing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 11.98 crores relating to the petitioners for the financial year 2011-12 as per the auditor report for the year ending 31.3.2012 of the area show liability towards the petitioners to the extent of ₹ 11,98,70,828/-. Further bills raised by the petitioners amounting to ₹ 13.23 crores were to be treated as contingent liability as per the said audit report for the financial years 2010-11 and 2011-12. Reference was also made therein to correspondences of the petitioners during October-November, 2013 requesting the Area Finance Manager, PB Area with which Kustore Area was merged to release payments for a number of bills totaling to ₹ 118.78 crores. On the basis of the aforesaid fact it is stated that the total turn over for the years 2009-10, 2010-11 and 2011-12 would itself come to approximately ₹ 309/- crores for the three petitioners and the turn over for the entire period at ₹ 478.89 crores which was much higher than that disclosed by the petitioners in their applications. Reference is also made to the fact that when the assessees were issued letter to produce the books of accounts, bills, vouchers and receipts for claiming different expenses, they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... go to show that the manner in which the income has been derived has also not been fully and truly disclosed before the Commission. Learned counsel further submits that at least two of the petitioners including the main petitioner Lal Bahadur Singh are accused in the FIR lodged under Sections 319,380,468, 471 and 120B of the Indian Penal Code and Sections 3(2) of the Prevention of Corruption Act which is under investigation by the CBI. It is also submitted by learned counsel for the respondents that the order under Section 245D (2C) itself made it clear that the question of full and true disclosure would remain open till the stage of 245D(4) and thus it cannot be said that there was any finality to what was decided at that stage and in view of the further facts which came on the record on the basis of the report dated 15.5.2014 of the jurisdictional CIT, it was evident that there has not been full and true disclosure by the petitioners and therefore, it cannot be argued by the petitioners that there was no fresh material before the Settlement Commission to take a different view in the matter. In support of her stand learned counsel relies upon a decision of the Supreme Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the complexities of the investigation, as the annexure filed in support of the disclosure of undisclosed income against item No. 11 of the form and the manner in which such income had been derived are treated as confidential and are not supplied to the CIT. It is only after the Settlement Commission has decided to proceed with the application that a copy of the annexure to the said application and other statements and documents accompanying such annexure, containing the aforesaid information are required to be furnished to the CIT. In our opinion even when the Settlement Commission decided to proceed with the application, it will not be denuded of its power to examine as to whether in his application under s. 245C(1) of the Act, the assessee has made a full and true disclosure of his undisclosed income. We feel that the report(s) of the CIT and other documents coming on record at different stages of the consideration of the case, before or after the Settlement Commission has decided to proceed with the application would be most germane to determination of the said question. It is plain from the language of sub-s.(4) of s. 245D of the Act that the jurisdiction of the Settlement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... June, 2007 has conferred power on the Commission to treat the application as invalid . The expression invalid has not been defined under the Act and would therefore, require consideration. It is submitted that the Commission at the prima facie stage could not have held the application as invalid considering that the Petitioners have complied with the other requirements. The expression invalid , it is pointed out, is used in Article 255 of the Constitution of India. Section 245D(2C) reads as under: 245D(2C). Where a report of the Commissioner called for under Sub-section (2B) has been furnished within the period specified therein, the Settlement Commission may, on the basis of the report and within a period of fifteen days of the receipt of the report, by an order in writing, declare the application in question as invalid, and shall send the copy of such order to the applicant and the Commissioner. Provided that an application shall not be declared invalid unless an opportunity has been given to the applicant of being heard: Provided further that where the Commissioner has not furnished the report within the aforesaid period, the Settlement Commission shall proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even prima facie that there was no true and full disclosure it has then the right to declare the application as invalid. Read in this context there is power conferred on the Commission based on the material before it, to form an opinion if the party has concealed facts and/or not made true disclosure during a search operation. Reliance was placed on the Judgment in Centurion Bank of Punjab Ltd. v. Income-tax Settlement Commission and Ors. . The learned Bench of this Court on the facts held that mere statement that there was no full and true disclosure is not sufficient. The learned Bench noted that the Commission proceeded on an erroneous assumption that the Commission can entertain the application only if the complexities of the investigations are involved and that a fair reading of Section 245D(1) indicate that there are three circumstances which ought to be considered. This judgment had come up for consideration in Haji N. Abdulla v. Income Tax Settlement Commission and Ors. Writ Petition No. 1427 of 2007 decided on 8th October, 2007. Both these judgments were considering application which were made and disposed off before the Finance Act, 2007 w.e.f. 1st June, 2007. What h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his case. In our opinion the order of the Settlement Commission cannot be said to have suffered from either want of jurisdiction, excess of jurisdiction or disclosing an error of law apparent on the face of the record. The contention, therefore, urged on that count has to be rejected. Further reliance is placed by learned counsel upon a decision of the Bombay High Court in the case of Commissioner of Income Tax (Central) Vs. Income Tax Settlement Commission (ITSC) 361 ITR 68 (Bom) = 267 CTR 7, paras 19 and 20 of which is quoted below:- 19. The judgment of the Supreme Court in Ajmera Housing Corporation is a clear authority for the principle that in order to constitute a valid application under Section 245C(1), there must be a full and true disclosure of income which has not been disclosed and of the manner in which it has been derived besides a computation of the income tax payable on such undisclosed income. It is only upon the satisfaction of the Commission that the application meets the prerequisites of a valid application that the Commission shall have the jurisdiction to proceed. The Commission is bound to determine in the course of its proceedings under sub-section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y that there is either a suppression of full and true material facts, a misstatement or failure on the part of the assessee to make a full and candid disclosure. The existence of such a power at a subsequent stage cannot obviate the discharge of a statutory duty to determine whether the jurisdictional requirements are fulfilled, once a report is received under sub-section 2C of Section 245D. The Commission has to consider as to whether or not the application is invalid. Learned counsel also relies upon a decision of the Supreme Court in the case of Jyotendrasinhji Vs. S.I. Tripathi Ors.: 201 ITR 611 = (1993) 111 CTR 370, in para 14 of which it has been held as follows: 14. It is true that the finality clause contained in Section 245-I does not and cannot bar the jurisdiction of the High Court under Article 226 or the jurisdiction of this court under Article 32 or under Article 136, as the case may be. But that does not mean that the jurisdiction of this Court in the appeal preferred directly in this court is any different than what it would be if the assessee had first approached the High Court under Article 226 and then come up in appeal to this court under Article 13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J., speaking for the Bench comprising himself and S.R. Pandian, J. observed that in such a case this Court is concerned with the legality of procedure followed and not with the validity of the order.' The learned Judge added 'judicial review is concerned not with the decision but with the decision-making process. Reliance was placed upon the decision of the House of Lords in Chief Constable of the N.W. Police v. Evans, [1982] 1 W.L.R.1155. Thus, the appellate power under Article 136 was equated to power of judicial review, where the appeal is directed against the orders' of the Settlement Commission. For all the above reasons, we are of the opinion that the only ground upon which this Court can interfere in these appeals is that order of the Commission is contrary to the provisions of the Act and that such contravention has prejudiced the appellant. The main controversy in these appeals relates to the interpretation of the settlement deeds though it is true, some contentions of law are also raised. The commission has interpreted the trust deeds in a particular manner, Even if the interpretation placed by the Commission on the said deeds is not correct, it would not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons given and the decision taken by the Settlement Commission and further the writ Court cannot interfere either with an error of fact or error of law alleged to have been committed by the Settlement Commission. It is evident that the matter cannot be argued as though it is an appeal from the decision of the Settlement Commission, as it has been repeatedly held that judicial review is of the decision making process and not of the decision itself. It is true in the present matter that in the order under Section 245D(1) it was concluded by the Settlement Commission that the petitioners had complied with the requirements of the conditions as prescribed under Section 245C(1) and thus the application would be allowed to be proceeded with under the said sub-section but it must be remembered that the stage under Section 245D(1) is a preliminary stage when the department is not in the possession of anything except mere application filed by the petitioners excluding the annexures filed which are treated as confidential till that stage. Stricto sensu even at this stage it cannot really be said that the petitioners had complied with the third requirement of Section 245C, as the said ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be no occasion for the petitioners to have approached the Settlement Commission on the basis of a cash system of accounting. The same may itself lead to a situation of non-disclosure of the full and true income of the applicants and in the present matter has led to non-disclosure of a huge amount of the income of the applicants. This Court finds it difficult to accept the submission of learned counsel for the petitioners that the question of the system of accounting was to be considered at the final stage of determination of income and not at the stage when the application of the petitioners had been rejected on such grounds. Such contentions are not permissible as it is not a case where shifting from the mercantile system to cash system would not lead to any substantial difference in the ultimate income rather in the mercantile system of accounting the incomes would have to be shown on an accrual basis which has admittedly not been done by the petitioners. Thus, it was open to the Settlement Commission to have considered it as a failure to make full and true disclosure by the petitioners. Having arrived at the said conclusion it may not be necessary for us to deal with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even in the counter affidavit is that the source of income of the petitioners is from the BCCL. This Court does not find any cogent material produced by the petitioners with regard to the manner in which the income has been derived and thus we see no reason to consider the conclusion of the Commission as suffering from any infirmity. We do not find any substance in the submission of the learned counsel for the petitioners that the Settlement Commission must record categorical finding that the incomes were the proceeds of misappropriation. It is quite open to the Settlement Commission not to enter into any such arena for rejecting the application on account of non-compliance of the requirement with regard to the full disclosure. We also find no substance in the facts of the present case with regard to the argument regarding disclosure before the Settlement Commission being of confidential nature and if the settlement is rejected as in the present matter then all the documents and information made in good faith to the Settlement Commission shall be handed over to the adversary of the petitioner, namely, the Income Tax Department. As a matter of fact, in the present case the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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