TaxTMI 
TaxTMI 
2015 (5) TMI 1060
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.... 2. Factual Matrix • Petitioner filed Returns for the assessment years 201011 and 201112 on 23rd September, 2010 and 29th September, 2011, respectively. • Survey under Section 133A of the Act, 1961 was conducted by the Income Tax Department on 21st/22nd October, 2011. • This petitioner preferred settlement application under Section 245(C)(1) of the Act, 1961 before the Settlement Commission. Alongwith this application this petitioner is also paying income tax with interest at Rs. 38,45,471/on disclosure of additional income of Rs. 1,04,00,000/. • The Settlement Commission passed an order under Section (preferred by the assesee under Section 245C) 245D(2C) of the Act, 1961 has allowed an application to proceed with. This order is dated 27th March, 2012/3rd April, 2012 (Annexure4 to the memo of this petition). This order was passed after calling for report from the Commissioner of Income Tax. The report given by the Commissioner of Income Tax is at Annexure3 and 5 of this writ petition. Thereafter adequate opportunity of being heard was given to the petitioner and ultimately, final hearing was fixed by the Settlement Commission a....
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....bsence of any evidence on record. Much has been argued out by the counsel for the petitioner upon paragraph nos. 6, 7, 8 and 9 of the impugned order at Annexure6, passed by the Settlement Commission. • It is submitted by the counsel for the petitioner that if the Settlement Commission is of the opinion that there is no true and full disclosure of the income by the assessee in its application under Section 245C(1) of the Act, 1961, after looking to the report given by the Commissioner of Income Tax which are at Annexure3 and 5 the Settlement Commission should have rejected the application of this petitioner and nothing beyond that. • The Settlement Commission in the facts of the present case has played the role of Assessing Officer. No power under Section 245F permits the Settlement Commission for additions of any amount of income over and above the declared income. Powers under Section 245F never permits Settlement Commission to wear the rob of Assessing Officer. Annexure3 report given by the Commissioner of Income Tax is under sub section 1 of Section 245D and another report given by the Commissioner of Income Tax at Annexure5 is under Rule of the Income ....
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.... petitioner has read over this judgment in detail and has matched the facts of the present case and submitted that on the basis of this decision also the order passed by the Settlement Commission dated 27th/28th June, 2013 (Annexure6) may be quashed and set aside and therefore, the consequential order at Annexure7 dated 24th September, 2013 may also be quashed by this Court and consequential notices issued by the Income Tax Department and two garnishee notices dated 27th June, 2013 may also be quashed and set aside as per the prayers made in Interlocutory Application No. 835 of 2015. 4. Arguments canvassed by the counsel for the respondents: • Counsel for the Income Tax Department submitted that no error has been committed by the Settlement Commission while passing the order dated 27th/28th June, 2013 whereby there is an additions of income, over and above the income declared by this petitioner, totaling at Rs. 1,36,00,663/for assessment years, 20102011 and 201112. • It further appears by the counsel for the respondents that once the order is passed by the Settlement Commission it cannot be challenged in the court of law. As per Section 245(A) of the Ac....
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....i) The petitioner is engaged in the business of trading in hardware items in the name and style of M/s Prasad Hardware. Petitioner is sole proprietor thereof who filed his income tax returns for the assessment years 201011 and 201112 on 23rd September, 2010 and on 29th September, 2011, respectively. (ii) Survey was conducted by the Income Tax Department under Section 133A on 21st/22nd October, 2011 and this petitioner preferred settlement application under Section 245C of the Act, 1961. On 30th December, 2011 alongwith others this petitioner paid the income tax at Rs. 38,45,471/with interest on an additional income of Rs. 1,04,00,000/thereafter Settlement Commission obtained the report of the Commissioner of Income tax under 245D(1) of the Act, 1961. The report filed by the Commissioner of Income Tax is Annexure3 and on the basis of this report an order was passed by the Settlement Commission under Section 245D(2C) of the Act, 1961 on 27th March, 2012/3rd April, 2012 (Annexure4). For ready reference Section 245D(2C) of the Income Tax Act reads as under: "245D. Procedure on receipt of an application under Section 245C.8 (2C) Where a report of the Commissioner calle....
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....is Rule Commissioner of Income Tax has given a detailed report, which is at Annexure5 to the memo of this petition. (vi) Now the Settlement Commission role starts for the settlement of the dispute. (vii) Settlement Commission has passed a final order on 27/28th June, 2013 after giving adequate opportunity of being heard to the applicantwho is petitioner before this Court and the Commissioner of Income Tax has made additions of Rs. 62,50,000/and Rs. 73,50,663/( totaling Rs. 1,36,00,663/), in respect of assessment years 201011 and 201112, respectively over and above the income declared by the petitioner. The reasons for this additions have been given in para 6, 7, 8 and 9 as under: "6. We have considered the facts of the case carefully. We have also taken into account the documents available on record. The submissions made on behalf of the applicant as well as the Department have been taken note of by us. We find that the applicant has disclosed additional income of Rs. 90,00,000/in the A.Yr. 201011 over and above the total income of Rs. 6,39,760/disclosed in the return of income. As seen from the seized document and as admitted by the applicant, the applic....
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....e on this account. However, as the additional gross profit (worked out by applying gross profit rate of 12%) is less than the undisclosed trade debtors as at the end of the relevant accounting year, no separate G.P. additions is called for. 9. In so far as A.Yr. 201112 is concerned, additional gross profit, over and above the gross profit shown in the books, will amount to Rs. 85,20,663/This amount will be added to the returned income. The additional income of Rs. 14,00,000/disclosed in the Settlement Application will be subsumed in the Gross Profit addition of Rs. 85,20,663/( supra)." (viii) It appears from the aforesaid logic advanced by the Settlement Commission for additions made to the income disclosed is based upon turnover largely kept outside the books of accounts. Settlement Commission has also arrived at conclusion that books of accounts has not been maintained truly and correctly and thereby reasonably estimated unaccounted turnover for the assessment year 201011 at Rs. 1.75 crore. This figure of estimated unaccounted turnover has been arrived at looking to the turnovers for the assessment year 201112 and turnover for the assessment year 201213, no reco....
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....is is absolutely baseless estimation. In the example given hereinabove if the market has fallen down then the said estimation will be even higher for the assessment year 201011 then that of subsequent assessment years. Therefore, evidences are must. Unless there are evidences on record this type of estimation of unaccounted turnover by the methodology adopted by the Settlement Commission of extrapolation of the graph is absolutely absurd. This is known as wensbury unreasonableness. The factors ought should have been considered if are considered by any authority, his orders will be said to have been suffered by this wensbury unreasonableness principle. If this type of powers are permitted by the Settlement Commission it will lead to discrimination. For few assessee Settlement Commission can also presumed that for the earlier assessment years, market was much favorable and hence, his turnover can be double or triple than those of subsequent assessment years or sometimes Settlement Commission can adopt extrapolation of graph methodology. In this case the estimated unaccounted turnover will be lessor than the next year's assessment and will be lessor than further next year totaling....
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....of forty lakh rupees in the previous year. (2) Any deduction allowable under the provisions of Sections 30 to 38 shall, for the purposes of subsection (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed: Provided that where the assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under subsection (1) subject to the conditions and limits specified in clause (b) of Section 40. (3) The written down value of any asset used for the purpose of the business referred to in subsection (1) shall be deemed to have been calculated as if the assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years. (4) The provisions of Sections 44AA and 44AB shall not apply in so far as they relate to the business referred to in subsection (1) and in computing the monetary limits under those sections, the total turnover or, as the case may be, the income from the said business shall be excluded. (5) Notwithstanding anything contained in the foregoing provisions of this secti....
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....section (1), be deemed to have been already given full effect to and no further deduction under those sections shall be allowed: Provided that where the eligible assessee is a firm, the salary and interest paid to its partners shall be deducted from the income computed under subsection (1) subject to the conditions and limits specified in clause (b) of Section 40. (3) The written down value of any asset of an eligible business shall be deemed to have been calculated as if the eligible assessee had claimed and had been actually allowed the deduction in respect of the depreciation for each of the relevant assessment years. (4) The provisions of Chapter XVIIC shall not apply to an eligible assessee in so far as they relate to the eligible business. (5) Notwithstanding anything contained in the foregoing provisions of this section, an eligible assessee who claims that his profits and gains from the eligible business are lower than the profits and gains specified in subsection (1) and whose total income exceeds the maximum amount which is not chargeable to income tax, shall be required to keep and maintain such books of account and other documents as ....
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....shall be no order as to costs." (Emphasis supplied) In view of the aforesaid decision, the Settlement Commission cannot exercise substantive powers of Income Tax Authorities, but, only the procedural powers vested in the Income Tax Authorities can be exercised by the Settlement Commission under Section 245F of the Income Tax Act. (xiv) It is contended by the counsel for the Income Tax Department that the Settlement Commission can even travel beyond the application preferred under Section 245C(1) while exercising the powers under Section 245D(4)(ii). The aforesaid arguments is not accepted by this Court, looking to the facts of the present case, mainly for the following reasons: (a) In absence of any evidence before the Settlement Commission, it has estimated unaccounted turnover for the assessment year 201011. (b) Looking to the provisions of Section 245D(4)(ii) evidence before the Settlement Commission is a must. For the ready reference Section 245D(4) of the Act read as under: "245D Procedure on receipt of an application under section 245C ................................................................. ..........................