TMI Blog2012 (3) TMI 102X X X X Extracts X X X X X X X X Extracts X X X X ..... egard to the various issues raised before it in the report of the CIT merely on the basis of the reports of the JDIT - Decided in favor of the assessee by way remand to ITSC - W.P. (C) No. 10198 of 2009 - - - Dated:- 23-2-2012 - SANJIV KHANNA and R.V. EASWAR, JJ. JUDGMENT R.V. Easwar, J. This is a writ petition filed by the CIT(Appeal) IV, New Delhi praying for issue of a writ of certiorari and or any other writ, order or direction for quashing the order dated 20th October, 2008 passed by the Income Tax Settlement Commission (hereinafter referred to as "ITSC"), Principal Bench on 4th Floor, Lok Nayak Bhawan, Khan Market, New Delhi-110003. It is also prayed that a writ or order or direction in the nature of mandamus be issued directing the ITSC, the second respondent herein, to pass a speaking order after giving adequate opportunity to the Income Tax Department to make enquiries into the affairs of the assessee. 2. The first respondent is M/s Godwin Steels Pvt. Ltd. (hereinafter also referred to as "assessee" or "Godwin") of Rajouri Garden, New Delhi. It is a private limited company. On 27th August, 2004, the income tax authorities conducted a survey under Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and undue harassment to the assessee. It was pointed out that in the questionnaire the Assessing Officer had even proposed to estimate the undisclosed income of the assessee at Rs. 1,50,000/- per day per party which was devoid of any valid reasoning. The assessee also submitted that its case involved complexity of investigation arising because of the fact that various loose papers were seized during the survey and heavy additions would in all probability be made leading to protracted litigation. Complexities of investigations, it was stated, were also involved in determining the source of income of the assessee on the basis of the disclosure made in the application before ITSC and utilisation of the declared amount in various moveable and immoveables assets. The genuineness and reliability of the books of accounts maintained by the assessee were also stated to be factors to be taken into account in assessing the complexity of the investigation. In the application before the ITSC the assessee, after stating the aforesaid facts, offered an amount of Rs. 15 lacs for taxation on which the income tax payable was Rs. 5,16,583/- and the interest payable was Rs. 1,95,896/-, together amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the contrary only the gross profit rate was applied on such unaccounted cash sales which does not reflect the true undisclosed income. ( c ) In the same letter the assessee has admitted that there has been power consumption as well as labour payments which are all recorded in the books of accounts. If this is the correct factual position then the offer of mere gross profit on the sales made outside the books of accounts cannot be accepted and the only course open is to add the entire cash sales as the unaccounted income of the assessee. The CIT also referred to certain other material facts in support of his claim that the entire cash sales should be added as undisclosed income of the assessee and these facts are mentioned in detail in paragraph 1.8 of the report. ( d ) A statement on oath was recorded from one Brij Mohan, employee of the assessee-company who admitted that he collected cash from Kumar Co., Jain Iron Steels and Harbhajan Singh Co. Despite opportunities the assessee did not furnish details of these transactions and in the application before the ITSC the assessee merely referred to cash sales of one day to M/s Kumar Co. The transactions with other two p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back dates which indicated that the books of accounts were not closed on a daily basis but were kept open to facilitate manipulation. The financial transactions recorded in the computer were captured and as per the data on the date of the survey the gross profit earned by the assessee was Rs. 84,24,8099/- and the net profit was Rs. 73,26,353/- After adjusting the opening and closing stock the gross and net profit figures came to Rs. 40,53,851/- and Rs. 29,55,535/- just for the first four months, that is, from the 1st April, 2004 to 28th August, 2004 which is the date of survey. As against this profit of only Rs. 4,10,184/- was offered. ( k ) The other aspects which have not been covered by the assessee in the application before the ITSC were the applicability of Section 40A(3) of the Act, excise duty evasion etc. 7. After bringing the aforesaid facts to the notice of the ITSC, the CIT referred to the judgment of the Madras High Court V.M. Shaik Mohammed Rowther v . Settlement Commission (IT WT) , [1999] 236 ITR 581 where it was held that there is no right in an assessee to invoke the jurisdiction of the ITSC even while continuing with his dishonest conduct. The CIT thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing compartments:- (1) Computation of net profit; (2) computation of income under Section 68 in respect of the share capital received; (3) computation of income by way of cash paid for cheque; (4) computation of income in respect of cash collected for unaccounted sales to Kumar Co., Jai Iron and Steel and Harbhajan Singh Co.; In respect of the aforesaid main issues the procedure adopted by the ITSC, by and large, was to get the document and evidence verified by the Joint Director of Income Tax (JDIT) in the presence of the Assessing Officer. Thereafter the ITSC has gone by the report submitted by JDIT on 25th September, 2008 and 1st October, 2008. 12. So far as the computation of the net profit is concerned, the ITSC has noted that before the JDIT and the Assessing Officer, no difference and disputes arose in respect of explanation furnished by the assessee nor was any objection raised by the department. The ITSC has also noted that the CIT(DR), in view of the necessary verification done, did not make any further comments on this account. In paragraph 13 of its order the ITSC concluded that no adjustment was required to made on account of net profit. This par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he entry under consideration does not relate to the year before us. For the reasons stated above, we do not see any reason to make further adjustment on this account." 15. As regard the cash collected from the three firms on account of unaccounted sales made to them, the contention put forward by the assessee before the ITSC was that the transactions of sales to Kumar Co. and Jai Iron and Steel Corporation, were not in dispute but they have been duly taken into consideration while working out the peak cash and, therefore, no further consideration was necessary. With regard to the statement of Brij Mohan, the employee of the assessee company who had confirmed that he had collected the cash from the three firms for unaccounted sales made by the assessee, the contention before the ITSC was that there was no other evidence to corroborate the statement of Brij Mohan and that there were confirmed copies of accounts from the three parties to indicate that the assessee had no transactions with Harbhajan and Co. It was also submitted that Harbhajan Co. was assessed to tax. 16. After hearing the assessee and the revenue and after considering the report of the CIT under Rule 9, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the report and the evidence furnished during the course of hearing, we are of the view that no adjustment is required to be made on the above accounts. These issues, accordingly, stand settled." 20. After accepting all the submissions of the assessee as noted above, the ITSC settled the additional income of the assessee at Rs. 15 lacs as per the statement of facts filed by the assessee. The ITSC also granted immunity to the assessee from prosecution and penalty under the Income Tax Act to the extent and in regard to the issues raised and discussed in its order. Interest under Section 234B was directed to be charged in accordance with law as the ITSC has no power to waive the same as held by the Supreme Court in Commissioner of Income-Tax v. Anjum. M.H. Ghaswala and Ors., [2001] 252 ITR 1 (SC). The assessee had sought capitalization of Rs. 12 lacs in respect of the cash disclosed before the ITSC and this request was allowed in para 38. The tax as per the computation together with interest was directed to be paid within 35 days of the receipt of the order of the ITSC. It was provided that the immunity may be withdrawn if the tax is not paid as directed and also if it is f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Fatechand Nursing Das v. Settlement Commission (IT and WT) and Anr. , [1989] 176 ITR 169 (SC), the Supreme Court observed that the power of judicial review is concerned not with the decision but with the decision making process. In that case the Supreme Court was concerned with the correctness of the order of the ITSC in an appeal under Article 136. It was further observed that the Court is concerned only with the legality of the order. Referring to this judgment, it was observed by Jeevan Reddy, J. speaking for the Supreme Court in the case of Jyotendrasinhji v. S.I. Tripathi and others [1993] 201 ITR 611 that the only ground upon which the court can interfere against the orders of the ITSC is that the orders are contrary to the provisions of the Act and such contravention has prejudiced the appellant. At page 623 the Court dealt with the contention that the ITSC is not required or obligated to pass a reasoned order. Vis-a-vis this contention, the court observed as under:- "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 condon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r) and Jyotendra Singhji v. S.I. Tripathi [1993] 201 ITR 611 (SC). In these cases, we find that the impugned orders of the Commission are vitiated by more than one misdirection in law. Firstly, the Commission held, wrongly, that the Income Tax Officer had no power to proceed with or collect any material after the date of submission of the application under Section 245-C. Secondly, having rightly rejected to admit the case relating to assessment year 1977-78 for settlement, it (the majority) made out a new case for the assessee by creating a distinction between 1977-78 and 1978-79 and 1979-80, when no such distinction was suggested even by the assessee; indeed such a distinction is contrary to the case put forward by the assessee in its application under Section 245-C. The Commission (the majority) also ignored the several statements, admissions and averments made by the assessee before the Commission while admitting the case relating to assessment year 1978-79 and 1979-80 for settlement." 27. Applying the ratio laid down in the aforesaid judgments to the case before us, we find that the ITSC has not disposed of the application before them in the manner required by law. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 487 are relevant. Lord Wright observed that the Special Commissioners were not in the position of judges deciding an issue between two particular parties, that their obligation is wider than that, that they were exercising statutory authority and statutory duty which they are bound to carry out and it is their obligation "to exercise their judgment on such material as comes before them and to obtain any material which they think is necessary and which they ought to have, and on that material to make the assessment or the estimate which the law requires them to make." These observations made in relation to the proceedings before the Special Commissioners of income tax, who proceeded to hear the appeal filed by the assessee despite notice given by him to withdraw the appeal, apply with equal force to the ITSC which has been given a special position and authority under the Income Tax Act. However, in the present case, the ITSC seems to have entrusted the job of verification and application of mind to the officers assisting it. It may be true that in all cases it may not be expected of the members constituting the Bench to themselves verify every material or evidence brought before t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s only referred to the assessee's explanation with regard to the opening stock, excise duty, purchase ingots and applicability of Section 40A(3). No independent opinion has been expressed by him. His report merely shows what the explanation of the assessee was with regard to the aforesaid points. The JDIT himself has not expressed any opinion about the veracity or correctness of the explanation. He has further recorded that the verification has been conducted on the directions of the ITSC and in the presence of the concerned Income Tax Officer, Ward-12(2), New Delhi and the authorised representative of the assessee. It has also been recorded that the proceedings were conducted in his chamber on 22nd September, 2008. 30. The second report dated 1st October, 2008 is a very brief report and the same is reproduced below:- "In continuation to the earlier supplementary report, it is further clarified and stated that during the course of hearing before the undersigned on Representative of the A.O. representing the I.T. Department and the Authorised Representative of the applicant had appeared and produced/filed relevant details and evidences. Both the parties i.e. the applicant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... found in the computer and the account books maintained by the assessee for production before the income tax authorities, what the ITSC has stated in para 13 of its order is merely that the revenue has not objected to the explanation furnished by the applicant. The report of the JDIT has been simply relied upon to state that since he has verified the relevant material along with the evidence furnished by the applicant in the presence of the Assessing Officer, nothing further was required to be done. Having regard to the fact that there was a difference of more than Rs. 25 lacs, even for the period of four months for which data was available, between the figure of net profit shown by the computer data and the figure of net profit shown in the books of accounts meant for production before the income tax authorities, it was expected of the ITSC to independently apply their mind to the assessee's explanation, whatever that was, and to the materials found and relied upon by the CIT in his report and cross verify both in an attempt to find out whether the explanation was plausible or acceptable. This important step in the decision-making process has been omitted to be done. 32. So far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been added to the undisclosed income of the assessee instead of the peak amount or merely the gross profit from the sales. The CIT had submitted in his report that since the assessee has accounted for all the expenditure, it is only logical to add the entire amount of unaccounted sales as the undisclosed income of the assessee without giving allowance to further expenditure or by applying the peak amount theory. There is nothing in the order of the ITSC to show that this objection of the CIT was given any consideration. All that has been stated by the ITSC in para 26 of its order is that considering the documentary evidence furnished by the applicant along with the SOF (statement of facts) at the time of the hearing, the cash collections from Kumar Co. and Jai Iron Steels have been covered by the peak theory, details of which have been given at pages 620 to 633 of the SOF filed by the assessee before the ITSC. To say the least, this appears to us to be an unsatisfactory way of disposing of a very serious and seemingly valid objection raised by the CIT in his report. Again on this aspect also there is nothing in the reports of the JDIT to show as to what was the assessee's explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied as to the acceptability of the assessee's explanation with regard to the various issues raised before it in the report of the CIT merely on the basis of the reports of the JDIT. Without applying its mind directly to the report of the CIT and the materials referred to therein, it could not have reached the conclusion that nothing more was required to be added over and above the undisclosed income of Rs. 15 lacs disclosed by the assessee. The ITSC thus ignored relevant evidence and material which it ought to have taken into account while processing the assessee's application. 36. The learned counsel for the petitioner has submitted, with our leave, copies of the application and statement of facts filed by Godwin before the ITSC as well as the documents, accounts etc. filed before the ITSC in connection with the settlement. These are to be examined by the ITSC; we refrain from looking into them having regard to the limited jurisdiction that vests in us in judicial review under Article 226. We cannot substitute our view on the merits of the matter for the view of the ITSC. Our jurisdiction is only to examine if the decision-making process has suffered from some fundament ..... X X X X Extracts X X X X X X X X Extracts X X X X
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