HIGH COURT OF ORISSA
Commissioner of Income-tax, Sambalpur
v.
Income-tax Settlement Commission (IT & WT)
I. MAHANTY AND DR. D.P. CHOUDHURY, JJ.
W.P. (C) NO. 1199 OF 2015
AUGUST 31, 2016
S.K. Acharya, Sr. Standing Counsel (IT) for the Petitioner. Manas Mohapatra, Sr. Adv. for the Repondent.
ORDER
Dr. D.P. Choudhury, J. – In the captioned writ petition, the final – order 28.3.2013 passed by the learned Income Tax Settlement Commission (IT & WT), Additional Bench, Kolkata (hereinafter called as ‘the Commission’) under Section 245D(4) of the 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 Rs.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 liability for the assessment years 2004-05 to 2010-11.
3. The opposite parties 2 to 6, being the assessee while filed such application before the Commission, have admitted that income amounting to Rs.141.30 crores was not disclosed before the Assessing Officer under Section 153A of the Act relating to the above assessment years.
4. It is also stated that the opposite parties 2 to 6, for the assessment years 2004-05 to 2010-11, have got additional disclosed income of Rs.99.20 crores, 2.00 crores, 25.40 crores,12.70 crores and 2.00 crores respectively. After receipt of the application, the Commission directed the petitioner to submit the report under Section 245D(2B) and at the same time, the petitioner filed his report under Rule 9 of the Income Tax Settlement Commission (Procedure) Rules, 1997 (hereinafter called ‘the Rule’).
5. It is the case of the petitioner that the petitioner submitted his report under Rule-9 showing the additional income of the assessee group as Rs.834.40 crores in the following manner:
i. Shri Kamaljeet Singh Ahluwalia
Assessment Years
Particulars
Amount (In Rs.Cr.)
2008-09
Transportation charges of rejects
92.36
Port Handling Charges
4.19
Machinery Hire Charges
8.46
Suppression of Sales
151.35
Unaccounted cash Expenditure
0.34
Sub Total (A)
256.7
2009-10
Transportation charges of rejects
87.37
Suppression of Sales
151.90
Unaccounted cash Expenditure
0.96
Sub Total (B)
240.23
2010-11
Suppression of Sales Unexplained Cash Fund
0.40
Unexplained Cash Fund
0.40
Sub Total (C)
30.24
Grand Total (A+B+C)
527.17
ii. M/s.KJS Ahluwalia
Assessment Years
Particulars
Amount (In Rs.Cr.)
2007-08
Removal of rejects
28.53
Suppression of Sales
49.44
Grand Total
77.97
iii. Shri Pawan Kumar Ahluwalia
Assessment Years
Particulars
Amount (In Rs.Cr.)
2007-08
Removal of rejects
6.02
Suppression of Sales
5.59
Sub Total (A)
11.61
2008-09
Transportation charges of rejects
7.73
Suppression of Sales
4.18
Amount transferred to the dummy
12.27
Sub Total (B)
24.18
2009-10
Transportation charges of rejects
17.30
Suppression of Sales
5.98
Sub Total (C)
23.28
2010-11
Suppression of Sales (D)
4.20
Grand Total (A+B+C+D)
63.27
iv. Prashan Kumar Ahluwalia
Assessment Years
Particulars
Amount (In Rs.Cr.)
2008-09
Transportation charges of rejects
66.44
Machinery Hire Charges
3.78
Amount transferred to dummy accounts
4.78
Sub Total (A)
75.00
2009-10
Transportation charges of rejects (B)
63.00
2010-11
Unaccounted investment in immoveable property
1.50
Unaccounted cash found
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 Rs.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 assessee has understated their income on following categories:
“(i)
Booking of fictitious/bogus expenditure;
(ii)
Suppression of sales;
(iii)
Unexplained cash expenditure; and
(iv)
Unexplained cash found”
8. While explaining the booking of fictitious/bogus expenditure, it is stated that the assessee have booked fictitious expenditure under the head of transportation charges on rejects, removal of rejects, port handling charges and machinery hire charges in respect of Rs.192.38 crores in the case of opposite party no.2, Rs.28.53 crores in case of opposite party no.3, Rs.133.22 crores in case of opposite party no.4, Rs.31.05 crores in case of opposite party no.5 and Rs.22.25 crores in case of opposite party no.6. The CIT in its report has referred to survey conducted consequent to search at mine sites and statement recorded of different managers who clarified that nothing except statutory payment of Government over and above the contractual payment is borne by the mines owners and all other expenses relating to the entire mining process are incurred by the mining contractors. It is stated that M/s.Triveni Earth Movers (P) Limited at iron ore mines of opposite party no.3 at Guali in Keonjhar was engaged by later as mining contractor and said contractor, i.e., M/s.Triveni Earth Movers (P) Limited did all work including mining development, handling and dumping etc. till dispatching of the mining product under the supervision of the staff of opposite party no.3 and Government officials. Similarly, the CIT reported that M/s.AMR Construction Limited, Hyderabad and M/s.Indu Projects Private Limtied, Hyderabad have not rendered any service in either sector to the assessee group, they have issued cheques in favour of some Kolkata based parties on the promise made by the assessee group that they would give work orders for big amount in future.
9. The CIT also found when the vendors have not provided any service to assessee group, the payments were made to the alleged vendors through account payee cheques and tax has also been deducted thereby. It is also reported by the CIT to the Commission that opposite parties 2 to 6 have routed the money through share applications and by this, it is clear that bogus expenditure which was claimed by the assessee group in profit and loss account under the head transportation charges of rejects, machinery hire charges and port handling charges was passed on to the respective concerns whose names are figuring in the account. Names of M/s.AMR Constructions Private Limited and M/s.Indu Projects 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 assessee group as the Commission at Page-18 of its order has considered the determination of the total bogus expenditure in the hands of the assessee group at Rs.534.91 crores.
13. With regard to suppression of sales, the CIT has reported under Rule 9 that opposite parties 2 to 4 have systematically suppressed their sales year after year by under invoicing the sales. According to the CIT, Odisha Mining Corporation (OMC), a Public Sector Undertaking is also engaged in the same group as the assessee group is engage. But the OMC is following the tender process for sale of its products used whereby the highest bidder is entitled to buy the iron ore at the price tendered by it and, in the event, the requirement of the highest bidder is less than the quarterly production of OMC, the balance stock is sold to the next highest bidder, but only at the price quoted by the highest bidder. The demand of material of OMC is their because the price of OMC in iron ore market of Odisha is the lowest, but the assessee group sold their products at higher rate than the OMC even if their grade of course is +3 which is +63FE by suppressing the sales because the CIT found that the assessee have sold product to M/s.P.K.Ores Pvt. Limited and M/s.TTL Minerals Export Pvt. Limited at higher rate whereas they have sold the same product to M/s.Shree Metaliks Limited at lower rate by understating the rate and in most of the cases, it is understood that difference between the final price and recorded price has been received in cash. Thus, the CIT found the suppression of sales.
14. The CIT, in its report under Rule-9 has also found that there are transactions made by Pawan Kumar Ahluwalia, opposite party no.4, has opened bank accounts in Indusin Bank, Barbil Branch in the district of Keonjhar and has transferred to five dummy account holders of different amount of money altogether of Rs.12.27 crores. The CIT has also found unexplained cash expenditure by the assessee group in comparison to other companies, namely, M/s.Indrani Patnaik, M/s.Tarini Minerals Limited and M/s.Thakur Prasad Sao & Sons. Thus, the CIT has found lot of undisclosed income on the part of the assessee group on the grounds stated above.
15. It is stated that the Commission in its order has not considered the report of the CIT, Sambalpur with proper perspective. It is alleged inter alia that the Commission has 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(3) of the Act have ample conferred power upon the Commission to make necessary enquiries instead of estimating the income arbitrarily. On the other hand, the Commission has not exercised the powers as conferred under the provisions of the Act.
16. It is stated that when the Commission has observed that the books of accounts of assessee group are fit for rejection, should have invoked the provisions of Section 152 of the Act which relates to the method of accounting. It is alleged that no formal opportunity was given to the Department when the assessee filed the self serving affidavit before the Commission to retracted the statement of different witnesses examined by the Department. Had it been given, the persons could have stated before the Department about the statutory payment of Government over and above the contractual payment made by the mines owners.
17. It is stated that the Commission has not applied its mind while explaining the turnover of the assessee before calculating the gross profit. The Commission has adopted the turnover figures in case of opposite party no.2 for assessment years 2008-09, 2009-10 of Rs.448.47 crores and Rs.442.26 crores in its order at page 48 as against Rs.455.42 crores and Rs.482.13 crores admitted in the returns of income filed before the Assessing Officer which is reflected in the report of the CIT under Rule-9 at pages 21 to 24. Similarly discrepancy is found in the case of opposite party no.2 for assessment year 2007-08 where Rs.218.67 crores only was admitted as against Rs.222.55 crores admitted in the returns of income filed before the Assessing Officer which is reflected in the report of CIT under Rule-9. Thus, the order of the Commission suffers from gross illegality since it is not legally or factually possible to reduce the turn-over that has been admitted by the assessee in their returns.
18. It is stated that the Commission, in its order, has listed the outstanding balance under the head “sundry creditor for expenses”, but the Commission, while estimating the rate of gross profit, held that it would cover the investment in some Jaipur property of the assessees and creditors no longer payable and as such observation is not acceptable without any evidence produced by the assessee, the same has been arrived. With regard to suppression of sales as reported by the CIT, the Commission has arrived about total suppression of sales in the hands of opposite party no.2 at Rs.333.09 crores, in the hands of M/s.KJS Ahluwalia at Rs.49.44 crores, in the hands of opposite party no.4 at Rs.19.95 crores totaling to Rs.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 Ltd. v. Union of India [2012] 19 taxmann.com 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 the Commission is also erroneous as the mandatory provision of Section 245H(1) of the Act has not been complied when there is no full or true disclouser of the income of the assessee group. The Commission has also failed to quantify the undisclosed income on the basis of the report of the CIT as well as other materials brought before it. It is stated that when the applicants have made disclosure of the additional income of Rs.141.30 crores and the Commission made further addition of Rs.110.28 crores, it is clear that there was no full or true disclosure of the statement by the assessee for which the Commission should not have allowed the application of the assessee. The Commission has no power to proceed further to make additions in the actual income although it has the power of assessing under Section 147 of the Act. In this regard, the petitioner relies on the decision of the Hon’ble Madrass High Court in the case of G. Jayaraman v. Settlement Commission [2011] 196 Taxman 552. The petitioner has summed up the illegality in the impugned order in the following manner:
“A.
The order passed by the Ld. ITSC is without jurisdiction as the assessee had failed to comply with the statutory requirements u/s 245-C which stipulates that there must be “full and true disclosure” in the Settlement Applications by the Assessees for exercise of jurisdiction by the ITSC;
B.
It is submitted that the assessee must act with candor and the disclosure must be full and true. A full disclosure is a disclosure of all materials facts which does not contain any hidden material or suppression of facts. A true disclosure is a disclosure which is truthful in all respect. In the present case, the assesses in their Settlement Applications have furnished the admitted additional income on affidavit, but strangely, this admission itself is untrue and incomplete since the assesses have never mentioned anything about the sham transactions undertaken by them by way of the aforesaid accommodations entries in the pretext of transportation expenditure;
C.
The ITSC has not given adequate opportunity to the Department to rebut the claim of the assessee, in particular, the affidavits filed by the assessee from the witnesses retracting from the statements given earlier;
D.
The Ld. ITSC has made further addition of income while allowing the application of the assessee 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 Rs.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 of income by which it has sought to give legal sanctity to the income not disclosed by the assesses in their Settlement Applications;
I.
The Ld. ITSC has acted contrary to the settled position of law by not dismissing the application of the assessee when the disclosure made by the assessee was not full and true, and was fraught with patent misrepresentation of facts;
J.
The Ld. ITSC has erred in law and in facts by failing to get the case thoroughly investigated even after the companies to which the assesses/applicants have made payments have confessed that they rendered no services to the assessee group and that they have issued cheques in favour of Kolkata based companies which are mere accommodation entry operators;
K.
The Ld. ITSC has erred in law and in facts by not resolving the issues mentioned in para no.7 and para no.8 in spite of bringing the same to its notice by the Department;
L.
The Ld. ITSC has erred in law and in facts by failing to quantify the undisclosed income on the basis of the reports from the CIT as well as other materials/evidences brought before the Ld.ITSC;
M.
The Ld. ITSC has also erred in strangely reducing the turnover that has been disclosed by the assesses in their own returns; and
N.
The Ld. ITSC has never accorded its satisfaction that the assesses have been able to make full and true disclosure of income amounting to patent misrepresentation of facts in their Settlement Applications which should entail nullification, and in such view, the ITSC ought not have granted immunity to the assesses.”
21. It is stated that in view of the decision of Hon’ble Supreme Court in the case of Jyotendrasinji v. S.I. Tripathi [1993] 201 ITR 611 (SC), this Court has got power of review for which the writ petition under Articles 226 and 227 of the Constitution of India has been filed to make judicial review and quash the order of the Commission dated 28.3.2013 and remit the matter back to the Assessing Officer or after quashing the same, remand the matter to the Commission to conduct inquiries and/or direct the Department to conduct inquiry and submit the report to the Commission. Hence, the writ petition.
22. In the counter affidavit filed by the opposite parties 2 to 6, it has been stated that the present writ petition is not maintainable challenging the final order passed by the Income Tax Settlement Commissioner under Section 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 pre conditions for settlement of the application as per Section 245C are:
“I. There must be a full and true disclosure of the income which has not been disclosed before the Assessing Officer;
I.
The manner in which such income has been derived should also be disclosed; and
II.
The additional amount tax payable on such income should also be disclosed.”
24. The assessee in his application had disclosed the income of Rs.99.20 crores which were not disclosed before the Assessing Officer during the assessment years 2004-05 to 2010-11 and again has admitted that the additional income on estimate and this exercise may not be fully acceptable to the department and as such it is not a true and full disclosure of the undisclosed income.
25. Mr. Acharya further submitted that the form prescribed under Rule-44C and 44CA of the I.T.Rule in Part-C, item-3 of the application has not been properly filled up to prove the manner in which such income has been derived. The assessee, without disclosing the manner in which the income has been derived, has proceeded further and has come before the Commission which has the wide experience and wisdom in settling the tax disputes to intervene in the matter and determine and settle the correct income belonging to the assessee and its group to avoid further litigation. In this regard, he relied upon the decision of the Bombay High Court dated 13.6.2013 passed in W.P.(C) No.3900 of 2013 rendered in the case of CIT (Central) v. ITSC [2014] 365 ITR 68 (Bom.). While the petitioner has raised objection before the Commission about the validity of the application under Section 245C(1), the Commission has observed in the manner “we hold that this is not the stage to come to a specific conclusion on the adequacy of disclosure and the same can be considered at the time 245D(4) proceeding and, therefore, the Commission held that the application submitted by the assessee group as “not valid.” The Commission has no jurisdiction to entertain the application. Surprisingly ignoring the objection raised by the petitioner because when there is no foundation, the super structure cannot stand on it and, therefore, the order of the Commission is bad in law.
26. Mr. Acharya, learned Senior Standing Counsel for the Income Tax Department reiterate the pleadings made in the petition insofar as booking of fictitious/bogus expenditure, suppression of sales, unexplained 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 [2009] 315 ITR 328 (Mad.)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 Sub Section 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 reiterated in the decision of the Bombay High Court rendered in the case of ITSC case (supra). He submitted that the Hon’ble Supreme Court, in the case of Ajmera Housing Corpn. v. CIT [2010] 326 ITR 642 (SC), has held that when the Settlement Commission decides to proceed with the application, it will not be denuded of its power to examine as to whether the assessee has made a full and true disclosure of his undisclosed income. When the Commission has added Rs.110.28 crores in addition to the total disclosure of the income by the opposite parties 2 to 6 of Rs.141.30 crores, in view of the decision of the Hon’ble Supreme Court, the opposite parties 2 to 6 have not made full and true disclosure of their undisclosed income under Section 245C(1) to warrant the jurisdiction of the Commission.
27. Mr. Acharya further submitted that the Commission has committed error by not considering the undisclosed income of Rs.835.00 crores as found by the Department during the survey and as such delay in filing the writ petition will not stand on the way to make judicial review of the impugned order. He further submitted that the officer of the Income Tax Department, believing the present impugned order as conclusive, did not challenge the order of the Settlement Commission immediately. But after the lacunae in the Commission’s order were discovered, the same has been filed with delay challenging in this writ petition. He also submitted that CIT (DR) who appears before the Commissioner happens to be the only officer who is acquainted with the day to day affairs of the proceeding and he is the person who can know whether there has been full and true disclosure as per the provisions of Section 245C and he is competent to suggest the remedial measures in case there has been any violation of statutory provision or misrepresentation of facts. But due to his orders of transfer, new officer took time to get acquainted with the facts of the case for which the delay was caused for about one and half years to file the present writ petition. Since there is huge amount of revenue involved, the delay may be condoned and the writ petition may be allowed in view of the decision of the Hon’ble Supreme Court rendered in the case of State of U.P. v. Rai Bhadur Singh[1988] 8 SCC 685 wherein it has been held that 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. Maideenkunhi [2009] 13 SCC 192 . He also submitted that in the decision of B.S 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 opposite parties 2 to 6, Mr.Acharya submitted that the impugned order of the Commission has reached its finality in view of Section 245I of the Act is not correct. The opposite parties 2 to 6 relied upon the judgment of the Hon’ble Supreme Court in the case of Union of India v. Ind Swift Laboratories (2011) 4 SCC 635 and in the said judgment, it has been held that the order of Settlement Commission can be interfered with, if the order is found to be contrary to the provisions of the Act. So, the impugned order suffers from illegality because of non-compliance of the provisions of Section 245C(1) of the Act. He submitted that rather in the case of Ace Investment Ltd.v. CIT [2003] 264 ITR 571 (Mad.), Madras High Court has held that once the Settlement Commission found that the applicant has not made full and true disclosure, the application itself is non-maintainable for which the contention of the learned counsel for the petitioner has no merit. He further submitted that counter in the arguments of the learned Senior Advocate for the opposite parties 2 to 6 that three Judges Bench of the Hon’ble Supreme Court in the case of CIT v. Om Prakash Mittal [2005] 273 ITR 326/143 Taxman 373 (SC) have held where the order has been obtained by fraud or misrepresentation of facts, then the order of the Settlement Commission would be void. Relying upon such decision, he submitted that Section 245I although says that the order of settlement is conclusive but it does not take away the power of commission to decide whether the settlement order had been obtained by fraud or misrepresentation of facts. Relying on the decision of the Gujarat High Court in the case of Vishnubhai Mafatlal Patel v. Asstt. CIT [2013] 31 taxmann.com 99 (Guj.) , he submitted that when there is no manner of the income derived, the Settlement Commission should have held that the mandatory pre-conditions of settlement having not been fulfilled, the Commission cannot entertain such application.
30. Mr. Acharya relied on the decision of Haryana High Court in the case of State of Haryana v. Chandra Mani AIR 1996 SC 1623 and submitted that the considerable delay of procedural red tape in the process of their making decision is a common feature and, therefore, certain amount of latitude is permissible. It is, therefore, submitted that where there is fraud or misrepresentation on the quasi judicial 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 Ltd. v. Beasley [1956] 1 QB 702, Rex v. Recorder of Leicester 1947 (1) KB 726; Bhadur Dagdu Paralkar v. State of Maharashtra AIR 2005 SC 3330, Ram Preeti Yadav v. U.P Board of High School of Intermediate Education AIR 2003 SC 4268 and Beli Ram & Bros. 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 parties, the Commission lacks jurisdiction and its decision cannot be addressed on law. Hence, it is submitted to quash the impugned order dated 28.3.2013.
31. Mr. Mohapatra, learned Senior Advocate for the opposite parties submitted by supporting the counter affidavit as per Section 245I of the Act that the order of the Commission, being final, cannot be challenged. He further submitted that after the declaration of Rs.150.00 crores by the opposite parties 2 to 6 in their report, the Commission has added further Rs.250.00 crores after due investigation, but not the Rs.110.00 crores. So, he submitted that in factual aspect, the matter should be clear enough to convince the Court moreover he pointed out that there is power of the Commission to review its own judgment, if any fraud has been subsequently discovered by the Commission, in that context, the Commission can set aside its own order. But in this case, the Commission did not find out any fraud but further made assessment through the Deputy Commissioner and necessary payment has been made by the opposite parties 2 to 6. He further submitted that as per Section 245D(6-B) of the Act after necessary deposit, the order of the Commission becomes final. If at all the Department has any objection, it could have been ventilated through review to the Commission itself who may reopen the case if it finds the grounds tenable. The Department have not raised any objection by filing review application within the time framed by the Act, it has no meaning to challenge in this Court. He also narrated the decision as per the counter affidavit to support his contention. He thoroughly supported the Commission and its report and rather he challenged the writ petition stating that filing of such case is full of latches and under no circumstances it should be allowed when it has reached its finality. According to the settled law, the Court should not interfere when there is a matter settled and reached its finality.
32. Mr. Mohapatra, learned Senior Advocate further submitted that fraud in Civil Procedure Code cannot be comparable the fraud as in Section 245D(6) of the Act. He further submitted that the delay in filing the writ petition also goes to the route of the case because after the order of the Commission, there has been assessment of the opposite parties 2 to 6 by the Income Tax Authority and they have already 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 sub Section 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 of review, before the same Commission under Section 245D(6) of the Act, has come up before this Court to abuse the process of law. It is stated that under Section 246D(6-B) of the Act, the Commission has got ample power to rectify the mistake, if found on the record or amend any order passed by it under Sub-section 4 at any time before the period of six months from the end of month in which order was passed or at any time within a period of six months from the end of the month in which the application for rectification has been made by the Principal Commissioner or the Commissioner. Since no such petition has been filed by the Principal Commissioner or Commissioner, the writ petition lacks maintainability under Article 226 of the Constitution of India. Hence, it is prayed to dismiss the same.
POINTS FOR CONSIDERATION
34. The main points for consideration is as to whether (I) the impugned order passed by the Commission has reached its finality; and (II) whether this Court can entertain the petition challenging the order of the Commission under the writ jurisdiction.
DISCUSSION ON POINT NO.I
35. The main contention of the learned Senior Standing Counsel for the petitioner is that the Commission had no jurisdiction to entertain the application because it has not been filled up properly and when there is no true and full disclosure of the undisclosed income by the assessee, the order of the Commission had not reached its finality. On the other hand, the contention of the learned Senior Advocate for the opposite parties 2 to 6 is that the order of the Commission having been reached its finality, the same has been acted upon by the Department.
36. It is admitted fact that the opposite parties 2 to 6 are the assessee-group and they have applied the Commission by disclosing their true and full disclosure of the disclosed income to the tune of Rs.150 crores. It is also admitted fact that the Commission made inquiry and added approximately Rs.110 crores after which the petitioner raised no objection and accordingly the impugned order of the Commission was passed.
37. But before going to discuss about the impugned order passed by the Commission, it is necessary to discuss about the necessary provisions of law provided in the Act.
38. The Law Commission of India in its 47th report had observed that the Commission headed by Mr. Justice K.N.Wanchoo, the former 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 Paragraphs 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 Kingdom, the ‘confession’ method has been in vogue since 1923. In the U.S. law also, there is a provision for compromise with the taxpayer as to his tax liabilities. A provision of this type facilitating settlement in individual cases will have this advantage over general disclosure schemes that misuse thereof will be difficult and the disclosure will not normally breed further tax evasion. Each individual case can be considered on its merits and full disclosures not only of the income but of the modus operandi of its build-up can be insisted on, thus sealing off chances of continued evasion through similar practices.
2.33. To ensure that the settlement is fair, prompt and independent, we would suggest that there should be a high level machinery for administering the provisions, which would also incidentally relieve the field officer of an onerous responsibility at the risk of having to face adverse criticism which, we are told, has been responsible for the slow rate of disposal of disclosure petitions. We would, therefore, recommend that settlements may be entrusted to a separate body within the Department, to be called the Direct Taxes Settlement Tribunal. It will be a permanent body with three Members. To strength of the Tribunal can be increased later, depending on the work-load. To ensure impartial and quick decision, and to encourage officers with integrity and wide knowledge and experience to accept assignments on the Tribunal, we recommend that its members should be given the same status and emoluments as the members of the Central Board of Direct Taxes.
Any taxpayer will be entitled to move a petition before the Tribunal for settlement of his liability under the direct tax laws. We do not think that it is necessary to provide for cases being referred to the Tribunal by the Department. However, we wish to emphasize that the Tribunal will proceed with the petition filed by a taxpayer only if the Department raises no objection on its being so entertained. We consider that this will be a salutary safeguard, because otherwise the Tribunal might become an escape route for tax evaders who have been caught and who are likely to be heavily penalized or prosecuted. Once a case is admitted for adjudication, the Tribunal will have exclusive jurisdiction over it and it will no longer be open to the taxpayer to withdraw the petition. The Tribunal will take a 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 Income-tax 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 Department, whether on question of fact or law.
2.34. The success of this measure will, to a very large extent, depend on the confidence which this Tribunal can inspire in the minds of the taxpayers as to its fairness and impartiality. For this reasons, we consider it to be of paramount importance that only persons who are known for their integrity and high sense of justice and fairness are selected for appointment on the Tribunal.”
40. Keeping in mind the above recommendation, Chapter XIX-A providing forum and procedure for “settlement of cases” was introduced in the IT Act by Taxation Laws (Amendment) Act 1975 published in the Gazette of India Extraordinary Part II dated 9th May, 1973 (Pages 443 to 530). The Statement of Objects and Reasons for the Amendment reads thus:
“To unearth black-money and prevent its proliferation; to fight and curb tax evasion; to check avoidance of tax through various legal devises, including the formation of trusts and diversion of income or wealth to members of family’ to reduce tax arrears and to ensure that in future, tax arrears do not accumulate; to rationalise the exemptions and deductions available under the relevant enactments, and to streamline the administrative set-up and make it functionally efficient”.
41. Clause 58 of the Bill introduced in Parliament to introduce separate Chapter in the IT Act for “settlement of cases” reads thus :- “Clause 58 : This clause seeks to insert a new Chapter XIXA in the act, making provision for settlement of cases.
42. The provisions proposed in this Chapter are mainly intended to give a statutory basis for settlement of cases which are necessitated at times in the interest of the revenue. However, settlement will not be allowed in cases where concealment of income or fraud is established before making of an application for settlement.”
43. Thus, it appears that the settlement mechanism has been adopted being independent of the regular adversary methods because the settlement has been entrusted to a separate body within the department called Direct Taxes Settlement Tribunal which is now called as Income Tax Settlement Commission. Unless it is an independent body, there cannot be fair, prompt and independent settlement mechanism. What is emphasized by the committee that the Tribunal under that report (Commission) would only proceed with the 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,—
**
**
**
(1A) For the purposes of sub-section (1) of this section, the additional amount of income-tax payable in respect of the income disclosed in an application made under sub-section (1) of this section shall be the amount calculated in accordance with the provisions of sub-sections (1B) to (1D).
[(1B) Where the income disclosed in the application relates to only one previous year,—
(i)
if the applicant has not furnished a return in respect of the total income of that year, then, tax shall be calculated on the income disclosed in the application as if such income were the total income;
(ii)
if the applicant has furnished a return in respect of the total income of that year, tax shall be calculated on the aggregate of the total income returned and the income disclosed in the application as if such aggregate were the total income.]
[(1C) The additional amount of income-tax payable in respect of the income disclosed in the application relating to the previous year referred to in sub-section (1B) shall be,—
(a) in a case referred to in clause (i) of that sub-section, the amount of tax calculated under that clause;
(b) in a case referred to in clause (ii) of that sub-section, the amount of tax calculated under that clause as reduced by the amount of tax calculated on the total income returned for that year;
(c) [**
**
**].]
(1D) Where the income disclosed in the application relates to more than one previous year, the additional amount of income-tax payable in respect of the income disclosed for each of the years shall first be calculated in accordance with the provisions of sub-sections (1B) and (1C) and the aggregate of the amount so arrived at in respect of each of the years for which the application has been made under sub-section (1) shall be the additional amount of income-tax payable in respect of the income disclosed in the application.
(1E) [**
**
**]
(2) Every application made under sub-section (1) shall be accompanied by such fees as may be prescribed.
(3) An application made under sub-section (1) shall not be allowed to be withdrawn by the applicant.
(4) An assessee shall, on the date on which he makes an application under sub-section (1) to the Settlement Commission, also intimate the Assessing Officer in the prescribed manner of having made such application to the said Commission.”
45. From the above provisions, it is clear that at any stage either during assessment or before assessment or after assessment, the assessee can make application 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 Sub section 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
**
**
**
(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 the additional tax on the income disclosed in such application and the interest thereon is paid on or before the 31st day of July, 2007.
Explanation.—In respect of the applications referred to in this sub-section, the 31st day of July, 2007 shall be deemed to be the date of the order of rejection or allowing the application to be proceeded with under sub-section (1).
(2B) The Settlement Commission shall,—
(i)
in respect of an application which is allowed to be proceeded with under sub-section (1), within thirty days from the date on which the application was made; or
(ii)
in respect of an application referred to in sub-section (2A) which is deemed to have been allowed to be proceeded with under that sub-section, on or before the 7th day of August, 2007,
call for a report from the Commissioner, and the Commissioner shall furnish the report within a period of thirty days of the receipt of communication from the Settlement Commission.
(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 proceed further in the matter without the report of the Commissioner.
(2D) Where an application was made under sub-section (1) of section 245C before the 1st day of June, 2007 and an order under the provisions of sub-section (1) of this section, as they stood immediately before their amendment by the Finance Act, 2007, allowing the application to have been proceeded with, has been passed before the 1st day of June, 2007, but an order under the provisions of sub-section (4), as they stood immediately before their amendment by the Finance Act, 2007, was not passed before the 1st day of June, 2007, such application shall not be allowed to be further proceeded with unless the additional tax on the income disclosed in such application and the interest thereon, 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 sub section,
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 Commiss