PRINCIPAL COMMISSIONER INCOME TAX SURAT 1 vs. SHANKARLAL NEBHUMAL UTTAMCHANDANI

ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

income

of Rs.2,77,35,875/­

and Rs.4,51,20,308/­ for the assessment years 2014­2015 and 2015­2016   respectively,   aggregating   to   Rs.7,28,56,183/­ which was in relation to long term capital gain claimed as exempt   under   section   10(38)   of   the   Act   on   the   sale   of shares of M/s. Surbhi Chemicals Ltd. 3.2)  The respondent assessee filed Settlement Application under   section   245C(1)   of   the   Act   of   1961   before   the Commission   on   1st  January,   2017   offering   additional income for the assessment years as under : SL. No. Assessment Year Additional   income offered

in the statement of claim 1 2012­2013 Rs.    1,18,029/­ 2 2013­2014 Rs. 1,67,92,355/­ 3 2014­2015 Rs. 6,67,26,846/­ 4 2015­2016 Rs.13,08,24,444/­ 5 2016­2017 Rs.   64,38,326/­ Total Rs.22,09,00,000/­ 3.3)  Respondent­assessee filed its statement of fact before the Commission,   preparing a statement of sources and application   of   unaccounted   income   to   demonstrate   that investment/application and rotation of unaccounted funds is   covered   by   overall   source   of   unaccounted   funds generated   and   offered   to   tax.   It   was   submitted   that applications thereof   being explained by sources offered, the   same   were   not   separately   liable   to   be   treated   as income.   The   respondent­assessee   submitted   that   during the   course   of   survey,   the   books   of   account   of   the respondent   was   under   finalisation   hence   provisional balance­sheet   as   available   in   computer   system   was submitted to Survey Party. The respondent­assessee also submitted that some accounting entries were pending as on date of survey which were entered in the post survey and there is no major differences in the provisional balance sheet and one which is filed along with return of income. 3.4)  The   petitioner   filed   report   as   per   Rule   9   of   the Income­tax Settlement Commission (Procedure) Rules 1997 (for   short   “the   Rules”)   in   the   course   of   hearing   before Commission.   It   was   submitted   in   the   report   that   on examination of impounded documents, it is found that the quantum of additional income disclosed by the assessee before the Commission was not true and full disclosure and   accordingly   year­wise   unaccounted   income, investment, expenditure, advances, unsecured loans of the respondent assessee were added by the investigation wing based on the detailed examination of impounded material/ document/facts/statement   of   respondent   assessee recorded   in   the   course   of   survey   and   post­survey proceedings worked out at Rs.113,25,78,426/­  for the A.Y. 2012­2013 to 2016­2017 as under : Sr. No. A.Y. Additional Income offered in SOF Further Income disclosed during the course of hearing Income required to be offered as per Rule-9 Report Difference between (5-3- 4)=6 u/s.245D(4)

2012- 13 118029 5000000 161136 4956893 2 2013- 14 16792355 5000000 27327138 (-)5534783 3 2014- 15 66726846 7500000 229615822 (-)155388976 4 2015- 16 130824444 66500000 81781162 115543282 5 2016- 17 6438326 36000000 793693168 (-)751254842 Total 220900000 120000000 1132578426 (-)791678426 3.5)  It was therefore, submitted before the Commission that   respondent   assessee   did   not   make   true   and   full disclosure of Rs.79,16,78,426/­ in the statement of income filed before the Commission. 3.6)  The   respondent   submitted   reply   to   Rule   9   report giving explanation to each of the points therein. Further, the   respondent   assessee   disclosed   additional   income during the course of hearing under section 245D(4) of the Act of 1961 aggregating to Rs.12,00,00,000/­  for the five years from assessment years 2012­2013 to 2016­2017. 3.7)  The Commission by impugned order 25th July, 2018 accepted   the   disclosures   made   by   respondent   assessee after   considering   the   detailed   item­wise   explanation submitted by respondent assessee in respect of income of Rs. 113 Crore  suggested by the petitioner and arrived at the conclusion that all the issues raised by the petitioner are   covered     in   the   additional   income   offered   in   the statement of fact and additional income further disclosed by the respondent assessee amounting to Rs. 12 Crore and accordingly the case of the respondent assessee was settled on the terms and conditions stated in the impugned order in paragraph no. 14 to 18. 4. Heard  learned advocate  Mr. Nikunt  Raval  appearing  for learned advocate Mrs. Kalpana Raval for the petitioner and learned   Senior   Counsel   Mr.   S.N.   Sopakar   with   learned advocate   Mr.   Bandish   Soparkar   for   the   respondent­ assessee.

“15. It is true that the finality clause contained in Section 245­I does not and cannot bar the jurisdiction of the High Court under  Article   226  or the jurisdiction of this court under Article 32 or under Article 136, as the case may be. But that does not mean that the jurisdiction of this Court in the appeal preferred directly in this court is any different than what it would be if the assessee had first approached the High Court  under  Article   226  and then come up in appeal to this court under Article 136. A party does not and cannot   gain   any   advantage   by   approaching   this   Court directly under Article 136, instead of approaching the High Court under Article 226. This is not a limitation inherent in Article 136;  it is a limitation which this court imposes on itself having regard to the nature of the function performed by the Commission and keeping in view the principles of judicial review. May be, there is also some force in what Dr. Gauri Shankar says viz., that the order of commission is in the   nature   of   a   package   deal   and   that   it   may   not   be possible, ordinarily speaking, to dissect its order and that the assessee should not be permitted to accept what is favourable   to   him   and   reject   what   is   not.   According   to learned counsel, the 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   parterri)   has   been incorporated   in  Section   245­D  itself.   The   sole   overall limitation upon the Commission thus appears, to be that it should act in accordance with the provisions of the Act. The scope of enquiry, whether by High Court under Article 226  or by this Court under  Article 136  is also the same­ whether the order of the Commission is contrary to any of the provisions of the Act and if so,  apart from ground of bias, fraud & malice which, of course, constitute a separate an   independent   category   has   it   prejudiced   the petitioner/appellant. Reference in this behalf may be had to the decision of this Court in RB Shreeram Durga Prasad &   Fatechand   Nursing   Das   v.   Settlement   Commission (1989) 176 I.T.R. 169, which too was an appeal against the orders of the Settlement Commission. Sabyasachi Mukharji J., speaking for the Bench comprising himself and S.R. Pandian, J. observed that in such a case this Court is " concerned with the legality of procedure followed and not with the validity of the order.' The learned Judge added 'judicial review is concerned not with the decision but with the decision­making process." Reliance was placed upon the decision of the House of Lords in Chief Constable of the N.W.   Police   v.   Evans,   [1982]   1   W.L.R.1155. Thus,   the appellate power under Article 136 was equated to power of judicial review, where the appeal is directed against the orders' of the Settlement Commission. For all the above reasons, we are of the opinion that the only ground upon which   this  Court   can  interfere  in  these  appeals  is  that order of the Commission is contrary to the provisions of the Act   and   that   such   contravention   has   prejudiced   the appellant The main controversy in these appeals relates to the interpretation of the settlement deeds though it is true, some contentions of law are also raised. The commission has interpreted the trust deeds in a particular manner. Even if the interpretation placed by the commission on the said deeds is not correct, it would not be a ground for interference in these appeals, since a wrong interpretation of a deed of trust cannot be said to be a violation of the provisions of the Income Tax Act. it is equally clear that the interpretation   placed   upon   the   said   deeds   by   the Commission does not bind the authorities under the Act in proceedings relating to other assessment years.” 6.1)  Learned Senior Counsel for the respondent assessee further relied upon the decision of this Court in case of Commissioner   of   Income­tax­I   v.   Income   Tax Settlement Commission reported in (2017)  390 ITR 306 (Gujarat) dated 12th  July, 2016, wherein this Court has held as under :

“10. It can thus be seen that on the issue of true and full disclosure,   stage   at   which   such   disclosures   should   be made   and   the   effect   of   making   further   disclosures   by revising initial offers of settlement was examined by the Supreme   Court   in   the   case   of  Ajmera   Housing Corporation (supra). The manner in which the Supreme Court has dealt with such issue and has made elaborate and conclusive observations, it cannot be stated contrary to what was argued before us that the above­noted portion of   the   judgment   should   not   be   seen   as   ration   of   the judgment of the Supreme Court. Ratio of this judgment is that the true and full disclosure of the income must be made at the initial stage and large scale remissions in such disclosure   itself   would   show   that   the   initial   disclosures were not true.

“8. In view of the above facts and circumstances, more particularly, in view of the fact that this Court is dealing with   and   examining   the   order   of   said   commission   in exercise of writ jurisdiction keeping in view the scope of judicial review and keeping in view the exercise of extra ordinary jurisdiction, this Court is of the opinion that from the   overall   background   of   the   fact   without   said Commission   has   thoroughly   examined   minutely   all   the details related to the issue in question and arrived at a particular finding which this Court found not to substitute the   same.   In   the   background   of   these   facts   and circumstances,   resultantly,   the   petition   deserves   to   be dismissed.” 6.3)  Reliance was also placed on the decision of this Court in   case   of  Principal   Commissioner   of   Income­tax, Central v. Income Tax Settlement Commission reported in (2017) 249 Taxman 54 (Gujarat) dated 13th June, 2017, wherein it is held as under :

“14. It is true that before the Settlement Commission, the assessees indicated that the additional disclosure of Rs.50 lakhs   each   may   be   accounted   for   the   assessment   year 2014­15. However, we cannot lose sight of the fact that such   disclosures   were,   as   noted   above,   in   the   spirit   of settlement   and   to   put   an   end   to   the   controversy.   The assessees therefore cannot be pinned down to the effect of such disclosures in the year 2014­15 alone. We cannot fragment   a   larger   picture   and   telescope   the   additional disclosures for a particular year and taking into account the comparable figures for that year decide whether such disclosures would shake the initial disclosures as to apply the   ratio   laid   down   by   the   Supreme   Court   in   case   of Ajmera   Housing  (supra)   and   to   hold   that   the   initial disclosures   themselves   were   untrue   projecting   the additional   disclosures   for   all   years   the   assessees   had sought settlement, we find the Commission committed no error in accepting them and in proceeding to pass final order on such settlement applications.” 6.4)  Reliance was also placed on the recent decision of this Court in case of Principal Commissioner of Income Tax,   Central   v.   Income   Tax   Settlement   Commission dated 22nd  October, 2019 in Special Civil Application No. 9883/2019, wherein it is held as under :

“50. In the above backdrop, the decision of the Supreme Court   in   the   case   of  Ajmera   Housing   Corporation   v. Commissioner of Income­tax (supra), on which reliance has been   placed   by   the   learned   counsel   for   the   petitioner would, in  the opinion of this court, have no applicability to the facts of the present case, inasmuch as, in the facts of the   said   case,   the   assessee   had   filed   application   under section 245C before the Settlement Commission disclosing an amount of Rs.1,94,33,580/­ for the relevant assessment year in addition to the income declared in the return of income submitted by them earlier. During the course of the proceedings   before   the   Settlement   Commission,   the assessee filed a revised settlement application containing confidential   annexures   and   related   papers   declaring therein an additional income of Rs.11.41 crore. Thus, while in the application under section 245C(1) of the IT Act, the disclosure was of Rs.1.94 crores, in the revision application the   additional   income   of   Rs.11.41   crore,   which   was approximately five times the amount originally disclosed, came   to   be   made.   Besides,   in   that   case,   a   revised settlement   application   had   been   made   and   it   is   in   the backdrop   of   such   facts   and   circumstances   that   the Supreme Court held that full and true disclosure of income which had not been previously disclosed by the assessee being a precondition for a valid application under section 245C(1) of the Act. The scheme of Chapter XIXA does not contemplate   revision   of   income   so   disclosed   in   the application against item 11 for the form. The court further held   that   if   an   assessee   is   permitted   to   revise   his disclosure,   in   essence,   he   would   be   making   a   fresh application in relation to the same case by withdrawing the earlier application and that in this regard, section 245C(3) of the Act which prohibits the withdrawal of an application once   made   under  sub­section  (1)  of  the   said   section  is instructive   inasmuch   as   it   manifests   that   an   assessee cannot be permitted to resile from his stand at any stage during the proceedings.

therefore submitted that in view of the decision of the Apex Court in case of Jyotendrasinhji   (supra), Commission is not required to give any reason, as the Commission has acted in accordance with the provisions of  the Act of 1961. He further submitted that as the scope of the inquiry is very limited, no interference is required to be made in the impugned order passed by the Commission.

“26. The procedure laid down in  Section 245D  of the Act, contemplates   that   on   receipt   of   the   application   under Section 245C(1)  of the Act, the Settlement Commission is required to forward a copy of the application filed in the prescribed form (No. 34B), containing full details of issues for which application for settlement is made, the nature and   circumstances   of   the   case   and   complexities   of   the investigation   involved,   save   and   except   the   annexures, referred to in item No. 11 of the form and to call for report from the Commissioner. The Commissioner is obliged to furnish such report within a period of 45 days from the date   of   communication   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 Section 245D(1) is made, by the Settlement Commission, Rule 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 Commissioner and further report shall be called from the Commissioner. The Settlement Commission can also direct the Commissioner to make further enquiry and investigations in the matter and furnish his report. Thereafter,   after   examining   the   record,   Commissioner'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 Commissioner under sub­section (1) or sub­section (3) of   the   said   Section.   It   bears   repetition   that   as   per   the scheme of the Chapter, in the first instance, the report of the   Commissioner   is   based   on   the   bare   information furnished   by   the   assessee   against   item   No.   10   of   the prescribed form, and the material gathered by the revenue by   way   of   its   own   investigation.   It   is   evident   from   the language of Section 245C(1) of the Act that the report of the Commissioner is primarily on the nature of the case and the complexities of the investigation, as the annexure filed in support of the disclosure of undisclosed income against item No. 11 of the form and the manner in which such income had been derived are treated as confidential and are not supplied to the Commissioner. It is only after the Settlement Commission has decided to proceed with the application   that   a   copy   of   the   annexure   to   the   said application   and   other   statements   and   documents accompanying   such   annexure,   containing   the   aforesaid information   are   required   to   be   furnished   to   the Commissioner. In our opinion even when the Settlement Commission decides to proceed with the application, it will not be denuded of its power to examine as to whether in his   application   under  Section   245C(1)  of   the   Act,   the assessee   has   made   a   full   and   true   disclosure   of   his undisclosed   income.   We   feel   that   the   report(s)   of   the Commissioner and other documents coming on record at different stages of the consideration of the case, before or after the Settlement Commission has decided to proceed with   the   application   would   be   most   germane   to determination   of the said question. It is plain from the language of sub­section (4) of Section 245D of the Act that the jurisdiction of the Settlement Commission to pass such orders as it may think fit is confined to the matters covered by the application and it can extend only to such matters which are referred to in the report of the Commissioner under sub­section (1) or sub­section (3) of the said Section. A "full and true" disclosure of income, which had not been previously disclosed by the assessee, being a pre­condition for a valid application under Section 245C(1) of the Act, the scheme of Chapter XIX­A does not contemplate revision of the income so disclosed in the application against item No. 11 of the form. Moreover, if an assessee is permitted to revise his disclosure, in essence, he would be making a fresh   application   in   relation   to   the   same   case   by withdrawing the earlier application. In this regard, Section 245C(3)  of the Act which prohibits the withdrawal of an application once made under sub­section (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 sub­section (3) of Section   245C  of   the   Act   otiose   and   meaningless.   In   our opinion, the scheme of said Chapter is clear and admits no ambiguity.

conclusion that further additional income of Rs.12 Crore offered   during   section   245D(4)     proceedings       can   be accepted   with   reference   to   income   disclosed   in   the settlement application. 11.On   perusal   of   the   impugned   order   passed   by   the Commission, it is apparent that the application submitted by   the   respondent   has   been   dealt   with   as   per   the provisions   of   section   245C   and   245D   of   the   Act.   The Commission   has   observed   detailed   procedure   while exercising powers under section 245D(4) of the Act of 1961 by examining thoroughly report submitted by the petitioner under Rule 9 of the Income Tax Settlement Commission (Procedure)   Rules,   1997. The   Commission   has   also provided proper opportunity of hearing to the respective parties   and   therefore   the   amount   which   has   been determined by the Commission is just and proper. In view of   the   aforesaid   decisions   cited   by   the   respondent,   the Commission   was   right   in   considering   the   revised   offer made   by   the   respondent   during   the   course   of   the proceedings in the nature of spirit of settlement. Therefore, the decision of the Apex Court in case of Ajmera Housing Corpn. (supra), would not come into operation in facts of the  case. We are therefore of the opinion that order passed by the Commission does not call for any interference. 12.In   view   of   the   foregoing   reasons   and   facts   and circumstances  and more particularly, in view of exercise of the   powers   by   this   Court   under   Article   226   of   the Constitution of India, the examination of the order of the Commission has to be made keeping in mind the scope of judicial review as per the decision of Apex Court in case of Jyotendrasinhji   (supra). Therefore, keeping in view the exercise of extraordinary jurisdiction and in view of the overall background of facts whereby the Commission has thoroughly minutely examined all the details relating to the issue in question and arrived at a particular finding, same cannot be substituted.

accordingly are dismissed. Rule is discharged. No order as to costs. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) RAGHUNATH R NAIR