TaxTMI 
TaxTMI 
2016 (11) TMI 1257
X X X X Extracts X X X X
X X X X Extracts X X X X
.... By the aforesaid impugned order dated 23.09.2014 the Settlement Commission held that no order under Section 245D (4) was being passed in the case of the three applicants and that being so, the settlement applications filed by the three petitioners were rejected. The facts leading up to the present matter may be noted. A search and seizure operation under Section 132 of the Income Tax Act was conducted on the three petitioners at their respective addresses at Dhanbad on 23.11.2011 by the Income Tax Department in the course of which an amount of Rs. 65,48,73,442/-in the Bank Account of the petitioner, Lal Bahadur Singh and Fixed Deposit of Rs. 17,40,00,000/- totaling to Rs. 82,88,73,442/- was seized which had not been accounted for in his books of accounts. Similarly, in the case of the petitioner, Kumbh Nath Singh, there was seizure of Rs. 8,99,40,042/- from his Bank Account and with respect to the petitioner Bharat Singh, an amount of Rs. 1,30,11,471/- was seized from the Bank Account as not having been accounted for in his books of accounts. All the three petitioners in the course of search and surveys in their statements before the Commissioner, Dhanbad admitted additional i....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... direction to submit his report under Section 245D (2B). The Commissioner in his report under section 245D (2B) submitted that on the basis of the facts submitted in the report as available, the applicants‟ applications to the Settlement Commission deserve to be rejected because the applicants have not paid such tax and interest on the additional income nor attached a proof of such payment with the application thereby not meeting the basic requirement of filing of such petition before the Settlement Commission and further the assessees have neither offered full and true particulars nor disclosed the manner in which such income had been derived, thereby making their applications invalid. The facts which were relied upon for opposing the settlement applications of the petitioners by the CIT were that numerous proprietary concerns in different names were actually owned by the applicants either partly or fully and the applicants had fraudulently withdrawn monies from BCCL (a PSU), the contractee and CBI had already initiated criminal proceedings in the matter against the applicants. The Settlement Commission, however, noted that except for one FIR filed by the CBI against the pet....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ables quoted therein: 33. Certain events are more than mere coincidence when they are considered in the above backdrop. The CIT has reported that the books and documents were stolen and lost on 21.4.2013 which was duly reported to the police authorities by the applicants. From the CIT‟s reply dated 10.7.2014, the CBI had filed FIR on 31.1.2013 against Shri Kumbh Nath Singh. Shri Kumbh Nath Singh had misrepresented that he was the proprietor of M/s. D.K Singh, Dhanbad. Shri Lal Bahadur Singh was only charged of misrepresentation while opening an account. The learned A.R pointed out that however, no charge- sheet was filed,despite the time that had elapsed. By reply dated 14.7.2014 and its Annexure-B, it also transpires that vigilance action had been taken against certain officers including Shri D.K Ghosh, Manager, Kustore Area. The learned A.R. pointed out that such action did not relate to works executed by the applicants. Be that as it may from CIT‟s report dated 10.7.2014, it transpires that certain records had been reported to be lost owing to fire at the BCCL, Dhanbad. Suffice it would be to say that the consequences of these incidents was loss of material ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f accounts including Rs. 1.01 crore of bills without date11.98 (c) Contingent liability shown by BCCL in its Books of Accounts 13.23 (d) Difference between gross receipts Figure reported in Appraisal Report for F.Y. 2006-07, 2007-08 & 2008-09 (without bifurcation and 30.30 Supporting evidence) and figures Given by applicants in reconstructed P & L Account 358.84 crore Remarks*:- The A.R.s have raised certain objections, which has been reported by the DIT (Inv) as under: 1. The applicant‟s group is following the cash system for receipts and therefore the amount for which bills were raised is not considered as a part of contract receipts. Otherwise also till date the amount has not received from the BCCL. Therefore, same may be considered as a bad debt. It has also been pointed out that during the course of 245D(3) enquiry, the A.O. has recorded the statement of Manoj Kumar Gupta, Area Finance Shri Manoj Kumar Gupta, Area Finance Manager of BCCL has stated that no such bills were handed over by the erstwhile Kustore Area. These are mere correspondences of Shri L.B. Singh with Addl. General Man....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er need not engage us any further, as no income (based on these receipts) is being determined in these applications. The enormity of the receipts in the range (as accepted by the CIT and acceptable to the applicants) and the various individuals in which seizures effected in para (5) of this order would only reinforce the view that the requirement of "full and true disclosure" and also "the manner in which income is earned" are met.(sic) 36. We must, however, revert to paras 32 and 33 where an attempt has been made to take an overview of all relevant and material facts. The A.R.‟s contention has repeatedly been that the applicants have carried out the civil construction; other construction work; and the supply work, which are duly confirmed by way of payments received from the public sector undertaking BCCL. That itself implied that the work had been executed, and the submission made by him earlier, that the payments were released only after due verification also supports his claim. However, the issue that haunts and nags any interference is the gross profit and net profit ratios for various years for the applicants. For an overview, the gross profit percentage and ye....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assets giving rise to ridiculous rate of profit right upto 98%. 37. The learned A.R. submitted that Justice Krishna Iyer‟s observations in CIT Vs. B.N. Bhattarcharjee case, 118 ITR 461 were on different facts. The learned A.R. has not appreciated the basic tenor of the judgment in the context of cases - of economic offences of the kind indicated in the present application. In that case, the provisions of law were as they stood at the time of introduction of Chapter XIX-A. In that case, the assessee was a rich businessman from whom Rs. 1 crore (approx) of cash was seized. The stakes ran into a crore or so ( (for A.Yr. 1962- 63 to 1973-74) plus a prosecution under Section 277 of the Act with unpredictable prospects of sentences. That was the narrative on which the assessee had approached the settlement Commission. The apex Court on the law as it then stood had expressed concern on the kind of cases that may find their way undeservedly to the Commission. The facts in the present application warrant a similar consideration. The preponderance of the evidence cumulatively considered clearly points to the likelihood of diversion of funds and the petition would fail in the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... conclusion that the disclosure made by the assessed is either incomplete or untrue." 39. In view of the above, no order under section 245(D) (4) is being passed in the case of the three applicants. That being so, the settlement applications filed by Shri Lal Bahadur Singh, Shri Kumbh Nath Singh and Shri Bharat Singh are hereby rejected." Learned counsel for the petitioners submits that nothing changed between the filing of the settlement application under Section 245C of the Act by the petitioners on the first order under Section 245D(1) and the final order under Section 245D(4). No fresh material fact or information had come to the knowledge of the Settlement Commission or the jurisdictional Commissioner for warranting a different conclusion than what was reached by the Settlement Commission earlier. It is stated that the Settlement Commission having repeatedly held by examining all the materials both in the order under section 245D(1) and 245D(2C) turning down the plea of the Department that there was no full and true disclosure and the manner in which the income was earned had not been shown. It is further submitted that while allowing the request of the Commissione....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed that under the law as prevailing at that time the Commissioner had a power to object, which as per sub-section (1A) of Section 245D as it then existed, provided that the application under Section 245C shall not be proceeded with under Section 245D(1) if the Commissioner raises an objection on the ground that the concealment of income is likely to be established or is already established. It is submitted that the Parliament having by amendment taken away the powers of the Commissioner to make such objection during settlement proceedings, it was not open for the Settlement Commission to have relied upon the said judgment of the Apex Court in the matter. Learned counsel also submits that when a party goes to the Settlement Commission it makes confidential disclosure which is sent to the Department if the Settlement Commission allows the application to be proceeded with under Section 245D(1) and therefore once the Commission decided to proceed further in the matter, all documents made in good faith to the Settlement Commission were handed over to the adversary, i.e., the Income Tax Department and therefore an order of the present nature defeats faith in the Settlement Commission.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... which it has been held as follows:- 15. With reference to the second question arising for our consideration, as we have pointed out earlier, the provision for constitution of the Settlement Commission was not in existence earlier. This legislative step was taken on the recommendation of the Wanchoo Committee. As observed by us earlier, the Settlement Commission was to be constituted for settling the complicated claims of chronic tax evaders as an extraordinary measure, for saving an opportunity to such persons to make true confession and to have the matters settled once for all, and earn peace of mind. It is a forum for self surrender and seeking relief and not a forum for challenging the legality of assessment order or orders passed in any other proceedings. This is not only evident from the provision of the Act which prevents the application made, from being withdrawn as also the provision which makes the decision of the Settlement Commission final and conclusive both on question of law and fact. The power conferred on the Settlement Commission is so wide that it can take any view on any questions of law, which it considers appropriate, having regard to the facts and th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....which was the basis of the award and which was erroneous. In our opinion, many of the grounds on which arbitration award could be set aside, could not be available in view of the nature and jurisdiction of the Settlement Commission. We are of the view that decision of Settlement Commission could be interfered with only: (i) if grave procedural defect such as violation of the mandatory procedural requirements of the provisions in Chapter XIX-A and/or violation of rules of natural justice is made out; (ii) if it is found that there is no nexus between the reasons given and the decision taken by the Settlement Commission; (iii) this Court cannot interfere either with an error of fact or error of law, alleged to have been committed by the Settlement Commission. We answer the second question accordingly." Learned counsel has also made strong reliance upon the observations made by the Delhi High Court in the case of Vatika Farms Pvt. Ltd. Vs. UOI: 302 ITR 98(Del) = (2008) 167 Taxman 366 relying upon a number of paragraphs of the said decision, paras 22 to 25, 27, 38, 44,45,46, 55 and 56 of which are quoted below:- "22. It must be a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ote three other facts which suggest that the Settlement Commission is not a redundant appendage. Firstly, the Act provides that the Settlement Commission shall have „exclusive jurisdiction to exercise the powers and perform the functions of an income- tax authority under this Act in relation to the case‟ before it [Section 245F(2)]. Secondly, when a taxpayer (or a tax evader, as the case may be) files a settlement application before the Settlement Commission, he cannot withdraw the application [Section 245C(3)]. It may either be dismissed by the Settlement Commission (not further proceed with) or it would have to result in a settlement under section 245D(4) of the Act. Thirdly, section 245-I of the Act makes every order passed by the Settlement Commission conclusive as to the matters stated therein and no matter covered by the final order passed by the settlement Commission shall be reopened in any proceeding under the Act or under any other law for the time being in force. All these facts show the enormous power wielded by the Settlement Commission, which still exists and which it still retains. All the assumptions and facts also show that the Settlement Commission is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n this Chapter (XIX-A), be reopened in any proceeding under this Act or any other law for the time being in force.‟ [Section 245-I]. A settlement application is decided on a one-stop basis but an aggrieved Petitioner would still have a constitutional remedy of judicial review in a High Court. However, in the case of a regular assessment after abatement of a settlement application, the Petitioner would have to go through a plethora of appeals and authorities before a final decision is taken in his case and even then the remedy available to him is extremely limited - only on a substantial question of law in a High Court. This is clearly not an adequate substitute available in law. The Settlement Commission has exclusive jurisdiction and plenary powers to decide all issues brought before it including, in an appropriate case and where expediency so demands, the power to reopen completed proceedings (Sections 245E and 245F). In other words, the entire gamut of disputes raised by the petitioners can be settled before the Settlement Commission, impartially and quickly, as postulated by the Wanchoo Committee. As a part of the settlement, the Settlement Commission also has th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lement Commission. 44. The proceedings before the Settlement Commission are judicial proceedings (Section 245L of the Act) and they are not open to the public (Rule 16 of the Procedure Rules). Similarly, under section 245G of the Act, no person (other than the applicant) is entitled to inspect or obtain copies of any report made by any income-tax authority to the Settlement Commission. In other words, the proceedings before the Settlement Commission are completely confidential and any material adverse to the applicant is kept away from the public eye and cannot be used against the applicant for any purpose whatsoever. 45. Our attention was drawn to Chhotalal S. Ajmera (HUF) v. CIT [2007] 289 ITR 1, wherein the Supreme Court has considered the annexure to Form 34B in Appendix II to the Income-tax Rules „as a confidential document, which is not disclosed to the Commissioner of Income-tax until the Settlement Commission admits the application for being proceed with‟. Consequently, there can be no doubt that the information in the annexure is confidential. 46. By virtue of section 245H(3) of the Act, as incorporated by the Finance Act, 2007, the A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or any purpose, prejudicial to the interests of the petitioners. The confidential information disclosed by the petitioners will be put into the hands of the Assessing Officer who is likely to have an implicit and inherent bias against them knowing fully that they have approached the Settlement Commission for a settlement in respect of income which they have not disclosed to any income-tax authority. On the other hand, learned counsel for the respondent-Income Tax Department submits that the very basic ingredients of a settlement application under Section 245C of the Act is that there shall be a full and true disclosure of income which has not been done in the present matter as also disclosure of the manner in which the income has been derived and further, payment of the additional amount on such income. It is submitted that from the detailed order recorded by the Settlement Commission, it is evident that the petitioners had not made full and true disclosure of income in their settlement application nor had they shown the true manner in which the income has been derived except to state that they have received it from BCCL. Further, according to learned counsel the petitioners had....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the aforesaid facts clearly point to the inevitable conclusion that the petitioners had not made full and true disclosure of their income before the Settlement Commission. In this regard it is submitted by learned counsel that the admitted position as per the returns filed by the petitioners is that they were following the mercantile system of accounting and thus it is not open to the petitioners to argue that the figures supplied by them in their settlement application were on cash basis. It is submitted that they had given incorrect figures ignoring their own choice of mercantile system of accounting at the time of filing of the application before the Settlement Commission, as full and true disclosure could only have been under the mercantile system which has not admittedly been done by the petitioners. It is also submitted that it is not open to the petitioners to argue that the question of system of accounting must be considered at the final stage for determining income of the petitioners and not at the stage of passing order under Section 243D(4) rejecting the application and such failure to approach the Settlement Commission with the correct facts and figure could....
X X X X Extracts X X X X
X X X X Extracts X X X X
....munication by the Settlement Commission. Thereafter, the Settlement Commission, on the basis of the material contained in the said report and having regard to the facts and circumstances of the case and/or complexity of the investigation involved therein may by an order, allow the application to be proceeded with or reject the application. After an order under s. 245D(1) is made, by the Settlement Commission, r. 8 of the 1987 Rules mandates that a copy of the annexure to the application, together with a copy of each of the statements and other documents accompanying such annexure shall be forwarded to the CIT and further report shall be called from the CIT. The Settlement Commission can also direct the CIT to make further enquiry and investigations in the matter and furnish his report. Thereafter, after examining the record, CIT‟s report and such further evidence that may be laid before it or obtained by it, the Settlement Commission is required to pass an order as it thinks fit on the matter covered by the application and in every matter relating to the case not covered by the application and referred to in the report of the CIT under sub-s(1) or sub-s.(3) of the said sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ithdrawal of an application once made under sub-s. (1) of the said section is instructive in as much as it manifests that an assessee cannot be permitted to resile from his stand at any stage during the proceedings. Therefore, by revising the application, the applicant would be achieving something indirectly what he cannot otherwise achieve directly and in the process rendering the provision of sub-s.(3) of s. 245C of the Act otiose and meaningless. In our opinion, the scheme of said Chapter is clear and admits no ambiguity. 27. It is trite law that a taxing statute is to be construed strictly. In a taxing act one has to look merely at what is said in the relevant provision. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. There is no room for any intendment. There is no equity about a tax. [See: Cape Brandy Syndicate Vs. IRC (1921) 1 KB 64 and Federation of A.P. Chambers of Commerce & Industry & Ors. Vs. State of A.P. & Ors. (2000) 6 SCC 550]. In interpreting a taxing statute, the Court must look squarely at the words of the statute and interpret them. Considerations of hardship, injustice and equity are entirely out of place in int....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r it is, fundamental or otherwise. Learned Counsel had relied upon definition of the word "invalid" from Concise Law Dictionary, Abridged Edition 1997 where the word "invalid" is described as under: The word 'invalid' has precisely the same meaning as the two words 'not valid.' Of no force; without legal force; void. From the meaning assigned to the expression void it includes an act which would be invalid. In that context if we examine the phraseology of Section 245D(2C) it would be clear firstly that the application must meet the requirements of Section 245C(1). In other words complying with the requirements of full and true disclosure and the manner in which such income has been derived. On complying with those requirements the next step would be to follow the procedure under Section 245D. It is not as if the moment an application is made and there is compliance of the requirements of Section 245D that the Commission is bound to entertain the application and allow it. The Commission has then to consider whether the application is invalid under Section 245D(2C). The Commission must be satisfied from the report of the Commissioner and on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion that there were acts which would constitute foreign exchange dealings without following the due procedure of law. If there was prima facie such material it is always open to the Commission to have rejected the application made by the petitioners. Once the decision is taken by the Settlement Commission, which acts in a quasi judicial capacity, it is for the petitioners to point out that there has been either a failure to exercise jurisdiction or the exercise of jurisdiction is based on an assumption not warranted or that the order suffers from an error of law apparent on the face of the record when it holds the application to be invalid. It is only in these cases will this Court exercise its extra ordinary jurisdiction subject of course to the discretion it has. The Section as it now stands does not involve deciding the complexities of a case. The Commission on the material placed before it has treated the application as invalid. It is not a case where the Commission could not have taken such a decision or the decision taken is based on no material and/or decision which is totally perverse warranting this Court to draw an inference that the order suffers from error of law appare....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he same vein, the Commission was of the view that the subject of true and full disclosure is open for examination in the proceedings under sub-section 4 of Section 245D. In holding this, the Commission has moved over to the stage of Section 245D(4) without entering upon the fundamental issue as to whether the application was or was not invalid. This exercise had to be carried out by the Commission at the stage of the proceedings under sub-section 2C of Section 245D on the basis of the report submitted by the Commissioner and after hearing the applicant. The Commission has abdicated the discharge of that obligation at that stage, by deferring its consideration at a later stage. The Commission, in our view, was completely in error in holding that unless it is established by a competent authority that the purchases are all bogus, that the application at this stage could not be held to be invalid, though the department may have in its possession certain evidence indicating the fact that the income has not been truly and fully disclosed, or that the quantum of income disclosed in the application in comparison to the claim of the department is meager. The Commissioner had submitted his r....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Commission is not even required or obligated to pass a reasoned order. Be that as it may, the fact remains that it is open to the Commission to accept an amount of tax by way of 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 enquiry 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 alteram 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 whet....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... every order of settlement. Legislative intent is loud and clear. The order passed by the Settlement Commission has been treated to be conclusive. It can be recalled only under the circumstance if it is subsequently found by the Settlement Commission that the order was obtained by fraud or misrepresentation of facts, as per sub-s. (6) of s. 245D of the Act. On a conjoint reading of sub-ss. (4) and (6) of s. 245D and ss. 245F(4) and 245-I, it would appear that except in the case of fraud or misrepresentation of facts, the order passed by the Settlement Commission is final and conclusive and binding on all the parties. This appears to be so because the Settlement Commission was constituted to reduce the lifespan of litigation and to provide speedy remedy to an assessee who voluntarily discloses his/her undisclosed income for hassle free settlement of the case. The very use of the words „settlement of cases" is indicative of the fact that the provision has been made to settle the case in its entirety forever and leave no issue open for subsequent decision." We have considered the submissions of learned counsels for the parties and perused the materials on the record. It is ev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e at the stage of Section 245D(2C), the Commission could have subsequently taken a different view of the matter. It is evident from the order dated 20.5.2013 under section 245D(2C) that though declaring the application as not invalid the issue as to whether the disclosure is full and true was still alive at the stage of Section 245D (4), for which reliance has been placed by the Commission on the decision of the Delhi High Court in True Woods case (supra). Thus it cannot be said that a final irrevocable finding had been given by the Settlement Commission in favour of the petitioners with regard to the true and full disclosure, which may not have been gone into again at the stage of 245D(4) order. The question then would be as to whether there was some material before the Commission to have arrived at the said conclusion. In our view such materials are to be found in the further reports of the Commissioner, particularly the report under Section 245D (3) wherein the fact regarding the petitioners not having disclosed the turn over with regard to the huge amount of bills which had been treated as liability and contingent liability in the audited accounts of the BCCL for the area in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....et the requirements of law. The petitioners claim to have been carrying the business of civil construction related work, repairing work of plant and machinery and consultant work on the basis of procuring contract against tender floated by the BCCL. It is not in dispute that such tenders were open tenders in which there would be other participants and the contract would be awarded to the lowest tenderer as admitted by the petitioners themselves. Evidently, the work of such tenders would not lead to profits in the range of very high percentages including net profit of 98.31%, 86.99% and 75.99% as have been shown in the table included in the order of the Settlement Commission. In view of the aforesaid facts it is not open to the petitioners to argue that the Income Tax Department or the Settlement Commission ought to be only concerned with the income tax to be collected on the income disclosed and not the nature of the transactions even if they amounted to a criminal act. The provisions of Section 245C make it very clear that not only full and true disclosure of income has to be made but also the manner in which the income has been derived. It is true that grounds of criminality m....