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2015 (9) TMI 75 - BOMBAY HIGH COURT

2015 (9) TMI 75 - BOMBAY HIGH COURT - TMI - Judicial review in respect of final orders passed by the Commission under Section 245D(4) - Held that:- In the present case, the additional income was offered by the Respondent No.2 Assessee, only after the Petitioner had filed its Rule 9 report and it was only during the course of hearing under Section 245D(4) of the Act that the additional income of ₹ 59.11 Crores and ₹ 3 Crores were offered. This also on accepting the view of the Petitio .....

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onally, the amount of incometax payable on such undisclosed income is to be computed and mentioned in the application. It needs little emphasis that section 245C(1) of the Act mandates 'full and true' disclosure of the particulars of undisclosed income and 'the manner' in which such income was derived and, therefore, unless the Settlement Commission records its satisfaction on this aspect, it will not have the jurisdiction to pass any order on the manner covered by the application. Case of Ajmer .....

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we find that the application for settlement sufficiently explains the source of the income being declared. The application mentions how the additional income which is being disclosed as been derived i.e. on application of the ALP in respect of exports made to its Associated Enterprise viz holding company. We do not see any merit in the above submission on behalf of the petitioner.

Whether the income has really accrued or arisen must be judged in the light of the reality of the situat .....

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we see no reason to interfere with the merits of the decision in the present facts. - Writ Petition No. 2521 of 2013 - Dated:- 14-8-2015 - M. S. Sanklecha And N. M. Jamdar, JJ. For the Appellant : Mr Abhay Ahuja with Ms Padma Divakar For the Respondent : Mr J D Mistri, Sr. Adv. with Mr Sameer Dalal ORDER P. C. This Petition under Article 226 of the Constitution of India impeaches the order dated 28th December, 2012 passed by the Settlement Commission, Additional Bench, Mumbai(the Commission) un .....

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judicial review from orders of the Commission stands settled by the decision of the Apex Court in Jyotendrasinhji v/s. S. I. Tripathi & Others 201 ITR 631 - wherein the scope of judicial review from the orders under Section 245D(4) of the Act has been set out as under: " …. …. …. …. 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 un .....

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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 N. W. Police v. Evan .....

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al orders passed by the Commission under Section 245D(4) of the Act is indeed very limited and like in any other case of judicial review by way of a writ, the Court does not sit in appeal over the order of the Commission. Indisputably, this court does have powers of judicial review over orders passed by the Commission and would certainly correct any miscarriage of justice or where the orders are without jurisdiction. However, in the absence of the above being established, we would be averse to i .....

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o add, least we be misunderstood, that none of these would fetter our jurisdiction under Article 226 of the Constitution to exercise powers of judicial review over orders passed by the Commission under Chapter XIXA of the Act. This is being pointed out by us only to emphasis that a challenge to the order of the Commission by way of a writ would not be examined through the prism of an appeal. Thus, while exercising judicial review under Article 226 of the Constitution of India we examine the deci .....

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and is an subsidiary of one M/s. Jupiter Networks LLC USA (holding company). The Respondent No.2 is engaged in rendering I. T. related services to its holding company inter alia from its unit registered with the Software Technology Park of India (STPI unit) and also from its nonSTPI Units. The Respondent No.2 is exempted from tax under Section 10A of the Act in respect of its profits arising from its STPI unit i.e. 95% of its entire profits. The business model of the Respondent No.2 is to provi .....

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77; 100/- + 10%. However, at the instance of the Customs department, the Respondent No.2 enhanced the value of equipments imported from 2006 onwards to ₹ 225/- i.e the Customs valuation for import and also recorded it at Customs value in its Books. This resulted not only in depreciation being taken at a higher figure but also the sales being recorded at ₹ 225/- + 10% i.e. higher than the actual/real transaction value between the Respondent No. 2 and its holding company; (b) Consequen .....

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application for settlement for A. Y. 2004-05 to 2009-10 with the Commission, claiming the benefit of deduction under Section 10A of the Act. The Respondent also claimed that the inflated sales i.e. ₹ 225/- + 10% in excess of the actual income of ₹ 100/-+ 10% be ignored. The Respondent had declared an additional income of ₹ 8.54 Crores for Assessment Years 2004-05 to 2009-10 on account of transfer pricing adjustment of 5% in respect of STPI unit and 6% of nonSTPI units as its t .....

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on under Section 10A of the Act claimed by the Respondent No.2; and (c) Thereafter the Petitioner filed its Rule 9 report in terms of the Settlement Commission (Procedure) Rules, 1977 (Commission Rules) to the Applicationfor settlement made by Respondent No.2. The Commission on consideration of the material and submissions made before it passed the impugned order holding that the unbilled revenue (excess sales figures at ₹ 225/- + 10%) is not genuine income as it is a mere book entry made .....

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to entertain the application for settlement made by the Respondent-Assessee. This for the reason that the Respondent-Assessee did not satisfy the two independent conditions precedent as provided under Section 245C(1) of the Act for invoking the jurisdiction of the Commission as under: (a) making full and true disclosure of its income in its application; and (b) the manner in which this income has been derived. This failure to make full and true disclosure, according to the Petitioner is evident .....

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idered in the context of the facts arising therein. The bare facts, there were: (a) On 30 September 1993, Ajmera (Applicant) made an application for settlement to the Commission, making an offer of ₹ 1.94 Crores for the Assessment Years 1998-90 to 1993-94; (b) On 27th January, 1994, the Commissioner of Income tax objected to entertaining the application on account of failure on the part of the Applicant to make a true and full disclosure of its Income. This was by filing a report under Rul .....

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n was challenged in the High Court and it was carried to the Apex Court which restored the challenge to the High Court, keeping all the issues open. The High Court by its order dated 8th July, 2009 while remitting the issue to the Settlement Commission for fresh adjudication, inter alia, observed that "In view of the facts and the legal position noted above, even though we find that the Respondent-Assessee had not made full and true disclosure of their income while making an application und .....

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had not made full and true disclosure of their income while making an application under Sectionwpl18062015 245C(1) of the Act, yet did not find it proper to set aside the proceeding on that ground. Having recorded the said adverse finding on the very basic requirement of the valid application under Section 245C(1) of the Act, the High Court's opinion that it would not be proper to set aside the proceeding as clearly erroneous." 7. It would, therefore, be noticed that there was a clear f .....

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income in its original application. However, this is not cast in stone and will depend upon the factual context from case to case to determine whether there was any failure to disclose fully and truly the income. This is particularly so where the correct determination of income is dependant upon the application of the appropriate Transfer Pricing Rule which to an extent is subjective, as in this case. In such a case, if an additional income is declared during the course of the hearing in view o .....

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out. 8. The Petitioner's application for settlement, in particular, seeks the settlement of the various issues including determining the correct taxable income under the normal provisions of the Act and under Section 115JB of the Act. It has not been urged before the Commission or even before us that there was a deliberate failure on the part of the Respondent-Assessee to make full and true disclosure of its income and it was not a bonafide application. In the present case, the additional in .....

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to us, in the peculiar facts of the case, cannot be held against the Petitioner. 9. An identical submission as made before us on behalf of the petitioner was a subject matter of consideration by this Court in W. P. No.559 of 2008 (Director of Income v/s. Income Tax Settlement Commission) and decided on 28th February 2014. In the above case, an identical submission was raised by the Revenue as raised before us with regard to failure to make true and full disclosure. For the purpose of convenience .....

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re the application can be entertained by the Commission. The failure on the part of the respondent to make full and true disclosure in its application is established, according to the petitioner, by the fact that an additional income of ₹ 150 Crores was declared before the Commission on 10 September 2007 i.e. over and above, the income declared in their application dated 5 March 2007. This additional disclosure of income on the part of the respondent itself, without anything more is a taci .....

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h application. The Apex Court in the matter of Ajmera Housing (supra) has observed as under: "A bare reading of the provision would reveal that besides such other particulars, as may be prescribed, in an application for settlement, the assessee is required to disclose: (i) a full and true disclosure of the income which has not been disclosed before the Assessing Officer; (ii) the manner in which such income has been derived; and (iii) the additional amount of income tax payable on such inco .....

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me and 'the manner' in which such income was derived and, therefore, unless the Settlement Commission records its satisfaction on this aspect, it will not have the jurisdiction to pass any order on the manner covered by the application." It further held that: "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 .....

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erefore, 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 the said Chapter is clear and admits of no ambiguity." 8. The above observations of the Apex Court may at first blush seem to cover the petitioner s case completely. However before the above observations being relied up .....

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ntain a 'true and full' disclosure of their undisclosed income and 'the manner' in which such income had been derived. However, we say nothing more on this aspect of the matter as the Commissioner, for reasons best known to him, has chosen not to challenge this part of the impugned order." 9. It would, therefore be noted that the aforesaid issue of whether or not by virtue of disclosure of additional income, there was a failure to make a true and full disclosure was not an i .....

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10. The above observations equally apply to the present case. Moreover, the facts as pointed out herein above in the present case, are very different from the facts which arose for consideration before the Apex Court in Ajmera Housing (supra). Consequently, the same in the peculiar facts of the present case, cannot be applied. Therefore we do not agree with the submission of the Petitioner that there has been a failure to disclose truly and fully undisclosed income in the settlement application .....

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in the above submission on behalf of the petitioner. 12. The other jurisdictional objection to the impugned order urged by the petitioner is the grant of immunity from penalty and prosecution under Section 245H of the Act. It is submitted that before immunity can be granted, the Statute requires the Commission to be satisfied that the person who has made an application for settlement: (a) has cooperated in the proceedings before the Commission; (b) has made a full and true disclosure of his inco .....

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. …. In so far as the income which has been disclosed as per profit and loss Account is at a higher figure and the applicant cannot reduce its income, whether it would remain taxable as such or on its being abated could a lower figure be is a circumstance which deserves consideration by the Commission. In view of such concession which the applicant is willing to offer, the disputable issues regarding the taxability of real income and book profits requires settlement." In any event on .....

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e have been invoked when the same has no application. In support reliance is placed upon the decision of the Apex Court in State Bank of Travancore v. CIT 158 ITR 102 and CIT v. Shiv Prakash Janak Raj & Co. 222 ITR 583 [relies upon State Bank of Travancore (supra)]. The decision of the Apex Court in State Bank of Travancore (supra) was reversed to the extent it held that accrued interest is real income in UCO Bank v. CIT 237 ITR 889. Be that as it may, the Counsel for the Revenue places reli .....

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