TMI Blog2024 (4) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... overed by the application, but referred to in the report of the Commissioner under Sub Section (1) or (3) of Section 245C of the Act. ITSC also has power to grant immunity from penalty and prosecution, with or without conditions. The ITSC need not give any reasons and even if it gives any reason the scope of enquiry cannot go beyond - The court should be concerned with the legality of procedure followed and not with the validity of the order. The judicial review is concerned not with the decision but with the decision making process. Even if the interpretation placed by the ITSC on documents is not correct, it would not be a ground for interference since a wrong interpretation of documents cannot be said to be a violation of the provisions of the Act. There are no allegation of bias or fraud or malice alleged in the petition against the Commission. The Hon ble Apex Court in Kotak Mahindra Bank Ltd. [ 2023 (9) TMI 1231 - SUPREME COURT] held that the High Court cannot sit in appeal as to the sufficiency of the material and particulars placed before the Commission, based on which the Commission proceeded to pass its orders. While discussing the legislative intent on the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loor at Atrium benefits the assessee ought to have conducted an enquiry or investigation on the issue as these factual issues required verification to ascertain whether the amount was spent on the assets as stated, its actual cost, year of purchase, etc. - It does not appear that any such request for verification of these aspects were made by the Revenue in the reports or statements that were filed before the Commission. Moreover, the discretionary power under Section 245D(3) discussed above will apply here also. Further, the Revenue had accepted that the seized diary discloses the correct facts in respect of the cash generated by assessee on account of bogus purchases. In view thereof, Revenue should also accept utilization of such cash as narrated in the said diary/document seized at the time of search. It is assessee s case that assessee has its office on 10th Floor at Atrium and the expenses have been incurred on civil work, furniture and air conditioning system at the said office and the said office premises has been used in the previous year relevant to A.Y. 2011-12. Assessee has been allowed deduction by way of depreciation on the other capital expenditure incurred with resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent No. 2 : Mr. J.D. Mistri, Senior Advocate a/w Mr. Nitesh Joshi i/b Mr. Atul K. Jasani. ORAL JUDGMENT : (PER : K.R. SHRIRAM, J.) 1. Petitioner, who is the Commissioner of Income Tax, Central II, Mumbai, is impugning an order dated 31st July 2013 passed by Respondent No. 1 - the Income Tax Settlement Commission (ITSC) under Section 245D(4) of the Income Tax Act, 1961 (the Act). Petitioner has jurisdiction over Respondent No. 2 who is the assessee. Rule was granted on 27th February 2015. 2. Assessee is engaged in the business of development and sale of residential and commercial properties in the Western Suburbs of Mumbai. Assessee was subjected to search and seizure action on 29th March 2011 under Section 132 of the Act. During the course of search and seizure action, cash of Rs. 45 Lakhs was seized. Besides, cash, various papers, books of accounts and other documents were also found and seized. Scrutiny of the documents allegedly revealed that assessee along with other group entities has shown purchase in its books of account from certain entities without receipt of any material from any such party and these entities had only issued accommodation bills without supplying any mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchases of Rs. 11,95,51,440/- net cash received by the applicant was Rs. 11,04,32,745/- after commission @ 3.25%. The said amount has been applied for the following purposes : Capital cash incurred for office premises Renovation (A. Yr. 2010-11) 2,96,27,000 - do - (A. Yr. 2011-12) 12,47,000 Air Conditioner (A. Yr. 2011-12) 1,40,24,000 Furniture (A. Yr. 2011-12) 3,84,55,000 8,33,53,000 2,70,79,745 Expenditure incurred (Revenue in nature 11,04,32,745 Capitalisation to the extent of Rs. 8,33,53,000/- is being allowed. Depreciation may be allowed. 6. It is Revenue s case in this petition that in the report dated 20th December 2012 furnished under Rule 9 of the Rule, Revenue had sought direction from the ITSC to direct Revenue to make or cause to make further enquiry or investigation under Section 245D(3) of the Act. It was Revenue s case that seized material does not indicate what figures written there pertain to though, on perusal, the figures appeared to be flow of money. Revenue also submitted, in the alternative, that investigation be permitted to also ascertain within which assessment year the materials mentioned in the seized documents were purchased. 7. On the claim of deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directing an enquiry/investigation as to whether the amount was in fact spent or invested in renovation of the office and purchase of air conditioners and furniture. (c) The procedure followed by the ITSC is in the nature of a presumption and therefore the ITSC should have directed the Commissioner to investigate/enquire as to whether the expenditure as claimed by assessee was correct. (d) The impugned order has given no reasons as to why it accepted the claim of assessee that an amount of Rs. 8,33,53,000/- has been spent on renovation and purchase of air conditioners and furniture. (e) The order was without reasons and hence, bad in law. (f) Therefore, the impugned order should be quashed and set aside and the matter be remanded to the Interim Board as now constituted. 10. Mr. Mistri submitted as under : (a) The deduction under Section 80IB(10) of the Act has been correctly allowed as the difference of Rs. 20,67,687/- (Rs. 87,60,556/- less Rs. 66,92,869/-) represents adhoc disallowances made by the A.O. in the Assessment Orders for A.Y. 2005-06 to A.Y. 2008-09. The said disallowance resulted in decrease of work in progress in respect of Vasundhara and Samarpan project for the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order passed by the ITSC is contrary to any of the provisions of the Act and if so, apart from ground of bias, fraud and malice which, of course, constitute a separate and independent category, has it prejudiced the assessee. (g) The ITSC, as held in Jyotendrasinhji (supra), need not even give reasons. The Hon ble Apex Court held that even if the interpretation placed by the ITSC on documents is not correct, it would not be a ground for interference since a wrong interpretation of documents cannot be said to be a violation of the provisions of the Act. In other words, the scope of interference is very narrow. (h) Section 292C(1)(ii) provides for presumption as to assets, books of accounts etc. Under Section 292C(1)(ii) it is provided that where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search under Section 132 of the Act it may, in any proceeding under this Act, be presumed that the contents of such books of account and other documents are true. There is similar provision under Section 132(4A) of the Act. A presumption is an inference of fact dr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 144 of the Act. No steps of filing of return or enquiry by the A.O. under Section 142 and 143 of the Act or issuing a notice of demand under Section 156 of the Act on the basis the Assessment Order etc. are required to be followed in the case of proceedings under Chapter XIX-A. The nature of the orders under Sections 143(1), 143(3) and 144 is different from the orders of the ITSC because Chapter XIX-A only contemplates the taxability determined with respect to undisclosed income only by the process of settlement/arbitration. 11. Findings : At the outset let us examine the scope of intervention by a court, in its jurisdiction under Article 226 of the Constitution of India, with an order passed by the ITSC. It came up for consideration in Jyotendrasinhji (supra). The Hon ble Apex Court held that the High Court under Article 226 can interfere with an order of the ITSC only when the order is contrary to provisions of the Act and that such contravention has prejudiced assessee. Paragraph Nos. 14 and 15 of Jyotendrasinhji (supra) read as under : 14. The first question we have to answer is the scope of these appeals preferred under Article 136 against the orders of the Settlement Commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e re-opened in any proceeding under the Act or under any other law for the time being in force. Section 245L declares that any proceedings under chapter XIX-A before the settlement commission shall be deemed to be a judicial proceeding within the meaning of Section 193 and 228 and for the purposes of Section 196 of the Indian Penal Code. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion 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 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. In view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articulars placed before the Commission, based on which the Commission proceeded to pass its orders are particularly beyond the scope of judicial review, except under the circumstances set out in Jyotendrasinhji (supra). While discussing the legislative intent on the provisions of Chapter XIX-A, the Hon ble Apex Court in Kotak Mahindra Bank Ltd. (supra) held that frequent interference with the orders or proceedings of the ITSC should be avoided and the High Court should not scrutinize an order or proceeding of the ITSC as an appellate court. The court further held that unsettling reasoned orders of the Settlement Commission may erode the confidence of the bona fide assessees, thereby leading to multiplicity of litigation where settlement is possible and this larger picture has to be borne in mind. Paragraph Nos. 9, 10, 12 and 13 of the judgment read as under : 9. In the present case, as noted above, we find that the appellant placed material and particulars before the Commission as to the manner in which income pertaining to certain activities was derived and has sought to offer such additional income to tax. Based on such disclosures and on noting that the appellant co-operated wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. The High Court should not scrutinize an order or proceeding of a Settlement Commission as an appellate court. Unsettling reasoned orders of the Settlement Commission may erode the confidence of the bona fide assessees, thereby leading to multiplicity of litigation where settlement is possible. This larger picture has to be borne in mind. (emphasis supplied) 13. In N. Krishnan (supra) the Karnataka High Court held that the Settlement Commission 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. The court further held that 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 circumstances of the case, which would be applicable only to that case and the Settlement Commission has power to give immunity against prosecution or imposition of penalty. The court further held that the provisions of settlement would show that it is in the nature of statutory arbitration to which a person may submit himself voluntarily and therefore the scope is much more restricted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d left some matters referred undetermined or when the award was indefinite, where the objection to the legality of the award was apparent on the face of the award. The Court might also set aside the award on the ground of corruption or misconduct of the arbitrator, or that a party had been guilty of fraudulent concealment or willful deception. But the Court could not interfere with the award if otherwise proper on the ground that the decision appeared to it to be erroneous. The award of the arbitrator was ordinarily final and conclusive, unless a contrary intention was disclosed by the agreement. The award was the decision of a domestic Tribunal chosen by the parties, and the Civil Courts which were entrusted with the power to facilitate arbitration and to effectuate the awards, could not exercise appellate powers over the decision. Wrong or right the decision was binding, if it be reached fairly after giving adequate opportunity to the parties to place their grievances in the manner provided by the arbitration agreement. This Court reiterated in the said decision that it was now firmly established that an award was bad on the ground of error of law on the face of it, when in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43(3) or under Section 144 and issuing of notice of demand under Section 156 on the basis of the assessment order . The making of the order of assessment is an integral part of the process of assessment. No such steps are required to be followed in the case of proceedings under Chapter XIX-A. The said Chapter contemplates the taxability determined with respect to undisclosed income only by the process of settlement/arbitration. Thus, the nature of the orders under Sections 143(1), 143(3) and 144 is different from the orders of the Settlement Commission under Section 245D(4). xxxxxxxxxx (emphasis supplied) Therefore, Mr. Suresh Kumar s submission that order of the ITSC is like an assessment order is not correct. 15. In Jyotendrasinhji (supra) reliance was placed in R.B Shreeram Durga Prasad Fatechand Nursing Das vs. Settlement Commission (1989) 176 ITR 169 in which the Hon ble Apex Court held that any challenge to the orders of the Settlement Commission, the court should be concerned with the legality of the procedure followed and not with the validity of the order. The judicial review is concerned not with the decision but with the decision making process. 16. The conspectus of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f disallowance of expenses by way of bogus purchases and other expenses on Adhoc basis. From the representations filed by Revenue on 23rd November 2002 or under Rule 9 of the Rule on 20th December 2012 or in the submissions dated 1st July 2013 Revenue does not seem to have even asked for examination on issue relating to quantum of deduction to be allowed under Section 80IB(10) which has been raised for the first time in the grounds of the writ petition. Further calling for a report from the Commissioner under Section 245D(3) of the Act is at the discretion of the ITSC. Section 245D(3) of the Act says the ITSC may call for the records from the Principal Commissioner or Commissioner and after examination of such records, if the ITSC is of the opinion that any further enquiry or investigation in the maters is necessary, it may direct the Principal Commissioner or Commissioner to make or cause to be made such further enquiry or investigation and furnish a report. It further says the report has to be furnished within 90 days and provided it is not furnished the ITSC may proceed to pass an order without such report. Therefore, calling for the report is solely at the discretion of the ITS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will apply here also. Further, the Revenue had accepted that the seized diary discloses the correct facts in respect of the cash generated by assessee on account of bogus purchases. In view thereof, Revenue should also accept utilization of such cash as narrated in the said diary/document seized at the time of search. It is assessee s case that assessee has its office on 10th Floor at Atrium and the expenses have been incurred on civil work, furniture and air conditioning system at the said office and the said office premises has been used in the previous year relevant to A.Y. 2011-12. Assessee has been allowed deduction by way of depreciation on the other capital expenditure incurred with respect to the said office premises. The ITSC has accepted the issue of capitalization of expenditure incurred and granted the relief. 21. As noted earlier assessee was subjected to search and seizure action under Section 132 of the Act on 29th March 2011. In the course of search, the investigation team of the Revenue came across a diary which was seized by them and it showed that assessee had entered into certain transactions of purchases which were alleged to be bogus. The Director of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act was subjected to discretion of the ITSC as it relates to question of fact and is not amenable to the jurisdiction of this court. 24. As held in Jyotendrasinhji (supra), even if the interpretation placed by the ITSC on the documents seized is not correct, it would not be a ground for interference since a wrong interpretation of documents cannot be said to be a violation of the provisions of the Act. Further, as held in Kotak Mahindra Bank Ltd. (supra) sufficiency of the material and particulars placed before the Commission based on which the Commission proceeded to pass its orders are beyond the scope of judicial review. The High Court should not also scrutinize order of the ITSC as an appellate court because as held in Brij Lal And Others (supra), the orders of the Settlement Commission under Section 245D(4) of the Act is different from the nature of orders under Section 143(1), 143(3) and 144 of the Act. 25. Mr. Suresh Kumar relied on the judgment of the Bombay High Court in Harish Textile Engrs. Ltd. vs. Deputy Commissioner of Income Tax, Special Range 1 (2015) 63 taxmann.com 66 (Bombay) to buttress his submission that the ITSC should have ordered enquiry on the expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion is very narrow. As observed in N. Krishnan (supra), it is in the nature of statutory arbitration to which a person may submit himself voluntarily and the scope of interference is much more restricted than the power of the court to interfere with an arbitration award. 29. Unsettling reasoned orders of the Settlement Commission, as noted by the Hon ble Apex Court in Kotak Mahindra Bank Ltd. (supra), may erode the confidence of bona fide assessee, thereby leading to multiplicity of litigation where settlement is possible and this larger picture has to be borne in mind. 30. Moreover, we also should note that Section 245B(3) of the Act provides that Chairman, Vice Chairman and other members of the Settlement Commission shall be appointed by the Central Government from amongst persons of integrity and outstanding ability, having special knowledge of, and, experience in, problems relating to direct taxes and business accounts. Therefore, the members of the ITSC have been appointed because of their integrity and outstanding ability and for the special knowledge and experience in problems relating to direct taxes and business accounts. It is rather unfortunate that the Central Governme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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