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TMI Blog2017 (7) TMI 537X X X X Extracts X X X X X X X X Extracts X X X X ..... of manufacturing jarikasab commenced from acquisition of jumbo rolls of metalized lacquered polyester film. Such raw material undergo processes which can be broadly classified into three categories before the final product of jarikasab would come into existence. The entire process was one integrated manufacturing process. By no stretch of imagination a single integrated manufacturing process can be sub-divided or bifurcated into different parts for ascertaining whether at a particular stage a new article or thing had come into existence through manufacturing process. The approach of the Settlement Commission was wholly erroneous. When a single integrated manufacturing activity is shown to bring into existence entirely new and a distinct mercantile product through the human and mechanical intervention, it was simply not open for the Settlement Commission to segregate a portion of such manufacturing process to hold that since no new marketable product came into existence, such process did not amount to manufacturing. Even within the narrow confines of our judicial review, in the order of Settlement Commission on this issue, we must intercept. This issue is therefore decided in favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent years 2003-04 to 2008-09. In response to such notices, instead of filing return, the assessee chose to approach the Settlement Commission by filing application on 26.11.2010 seeking settlement of all assessments for the assessment years 2003-04 to 2009-10. 4. After crossing various stages envisaged in Chapter XIX-A of the Act pertaining to settlement of cases, the Settlement Commission proceeded to pass final order dated 29.03.2012 in terms of section 245D (4) of the Act and took up various contentious issues. The petitioner has challenged the said order to the extent it is aggrieved. 5. The petitioner has three distinct grievances. We will address these three issues separately. For the present, we may briefly refer to them. Issue No. 1: This pertains to the additions made by the Settlement Commission for its manufacturing units situated at Kim (Surat) referred to as unit Kim-1 for the assessment years 2003-04 to 2006-07. According to the assessee, these additions were made without there being any corresponding material being found during the search. Issue No.2 : This issue pertains to disallowance of ₹ 34.24 lacs (rounded off) in respect of the assessee&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d would be 72% of the accounted production. 8. On the basis of the comparisons between B1-13 to B1-16 registers and B1-19 register with the excise registers for the corresponding periods, the Assessing Officer worked out the data of accounted as well as unaccounted production and estimated the value of such unaccounted production by adopting cost of ₹ 150/- per kg of the material. These figures he summarized as under: Financial year Actual Production as per B1-19 and CSR (kg) (A) Accounted Production As per Excise (kg) (B) Difference Unaccounted Production (kg) (A-B)=C % of unacco unted producti on to account ed producti on (C -B)=D Value of unaccounted production @ ₹ 150 per kg (Rs) (E) 2006-07 (May 2006- May 2007) 21,42,600 6,66,039 14,76,551 221.00 % 22,14,84,150 2007-08 (Apr 2007- Mar 2008) 22,37,400 11,05,250 11,32,149 102.00 % 16,98,22,492.50 2008-09 (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a more conservative figure of 40% for the assessment years 2007-08 to 2009-10. The Settlement Commission projected these figures only for the assessee's manufacturing unit at Kim-1 on the ground that the said B1-19 register contained data only for the said unit. In other words, the Settlement Commission did not make any additions for the assessee's Kim-2 unit on the basis of such data. We may further, for the sake of clarity, record that the Settlement Commission made small addition of ₹ 30 lacs in case of Kim-2 unit on other issues which are not before us. 12. With respect to the assessment years 2003-04 to 2006-07, the Settlement Commission did notice assessee's contention that for the said period, no incriminating material was found during the search and that therefore, no additions can be made for the said period by extrapolation. The Settlement Commission, however, referred to the decision of the Supreme Court in case of Commissioner of Sales Tax, Madhya Pradesh vs. H.M.Esufali H M. Abdulali , reported in 90 ITR 271 and considering the facts and circumstances of the case, adopted a ratio of 35%, 25% 25% and Nil of the unaccounted production over acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also placed on the decision of Delhi High Court in case of Commissioner of Income Tax vs. Chetan Das Lachman Das reported in [2012] 25 Taxmann.com 227 . 16.The entire controversy on this issue is limited to the additions made by the Settlement Commission under the head of 'unaccounted production' for the assessment years 2003-04 to 2005-06 [though technically assessment year 2006-07 would also fall in this category, the same is not referred since the addition is Nil] for the assessee's manufacturing unit at Kim-1. Upon perusal of the order of the Settlement Commission, we gather that against the actual data of unaccounted production recorded in B1-19 register as compared to the excise register for the relevant period, the unaccounted production came to 69.67% of the accounted production. The Settlement Commission also noted that number of employees found during the search is far in excess of those shown in the books of accounts of the company. Further, that the unaccounted production was admitted in the statements of the employees. Yet another significant aspect of the matter is that as per the statements of the employees, the registers for the earlier periods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registers relating to the manufacturing unit of the company which were found, established unaccounted production, admission by the employees that the company was engaging in such unaccounted production, the number of employees at the time of search being found far in excess of what was recorded in the books of accounts and the statement of the employees that the registers for the earlier periods were destroyed under the instructions of the management. Based on such facts, if the Commission made a projection of the available figure of unaccounted production over the entire period by adopting what can, at best, be stated as a conservative figure and by recording proper reasons, it would not be possible for us to interfere with such ultimate conclusion of the Settlement Commission. 20. In case of Fatechand Nursing Das vs. Settlement Commission (IT And WT) and anr reported in 176 ITR 169 the Supreme Court observed that in exercise of power of judicial review of the decision of the Settlement Commission, the Court is concerned with the legality of the procedure followed and not with the validity of the order. Judicial review is not concerned with the decision but with the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r.' 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 the said deeds is not correct, it would not be a ground for interference in these appeals, since a wrong interpretation of a deed of trust cannot be said to be a violation of the provisions of the Income Tax Act. it is equally clear that the interp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce. The entire process was one integrated manufacturing process. By no stretch of imagination a single integrated manufacturing process can be sub-divided or bifurcated into different parts for ascertaining whether at a particular stage a new article or thing had come into existence through manufacturing process. The approach of the Settlement Commission was wholly erroneous. When a single integrated manufacturing activity is shown to bring into existence entirely new and a distinct mercantile product through the human and mechanical intervention, it was simply not open for the Settlement Commission to segregate a portion of such manufacturing process to hold that since no new marketable product came into existence, such process did not amount to manufacturing. Even within the narrow confines of our judicial review, in the order of Settlement Commission on this issue, we must intercept. This issue is therefore decided in favour of the assessee. 26.The third and last issue pertains to the expenditure of ₹ 39.30 lacs towards higher studies expenses of the Directors of the company. Section 37 grants deduction of any expenditure expended wholly and exclusively incurred for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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