AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2016 (9) TMI 555
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....ging 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,1....
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....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 assesee 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 p....
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....ssee 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 i....
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....e 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 r....
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.... 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 Limited -V- Union of India; (2012) 19 TAXMANN 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....
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....ystal 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 an....
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....d 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 preconditions 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 disclose....
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....e 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; 315 ITR 328 (Madras) 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 SubSection 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 Commissioner of Income Tax (Central) -V- ITSC (W.P.(C) No.3900 of 2013. He submitted that the Hon'ble Supreme Court, in the case of Ajmera Housing Corporation and another -V- CIT, 326 ITR 462, 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 ....
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....yper 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 Suprem 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 th....
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....ed -V- Beasley; (1956) 1 QB 702, Rex -V- Recorder of Leicester; 1947 (1) KB 726; Bahadur Dagdu Paralkar -V- State of Maharashtra, AIR 2005 SC 3330, Ram Preeti Yadav -V- U.P.Board of High School & Intermediate Education, AIR 2003 SC 4268 and Beli Ram & Brothers -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.....
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....vered by the Commission in its order. As per Section 245I of the Act, the order of the Commission passed under subSection 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 perio....
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....t 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 a....
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....ugh the Incometax 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. Keepin....
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....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,- Xx xx xx xx (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 t....
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....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 Xx xx xx xx (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 proc....
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.... 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 Commissioner to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case, and the Commissioner shall furnish the report within a period of ninety days of the receipt of communication from the Settlement Commission: Provided that where the Commissioner does not furnish the report within the aforesaid period, the Settlement Commission may proceed to pass an order under sub-section (4) without such report. (4) After examination of the records and the report of the Commissioner, if any, received under- (i) sub-section (2B) or sub-section (3), or (ii) the provisions of sub-section (1) as they stood immediately before their amendment by the Finance Act, 2007, and after giving an opportunity to the applicant and to the Commissioner to be heard, either in person or through a representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the 5aSettleme....
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....ncome disclosed and additional income. With regard to the income disclosed of different assessment years of respective individual and the firm, the Commission has considered the same. It also appears that the Commission has considered the report prepared under Rule-9 by the CIT at various paragraphs in its report. In this regard, the details of the points raised before us have been also raised before the Commission. After going through all these reports, as discussed in the above paragraphs and points raised by the applicant, the Commission gave the following findings: "36.10 We are not convinced by the use of words bogus or fictitious payments towards transportation of rejects. The words 'bogus' and fictitious are of great impost. The Department did collect evidences in the form of statement of the parties in support of the version that the transportation of rejects was either sham or the payments were made either for no services reasons or for inadequate service or for extra commercial consideration or for no commercial essence. The dictionary meaning of the word 'bogus' is 'not genuine or true', pretending to be real or genuine. The dictionary meaning of the word 'fictitious' ....
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....ng on any such service so as to entitle the payment of 'transportation of rejects', it would at best lead to a conclusion of inflation of expenses and call for rejection of books and hence appropriate disallowance of the claim of the applicant in respect of transportation of rejects. 37. As to the routing of the money 'paid/claimed' as aforesaid as share application money of sister/associate concerns, we must say, this does constitute evidence and leads to above said conclusion of books being unreliable and fit for rejection." 50. After considering the report of the Principal Commissioner or the Commissioner and their arguments in the above manner, the Commission has made the terms of settlement on different aspects in the following manner in terms of Section 245D(4) of the Act: Terms of Settlement COMPUTATION OF TOTAL INCOME (I) Shri Kamaljeet Singh Ahluwalia Assessment Years Income returned u/s 153A Additional amount disclosed (in Rs.) Additions made by the Bench. (Rs.) Total (Rs.) 2004-05 25,23,707 5,00,000 -- 30,23,707 2005-06 1,95,91,437 5,00,000 -- 2,00,91,437 2006-07 2,37,66,951 5,00,000 -- 2,42,66,951 2007-08 4,49,698 64,00,00,000 12,96,0....
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....000 65,00,000 31,49,10,000 Total 53,58,48,876 2,00,00,000 65,00,000 56,23,48,876 CHARGE/WAIVER OF INTEREST: Prayer for waiver of interest is not accepted and the same will be charged as per Income Tax law. While calculating the interest, the Assessing Officer will keep in view the decision of the Hon'ble Supreme Court in Civil Appeal No.516-527 of 2004 dated 21.10.2010 in the case of Brij Lal & Ors. Vs. CIT, Jalandhar (ITR 328 pg.477) and shall charge the interest u/s 234A, 234B and 234C only till the stage/date of order under section 245D(1). Applicants request for not charging of interest u/s 234B and 234C in respect of above tax liabilities covered by the amount of seized cash, for which adjustment of tax sought by the applicants. We, therefore, direct that interest u/s 234B & 234C be charged only up to the date of applications made by the applicants for adjustment thereof before the Department. CAPITALIZATION: During the course of hearing the A.R. of the applicant group has prayed for capitalization of income settled before the Commission. Capitalization is allowed in respect of amounts paid towards income tax liabilities for the years in question. ....
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....ct in relation to that case." 53. With due respect to the above decision, we are of the view that the Commission has got the power to compute the aggregate income of the assessee by adding the additional income to determine the liability of the assessee towards tax, penalty and interest and also the Commission under Section 245F(I) of the Act has all the powers vested in the Income Tax Authority under the Act. 54. So the allegation of the petitioner that the Commissioner made additional income of approximately Rs. 110 crores added finding thereby that there is no true and full disclosure income is untenable because the Commission has got not only power to decide the lis before them but also to find out if at all any income left out or could not be disclosed by the assessee to come to a mechanism of settlement. The settlement of lis is not only covered by the dispute arose before them but also for the dispute yet to come. So the Commission has got wide power to consider the income disclosed, add additional income after due investigation and also to add any income which is found to be valid as per report under Rule-9 submitted by the Department and finally settle the tax payable b....
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....m the record, amend any order passed by it under sub-section (4): Provided that an amendment which has the effect of modifying the liability of the applicant shall not be made under this sub-section unless the Settlement Commission has given notice to the applicant and the Commissioner of its intention to do so and has allowed the applicant and the Commissioner an opportunity of being heard. Xx xx xx xx" 59. With regard to said provisions, it is clear that where there is a term of settlement including demand by way of tax, penalty or interest and such payment has been made, but subsequently found by the Settlement Commission that it has been obtained by fraud and misrepresentation, the Commission has power to declare the said settlement as void. When the order of the Commission has been communicated to the Department, the Department could have agitated before the Commission to declare the same as void but instead as appears from the arguments of both sides that in terms of the settlement, the Assessing Officer has been directed to compute the tax as per law and charge the interest as directed at Para-7 of the report of the Commission and the applicant seeks direction to mak....
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....re the settlement is found to be void as per sub-section 6 of the Act, all the proceedings would be heard de novo and the Commission has to complete the proceedings within a period of two years from the date of the final order in which the settlement became void. In the instant case, when the tax under Sub-section-6A of the Act has been paid by the assessee as per the demand by the Assessing Officer in consequence of the order of the Commission, it appears that the Commission has not found the order void obtained by fraud or misrepresentation. By reading the provision of Sub-section 6, 6A, 6B and 7, we are of the view that the Commission has got statutory power to implement, vary, modify and rectify its own order. So the Settlement Commission is self-regulatory body having all powers of adjudication and conciliation. It is reported in the case of R.B.Shreeram Durga Prasad & Fatechandnursing Das -VSettlement Commission (IT & WT) & another AIR 1989 SC 1038 where their Lordships have observed at Paragraph-6 that "in exercise of our power of judicial review of the decision of the Settlement Commission, we are concerned of the legality of the procedure followed or not with the validity ....
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.... the Commission has reached its finality because of the compliance of the provisions enshrined in Sections 245C read with Section 245D of the Act. The rule of natural justice can be agitated in a writ jurisdiction but since we have already observed that appropriate opportunity of hearing has been afforded to the Department to make the report and the same has been considered. In the impugned order, there lies no ground to agitate that rule of natural justice has not been followed in this case. Moreover in view of the Judgment of R.B.Shreeram Durga Prasad (supra), the writ jurisdiction is being only limited to decide the manner of procedure of being followed by the Commission but not the decision thereto. We, therefore, are of the considered view that the writ jurisdiction to vary or set aside the impugned order of the Commission in view of the facts and circumstances of the case is not maintainable. 67. Section 245I also states that every order of the Settlement Commission passed under Section 245D shall be conclusive as to the matter stated therein and no matter covered by such order, shall, save as otherwise provided in this chapter, be reopened in any proceeding under this Act o....