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2018 (9) TMI 1033
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....neously, survey operations under Section 133A at some locations were undertaken. 3. During the aforesaid operations, cash of Rs. 34,89,000/- and jewellery worth Rs. 1,49,73,682/- were found out of which Rs. 34,00,000/- in cash and jewellery valued at Rs. 23,53,853/- was seized. Incriminating documents in the form of loose papers, registers, dairy etc. were also found and seized. Trilok Chand Jain in his statement recorded on 10th December, 2015 had admitted and surrendered undisclosed income of more than Rs. 18 Crores for the entire group in the hands of different assessees. Subsequently, Trilok Chand Jain vide his letter dated 18th November,2016 had retracted the surrender. 4. Consequent to the search, the petitioners were served with notices under Section 153A for the assessment years 2010-11 to 2015-16. As returns were not filed, notices for prosecution under Section 276CC of the Act were also issued and served on the petitioners. The petitioners on the other hand claim that they had filed their returns after seeking extension of time on two occasions. 5. On 28th April, 2017, five separate applications under Section 245C (1) of the Act were filed by the five petitioners....
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....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,- (i) in a case where proceedings for assessment or reassessment for any of the assessment years referred to in clause (b) of subsection (1) of section 153A or clause (b) of sub-section (1) of section 153B in case of a person referred to in section 153A or section 153C have been initiated, the additional amount of income-tax payable on the income disclosed in the application exceeds fifty lakh rupees, (ia) in a case where- (A) the applicant is related to the person referred to in clause (i) who has filed an application (hereafter in this sub-section referred to as "specified person"); and (B) the proceedings for assessment or re-assessment for any of the assessment years referred to in clause (b) of sub-section (1) of section 153A or clause (b) of sub-section (1) of section 153B in case of the applicant, being a person referred to in section 153A or section 153C, have been initiated, the addition....
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....r member, has a substantial interest in the business or profession of that person; (b) a person shall be deemed to have a substantial interest in a business or profession, if- (A) in a case where the business or profession is carried on by a company, such person is, at any time during the previous year, the beneficial owner of shares (not being shares entitled to a fixed rate of dividend, whether with or without a right to participate in profits) carrying not less than twenty per cent of the voting power; and (B) in any other case, such person is, at any time during the previous year, beneficially entitled to not less than twenty per cent of the profits of such business or profession. xxxxx 245-D. Procedure on receipt of an application under Section 245-C.- (1) On receipt of an application under section 245C, the Settlement Commission shall, within seven days from the date of receipt of the application, issue a notice to the applicant requiring him to explain as to why the application made by him be allowed to be proceeded with, and on hearing the applicant, the Settlement Commission shall, within a period of fourteen days from the date of the appli....
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....: Provided further that where the Principal Commissioner or Commissioner has not furnished the report within the aforesaid period, the Settlement Commission shall proceed further in the matter without the report of the Principal Commissioner or Commissioner. (2-D) Where an application was made under sub-section (1) of Section 245-C 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 declare....
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....ay of June, 2010, within eighteen months from the end of the month in which the application was made. (5) Subject to the provisions of Section 245-BA, the materials brought on record before the Settlement Commission shall be considered by the Members of the Bench concerned before passing any order under sub-section (4) and, in relation to the passing of such order, the provisions of Section 245-BD shall apply. (6) Every order passed under sub-section (4) shall provide for the terms of settlement including any demand by way of tax, penalty or interest the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective and shall also provide that the settlement shall be void if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts. (6-A) Where any tax payable in pursuance of an order under sub-section (4) is not paid by the assessee within thirty-five days of the receipt of a copy of the order by him, then whether or not the Settlement Commission has extended the time for payment of such tax or has allowed payment thereof by instalments, the assessee shall b....
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....f the Act. Section 245BA delineates and outlines jurisdiction and powers of Settlement Commission. Sub-section (1) to Section 245C states that an assessee at any stage of a case relating to him can make an application to the Settlement Commission in the prescribed form containing full and true disclosure of his income not disclosed before the Assessing Officer; the manner such income was derived; the additional amount of tax payable on undisclosed income and other particulars as prescribed. Proviso prescribes other conditions including the minimum amount of tax that should be payable on the undisclosed income and that the tax and the interest on the undisclosed income has to be paid on or before the date of making of the application. Proof of payment is to be attached with the application. 11. Section 245D vide as many as 15 sub-sections sets forth in detail the procedure to be followed by the Settlement Commission. We are primarily concerned with sub-section (1) to Section 245D, which states that the Settlement Commission shall within 7 days of the receipt of the application issue notice to the applicant to explain as to why the application should be allowed to be proceeded wit....
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....s that Settlement Commission may after examining the records and the report of the Principal Commissioner/Commissioner, if any, received under subsection (2B) or sub-section (3) and after giving an opportunity of hearing to the applicant and the Principal Commissioner/Commissioner and examining further evidence as may be placed or obtained by it, pass an order in accordance with the provision of the Act as it thinks fit on the matters covered by the application and other matters relating to the case not covered by the application. These can be matters referred to in the report of the Principal Commissioner/Commissioner. Sub-section (4A) prescribes time limits for passing of orders under sub-section (4) to Section 245D. Sub-section (5) states that the material brought on record shall be considered by Settlement Commission before passing an order under Section 245D (4) of the Act. Sub-section (6) mandates that every order under sub-section (4) to Section 245D of the Act shall include demand by way of tax, penalty or interest, the manner in which sum due would be paid and all other matters to make the settlement effective and also stipulate that the settlement would be void if it is s....
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....ne the condition of "full and true" disclosure of income not earlier disclosed and the manner in which such income was derived. The provision does not permit and postulate piecemeal disclosures, which can be enhanced and increased during the proceedings before the Settlement Commission for the statute requires "full and true" disclosure in the settlement application and not incomplete or partial disclosure. Modification and amendment of the settlement application to comply with the statutory preconditions is not permissible. 15. On many occasions, an application for settlement could on the question of computation of undisclosed income have an element of estimation. Settlement provisions would well apply to the said cases and are not barred as long as the undisclosed income declared is "full and true" and the manner in which it is derived is stated. The Settlement Commission under Chapter XIX -A has all powers as vested in the Income-tax authorities under the Act till a final order is passed. The Settlement Commission has exclusive jurisdiction to exercise power and performs functions of the Income-tax Authorities under the Act in relation to the case. However, unlike the Income-....
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.... by disclosing fully and truly his income, which has not been disclosed before the Assessing Officer. This disclosure must be voluntary and that the application must contain true and full disclosure of the hitherto concealed income and the manner in which it was derived. These were the fundamental and essential pre-conditions. 18. Aspect of "full and true" disclosure was highlighted and brought to forefront in Ajmera Housing Corporation and Another versus Commissioner of Income Tax, (2010) 8 SCC 739. The self-confessed tax evader must come clean with his past illegitimate affairs, discharge his tax liability as determined by the Settlement Commission to buy quittance for himself and in the process, accelerate recovery of taxes by the State, though less than what may have been recovered after protracted litigation and by recovery proceedings. Disclosure of "full and true" of particulars undisclosed income, and the manner in which said income has been derived are essential and mandatory pre-requisites of a valid application. Therefore, unless the Settlement Commission records their satisfaction on the said aspect, it would not have jurisdiction to pass an order on a matter covered....
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.... scrutinising the application of settlement made by an assessee is envisaged. The statute does not provide for grounds on which Settlement Commission may reject such an application or allow the application to be proceeded with. There are however, sufficient indications in the statute itself what would be the purpose and nature of scrutiny of Commission at that stage. As already noted, sub-section(1) of section 245C an assessee may make an application for settlement in the prescribed manner containing true and full disclosure of income not previously disclosed before the Assessing Officer and the manner in which such income had been derived as also the additional amount of income-tax payable on such income and such other particulars as may be prescribed. At the stage of sub-section(1) of section 245D of the Act, therefore, prime scrutiny of the Commission would be whether application of the assessee is in order and in conformity with the requirements of sub-section(1) of section 245C which would include filing of an application in the prescribed manner and also making necessary disclosures as required therein. There are also additional requirements of sub-section(1) of section 245C ....
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....ment thereof at several stages of the settlement proceedings. If therefore, while at the threshold, considering the question whether such application should be allowed to be proceeded with or be rejected, the Commission examined such questions on the basis of disclosure made by the applicants and the supporting material produced along with the applications, we do not see that the Commission committed any legal error. As already noted, it was well within the jurisdiction of the Commission at the stage of sub-section(1) of section 245D of the Act to examine whether application for settlement fulfills the statutory requirements contained in sub-section(1) of section 245C of the Act. At this stage we may refer to the decision of the Supreme Court in case of Ajmera Housing Corporation and another(supra). It was a case in which the assessee had made certain disclosures in the initial application under section 245C(1) of the Act. Such disclosures were however, revised and additional income was disclosed in the revised annexures. The Apex Court held that the assessee had no right to revise an application under section 245C(1) of the Act and further that such revised annexure making further....
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.... 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 Subsection (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-applicant or by the CIT and come to a conclusion by themselves. In Bikhubhai Vithlabhai Patel. v. State of Gujarat [2008] (4) SCC 144 the Supreme Court considered the expression "as considered necessary" and opined that the term "consider" means to think over and it connotes that there should be "active application of the mind". Earlier in CIT vs. Rai Bahadur Hardutroy Motilal Chamaria [1967] 66 ITR 443, a t....
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....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 section casts a duty upon the ITSC to thoroughly examine the evidence and material placed before them in order to ensure that unscrupulous assessees do not take undue advantage of the finality of the order of settlement. It is no doubt open to the ITSC to take the assistance of its officers in the matter of doing the ground work and carrying out the verification of the record, seized materials, documents, account books etc., but in the present c....
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.... reasoning. It is true that the foundation for settlement is an application from the assessee in which the assessee must make a full and true disclosure as required under the provision of section 245C of the income tax act or section 32E of the central excise act, but it is equally true that the requirement of a full and true disclosure need not be examined and authoritatively determined at the threshold of any proceedings initiated before the Commission under Chapter V. There may be cases where it is possible for the Commission to record a finding that the disclosure made in the application is "full and true". There may, however, be situations in which the Commission may not be able to, at the stage of admission of the application, record a finding with any amount of certainty. In any such situation, it will not be legally impermissible for the Commission to keep the question open as it has done in the instant case to be examined at a later stage or at the stage of final disposal of the application. What is important is that there must be full and true disclosure to the satisfaction of the Commission before any relief can be granted to the applicants which implies that the require....
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....avour of the applicants. It is not a definitive or final view and it is for this reason that the Settlement Commission, it its wisdom, left the issues open to be determined at the stage of final hearing under Section 245D(4) of the said Act. It may very well be that the Settlement Commission, at that stage, may agree with the Revenue on the basis material on record and the report submitted by the Commissioner of income-tax that the applications were not maintainable under Section 245C(1) of the said Act. In fact, the Settlement Commission may, at any stage till it passes a final order under Section 245D(4), examine the issues and if there is sufficient material on record, determine the question of full and true disclosure and the manner in which the undisclosed income was derived conclusively and, depending on such a decision, the applications may be thrown out or they may be proceeded with further." 24. An order under Section 245D(1) of the Act has to be passed within a rigid time frame of 15 days. Principal Commissioner/Commissioner is unrepresented at this stage. The scrutiny or the inquiry at this stage, is summary in nature. This however, does not take away or dilute the po....
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....ult stipulation when no order is passed. 25. An order under 245D(1) when allowing an application for settlement to be proceeded with, is interim or interlocutory in nature for there is no finality attached to the preliminary findings recorded as the proceeding do not come to a closure and end, but an order of rejection concludes the proceedings and has different consequences. In this sense the opinion formed by the Settlement Commission in case of rejection under Section 245D(1) is conclusive and final. Notwithstanding that the onus to show and establish that the application should be allowed to be proceeded with, the negative finding cannot be merely a "tentative" or "prima facie" as in case if the proceedings are allowed to be proceeded with. Necessarily and as a sequitur it follows that if the Settlement Commission is unable to form a decisive opinion to give a definitive finding for rejection after the initial and preliminary hearing, proceeding to the second stage is the only option. The deemed approval provision when the Settlement Commission is unable to decide and form an opinion supports the above interpretation. 26. Sub-section 3 to Section 245 C states that an appl....
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....t, second and third petitioner which read:- "6. The applicant firm claims to be dealing in production and trading of mustard oil, trading of mustard seeds and trading of mustard cakes etc. The activities of the group are spread in Tonk District in Rajasthan. In the SoF of the firm, it is said that the main basis of earning undisclosed income was through suppression of the gross profit rate. A comparison was made of the GP rate with one M/s Rajesh Products which is a related concern, as also with two other assessees. By comparing the GP rate of these three entities, it was stated that since there was a manipulation of GP rate, the higher rate shown by M/s Rajesh Traders was adopted to work out the undisclosed income in different years from AY 2010-11 to 2016-17. The relevant contentions of the applicant firm are reproduced below:- "on a careful analysis of the two tabulations given above, it shall be clear that the gross profit percentage of RT Industries is less than that of other similar entities and also the Rajesh Products. The reason for the same is that, in RT Industries, the Applicant was indulging in inflation of purchases of mustard seeds from the farmers, due t....
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....een entered in the regular books of account of the applicant. Thus, all entries relating to exhibits AS7, AS8, AS9, AS10, ASll, AS12, AS23, AS26 etc. which are seized documents are claimed to be appearing in the regular books of account. Similarly, entries relating to AS14, AS15, AS16 and AS22 relating to banking transactions between RT Industries and Rajesh Products which are claimed to be duly recorded in the books of account. Similarly, entries appearing in AS24 and AS25 are said to contain details of oil seeds and various ledger accounts which are all claimed to be part of the regular books of account." 10. As regards, the two partners, when questioned about evidence to suggest that the unaccounted income was advanced to farmers at a interest rate of 12 %, remained a hollow claim. No evidence has been led either from the seized material or from any subsequent documentation or from books of account, disclosed or undisclosed to suggest that the unaccounted income was earned in this manner and to this extent. There is not an iota of evidence to suggest which farmers were advanced these monies, when were the amounts advanced and at what rate. Thus, both in the case the firm and ....
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....and the commission earned there from at the rate of 1.5 to 2%, was not offered for taxation before the Department. Asked about evidence in this regard, it was stated there were seized documents and some rough papers/notings on which the amounts pertaining towards selling/purchase properties have been mentioned. It was claimed that these were only rough figures on which the interest calculation was at the rate of 2% which has now being offered as undisclosed income. The Ld. AR offered to exhibit copies of these seized documents, some of which were examined by the Commission during the course of hearing. Admittedly, some rough sheets have been seized which indicate property dealing and in some of these documents commission income/ percentage of such commission has been indicated. It is also true that these documents were found from the premises of the two applicants. However, there is no indication or hardly any indication that the present applicants were the facilitators/ mediators in the transaction which resulted in commission income. Even if, Sh. Ashok Kumar Jain and Sh. Rajesh Kumar Jain were facilitators, then the question to be answered is how were the HUFs concerned with t....
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....ere was substantial difference in 'moisture content' acceptable and found, 'oil content' acceptable and found, extent of dust in oil seeds, type of bardana used etc. and manipulations of price to inflate the purchases. The petitioner No.1 had however expressed inability to precisely work out and give an exact figure of the undisclosed income earned in absence of 'duplicate accounts'. Therefore, they had deduced or computed the undisclosed income on basis of the gross profit rate in the comparable or same line of business. The second admission made by the first petitioner was that the gross profit rate earlier declared by them was lower when compared with other cases in the same line. 31. Application of gross profit rate in comparable cases to compute and furnish particulars of undisclosed income is not objected to and adversely commented upon by the Settlement Commission. 32. Selection of comparables was objected to, for the reasons recorded by the Settlement Commission. While reliance placed on the gross profit rate declared by Rajesh Products, a sister concern, who were subjected to search was clearly a suspect and unreliable, there was no evidence o....
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....sure of the undisclosed income of Rs. 3.20 crores and the manner and modus operandi adopted by them to earn the undisclosed income. These arguments though noted have not been considered and pondered upon while recording the tentative reasons to reject the settlement application of the first petitioner. 34. Paragraphs 12 and 13 of the impugned order state that the conclusions drawn were tentative and ''prima facie'' and not conclusive and firm findings on merits. The expression "prima facie" specifically used in the last paragraph of the impugned order, would manifest that the negative finding was subject to confirmation and to some extent therefore conjectural. This is also clear from the penultimate paragraph of the impugned order wherein the Settlement Commission observed that upon consideration of the entire material on record and evidence brought to their notice, they cannot with ''reasonable certainty'' hold that full and true disclosure had been made. These observations in the conclusions are not only with reference to the first petitioner, but would equally apply to rejection of applications filed petitioner Nos.2 to 5. 35. We would, the....
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....rtners lending money to the farmers was concocted having no basis and credibility. 37. Questioning the said finding as incoherent and on Wednesbury principles, Counsel has submitted that the two petitioners being the partners would have benefitted and utilized the unaccounted income of R.T. Industries. Undeclared income earned as partners of the first petitioner was invested by the two petitioners in purchase of properties or given as loan to various persons, mainly farmers, against standing crops to earn interest, which varied from 9% to 12% per annum. Their plea of investment in properties was based upon documents found and seized. It was also stated that the partners had not maintained day-to-day record of transactions and interest rate charged. In one or two cases of short term advance, even higher interest was charged. Reference was made to loose sheets, namely, AS-3 and AS-5 in which rate of interest was mentioned as 1.4% and 1.5%. These were short-term advances given to third parties other than farmers. The two petitioners had prepared a tabulation of year-wise income earned after considering the entire seized records. Petitioner Nos.2 and 3 had accordingly declared addit....
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....ions and in some documents, even percentage of such commission it was shown was computed. However, the settlement applications have been rejected as there was no indication or hardly any indication that the two HUFs were acting as facilitators or mediators in the property transactions. Even if the Ashok Kumar Jain and Rajesh Kumar Jain were acting as mediators or facilitators, question would arise whether the income should be taxed in the hands of the two HUFs, or the two individuals, as this was a matter of personal, and professional expertise or knowledge. Indeed, it would be true and correct that undisclosed income earned by Ashok Kumar Jain and Rajesh Kumar Jain cannot be treated as undisclosed income of Ashok Kumar Jain HUF and Rajesh Kumar Jain HUF. At the same time, this would be matter of detailed verification. Firm and conclusive finding would require examination of the past position; whether the two HUFs were engaged and had earned income by way of commission or brokerage. However, the Settlement Commission was itself uncertain and has not given any firm or conclusive opinion as it has observed that "the role of the HUFs in the transactions, if any, was doubtful to say....
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....9; finding of the Settlement Commission that the fourth and the fifth petitioner had made a wrong declaration as to the manner of earning undisclosed income, is nothing but a surmise, which is incorrect and baseless. This contention is without prejudice to the contention of the fourth and fifth petitioners that the Settlement Commission had erroneously and contrary to law dismissed the application filed by the fourth and fifth petitioners on tentative opinion and ''prima facie'' assumption, without forming a conclusive and final opinion. 43. We are conscious and aware that scope of judicial review and exercise of writ jurisdiction while examining an order of the Settlement Commission is limited and primarily confined to considering whether the Settlement Commission has committed grave or patent error of jurisdiction and failed to abide by and act in accordance with the provisions of the Act. The Settlement Commission is a fact finding body, whose orders have been given finality. A writ court would hesitate and not go into the merit of the decision taken by the Settlement Commission to reappraise disputed questions of fact, specially, in view of the nature of the jur....