TaxTMI 
TaxTMI 
2012 (3) TMI 102
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....ucted a survey under Section 133A of the Income Tax Act, 1961, hereinafter referred to as "the Act", on the premises of M/s Kumar & Company carrying on business at Ludhiana. In the course of the search 48 pocket diaries were found, including one diary containing various details of cash transactions between Kumar & Company and the first respondent herein. One Naresh Kumar Dhawan who was concerned with the affairs of Kumar & Company stated in his statement recorded on oath that the transactions in the diary reflected unaccounted sales of Rs. 1,20,47,040/- made by Godwin. On the basis of the statement a survey was made by the income tax authorities on the premises of Godwin the very next day, that is, 28th August, 2004 in the course of which several documents and papers were found which allegedly contained details of large scale sales made by Godwin outside the books of account. 3. On 27th October, 2005 Godwin filed its return of income for the assessment year 2005-06 declaring income of Rs. 4,10,184/- under Section 115JB. The return was scrutinised by the Assessing Officer who issued a detailed questionnaire seeking information from the assessee. He also gave as many as 26 opportu....
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....,95,896/-, together amounting to Rs. 7,12,479/- 5. On 4th February, 2008 the CIT filed a report before the ITSC under Rule 9 of the Settlement Commission (Procedure) Rules, 1997. In this report the CIT objected to the admission of the application of Godwin before the Settlement Commission. The objection was made on the following grounds:- (a) The assessee had not made a full and true disclosure of its income, even having regard to the materials which are in the possession of the Assessing Officer. (b) No additional income, which is not in the knowledge of the income tax authorities, has been offered for taxation in the application. (c) The statement of Naresh Kumar Dhawan made in the course of the survey of the premises of Kumar & Company shows that Godwin was making unaccounted cash sales not only to Kumar and Company but also to M/s. Jai Iron and Steel and M/s. Harbhajan Singh & Co. Income from these sales have not been disclosed in the application to the ITSC. (d) There is evidence and material collected during the survey which reveals unaccounted cash transaction to the tune of Rs. 15 lacs on a single day with 10 parties. There is no discl....
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....e day to M/s Kumar & Co. The transactions with other two parties were not denied. Even so, no income was offered in the application from unaccounted transactions with the other two parties. (e) There is no justification for computing the undisclosed income of the assessee by applying the "peak theory". The computation of the peak cash of Rs. 5,22,900/- furnished before the Assessing Officer in the course of the assessment proceedings has no basis. The assessee itself has revised the computation of the peak cash to Rs. 11,50,337/- before the ITSC. It is thus evident that there is no scientific basis for calculating the peak cash. (f) Evidence was unearthed during the survey operation that the assessee was in the habit of issuing the same invoice number to more than one party and when this was put to it, there was no convincing reply. Despite this, the assessee has merely stated before the ITSC that this aspect has been taken into consideration in calculating the peak cash. (g) There are entries discovered during the survey which indicated that the assessee has paid cash in exchange for cheque and one such entry was in the ledger account of M/s Sardar Assoc....
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....ction of the ITSC even while continuing with his dishonest conduct. The CIT thus contended in his report that the application of Godwin before the ITSC is not maintainable and was beyond the jurisdiction of the ITSC. Without prejudice to the preliminary objection, it was submitted by the CIT that further enquiry was required to determine the correct undisclosed income on the following lines: (a) Enquiry under Section 68 to examine the share capital receipts; (b) Impact of the bills raised on the same invoice number on the income of the assessee; (c) Enquiries with whom the assessee entered into cash transactions worth several crores of rupees to establish the true extent thereof; (d) Comparison of the books of account manually maintained with computerised accounts to enquire and establish the correct profits for the year; (e) Enquiries to ascertain the actual production, electricity consumption etc. to ascertain the quantum of excise duty evasion and income tax evasion; 8. On the above basis the CIT strongly objected to the admission of the application of Godwin before the ITSC. The ITSC was also invited to make further enquiries by v....
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....In paragraph 13 of its order the ITSC concluded that no adjustment was required to made on account of net profit. This paragraph is quoted below:- "We have heard both the parties and have also perused the observations by the CIT in Rule 9 report as well as the evidence available on the record. We have also looked into the report of the JDIT dated 25.09.2008 and 01.10.2008 that the JDIT has verified relevant material along with evidence furnished by the applicant in the presence of the A.O. It has also been stated that both the parties i.e. the applicant and the respondent-department were allowed opportunities to cross examine the relevant details. At the time of verification, the department has not objected to the explanation furnished by the applicant that there was any discrepancy in the factual position provided by the applicant. Having regard to the facts and circumstances of the case, no adjustment is required to be made on this account and the issue stands settled, accordingly." 13. In the case of share capital the assessee submitted before the ITSC that confirmations/affidavits from the companies have been obtained, that the investments made by the companies were refle....
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.... tax. 16. After hearing the assessee and the revenue and after considering the report of the CIT under Rule 9, the ITSC accepted the submission of the assessee observing as under:- "We have considered the submission made by both the parties. On careful consideration of the observations made by the CIT in the report as well as documentary evidence furnished by the applicant along with the SOF at the time of hearing, we find that cash collections from M/s Kumar & Co. and M/s Jai Iron & Steel stand covered in the peak chart of pages 620-633 of SOF. As regards M/s Harbhajan Singh & Co., no adverse inference can be drawn in the light of discussion made above. Accordingly, the issue stands settled." 17. Besides the above main issues, the ITSC also noted that other issues related to difference in stock position, entries of M/s Kundan Iron Steel and Mahajan Alloys and determination of income on account of issuing sale invoice containing the same number to two different parties. 18. In respect of the discrepancies in the stock, the submission of the assessee before the ITSC was that the same was very minimal and amounted to only Rs. 4,67,000/- and that was covered in the offer o....
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....TSC. It was provided that the immunity may be withdrawn if the tax is not paid as directed and also if it is found that the order was obtained from the ITSC by falsity or by concealing material particulars relating to the settlement. 21. The revenue assails the order of the ITSC in the writ petition. 22. We have heard the rival contentions. We have also carefully perused the written submissions filed by the learned counsel for the respondent, with our leave. 23. The limits of judicial review of an order of a Tribunal under Article 226 have been laid down by the Supreme Court in several judgments. Suffice to refer to the observations of S.B.Sinha, J. in State of U.P. and Anr. v. Johrimal [2004] 4 SCC 714. The following observations sum up the entire legal position:- "It is well-settled that while exercising the power of judicial review the Court is more concerned with the decision making process than the merit of the decision itself. In doing so, it is often argued by the defender of an impugned decision that the Court is not competent to exercise its power when there are serious disputed questions of facts; when the decision of the Tribunal or the decision of the fact f....
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....f settlement and to prescribe the manner in which the said amount shall be paid. It may condone the defaults and lapses on the part of the assessee and may waive interest, penalties or prosecution, where it thinks appropriate. Indeed, it would be difficult to predicate the reasons and considerations which induce the commission to make a particular order, unless of course the commission itself chooses to give reasons for its order. Even if it gives reasons in a given case, the scope of inquiry in the appeal remains the same as indicated above viz., whether it is contrary to any of the provisions of the Act. In this context, it is relevant to note that the principle of natural justice (audi alterant partem) has been incorporated in Section 245-D itself. The sole overall limitation upon the Commission thus appears to be that it should act in accordance with the provisions of the Act. The scope of enquiry, whether by High Court under Article 226 or by this Court under Article 136 is also the same - whether the order of the Commission is contrary to any of the provisions of the Act and if so, has it prejudiced the petitioner/appellant apart from ground of bias, fraud & malice which, of ....
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.... of the application before them in the manner required by law. The report of the CIT filed before the ITSC under Rule 9 of the Settlement Commission (Procedure) Rules is very elaborate and we have also made a reference to the same. It would appear that the ITSC has not accorded due weightage, credibility or consideration to the serious objections taken by the CIT in his report. Section 245D(5) reads as under:- "(5) Subject to the provisions of Section 245BA, the materials brought on record before the Settlement commission shall be considered by the Members of the concerned Bench before passing any order under Sub-section (4) and, in relation to the passing of such order, the provisions of Section 245BD shall apply." [Emphasis supplied] The aforesaid sub-section requires that the materials brought on record before ITSC shall be "considered" by the members before passing any final order under sub-section (4). The word "consideration" means an independent examination of the evidence and materials brought on record before the ITSC by the members and application of mind thereto with a view to independently assess the materials and evidence, whether adduced by the assessee-applican....
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....lves verify every material or evidence brought before them in the matter of settling the case. However, in cases where there are copious material and evidence collected by the income tax authorities in respect of which an in-depth examination of the explanation of the assessee-applicant is called for, it is necessary that the members constituting the Bench themselves examine the materials and evidence and come to their own conclusion. In such cases they are not expected to merely endorse the report of the officers assisting them. 28. Section 245B(3) provides for appointment of members of the ITSC from amongst "persons of integrity and outstanding ability, having special knowledge of, and experience in, problems relating to direct taxes and business accounts". This requirement is obviously designed not only to take advantage of such knowledge, ability and experience but also to ensure that cases involving complexity of business accounts are properly unravelled and the significance of the accounts is properly appreciated and incorporated in the settlement. Section 245-I provides for finality of the order of the ITSC in respect of matters covered by the order of settlement. This se....
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....d evidences. Both the parties i.e. the applicant and the respondent were allowed opportunities to cross examine the facts and figures. There after neither any dispute/differences remained with the applicant and the respondents on the issues discussed in the supplementary report nor any objection letter have been filed by the Department till date. Under the circumstances, the facts and figures as discussed therein may be treated as undisputed and verified. (R.R.Prasad) Joint Director of Investigation Unit-I, II & III 1.10.2008" 31. When the aforesaid two reports were placed before the ITSC, it was in our opinion incumbent on the ITSC to have examined them and formed an independent opinion about the correctness of the same. In fact it was incumbent upon the ITSC to have examined the materials placed in the present case because the reports of the JDIT were non-committal. Not only this, we also do not find anything in the reports addressing the various other important and crucial aspects of the case such as the data found in the computer, unaccounted cash sales made by the assessee, the statements of the employee of the assessee, discrepancy in the stocks, additions to s....
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....king process has been omitted to be done. 32. So far as share capital receipts are concerned, the ITSC has proceeded to accept the assessee's explanation somewhat superficially, if we may so with respect. It has relied upon the documentary evidence in support of the share subscriptions. In the reports of the JDIT there is no specific reference to any explanation given by the Assessee. That itself was sufficient to excite the inquisitiveness of the ITSC. The ITSC has not applied its mind to the blank transfer forms, duly signed by the companies, found in the assessee's premises during the survey. We cannot believe that the ITSC was unaware of the practice of some assessees misusing the provisions of Section 68 of the Act and creating documentary evidence in support of alleged share-subscription receipts. The income tax department itself, in several cases, is in possession of information regarding the role played by entry providers who issue cheques in return for cash and for a commission. It is in this context also that the entry found in one of the ledger accounts of Sardar Associates, in the assessee's books, that cash was paid for cheque, assumes significance. The ITSC ought t....
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....the JDIT to show as to what was the assessee's explanation and how it merited acceptance. 34. In respect of the other issues, namely, difference in stock, entries of Kundan Iron Steels and Mahajan Alloys and issue of same sales invoice to two different parties, all that the ITSC says in para 32 of its order is that, having considered the statements of the parties and the report of the CIT and the evidence furnished in the course of the hearing, no adjustment was required to be made on account of the addition. On these three aspects also the reports of the JDIT did not throw any light. 35. We have highlighted the aforesaid aspects in some detail only to show that the procedure followed by the ITSC is contrary to the well settled principles to be adopted in the decision making process. We are constrained to observe that no reasons have been given by the ITSC in support of their conclusions. The ITSC has also ignored the several statements, admissions and materials referred to in the report of the CIT filed before them under Rule 9. The manner in which the ITSC has set out to dispose of the assessee's application before them and the report of the CIT shows that the procedure ado....