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Lal Bahadur Singh, Kumbh Nath Singh, Bharat Singh Versus The Union of India, The Commissioner of Income Tax, Deputy Commissioner, Income Taxes, Income Tax Settlement Commission

2016 (11) TMI 1257 - PATNA HIGH COURT

Settlement Commission order validity - Held that:- It is not open to the petitioners to argue that the Income Tax Department or the Settlement Commission ought to be only concerned with the income tax to be collected on the income disclosed and not the nature of the transactions even if they amounted to a criminal act. The provisions of Section 245C make it very clear that not only full and true disclosure of income has to be made but also the manner in which the income has been derived. It is t .....

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ondents even in the counter affidavit is that the source of income of the petitioners is from the BCCL. This Court does not find any cogent material produced by the petitioners with regard to the manner in which the income has been derived and thus we see no reason to consider the conclusion of the Commission as suffering from any infirmity. - For the aforesaid reasons we also do not find any substance in the submission of learned counsel for the petitioners that the Settlement Commission ha .....

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f 2014, Civil Writ Jurisdiction Case No. 21032 of 2014 - Dated:- 23-11-2016 - Ramesh Kumar Datta And Smt. Anjana Mishra, JJ. For the Petitioner s : Mr. Suraj Samdarshi For the Respondent s : Mr. Archana Sinha @ Archana Shahi JUDGMENT ( Per: honourable Mr. Justice Ramesh Kumar Datta ) Heard learned counsel for the petitioners in all the three writ petitions and learned Senior Standing Counsel for the Income Tax Department. All the three writ petitions seek to impugn the common order dated 23.9.20 .....

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petitioners were rejected. The facts leading up to the present matter may be noted. A search and seizure operation under Section 132 of the Income Tax Act was conducted on the three petitioners at their respective addresses at Dhanbad on 23.11.2011 by the Income Tax Department in the course of which an amount of ₹ 65,48,73,442/-in the Bank Account of the petitioner, Lal Bahadur Singh and Fixed Deposit of ₹ 17,40,00,000/- totaling to ₹ 82,88,73,442/- was seized which had not be .....

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377; 84,79,99,993/-, ₹ 8,21,03,858/- and ₹ 1,52,21,706.49 respectively stating that the figures were ad hoc as complete details with regard to the relevant transactions were not immediately available. Subsequently, all the three petitioners filed their return for the assessment years 2006-07 to 2011-12 under section 153A and for the assessment year 2012-13 under Section 139 including the aforesaid income of ₹ 85,00,00,000/-, ₹ 8,35,90,586/- & 1,70,02,000/- respectivel .....

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8377; 28,45,37,128/-, ₹ 2,84,16,893/- and ₹ 51,66,810/- respectively for assessment year 2012-13 as per the return filed under Section 139 of the Act. The three petitioners thereafter filed settlement applications under Section 245C (1) of the Income Tax Act, 1961 on 5.3.2013 with respect to assessment years 2006-07 to 2012-13 disclosing additional income of ₹ 1,89,85,266/-, ₹ 58,92,328/- and ₹ 52,45,901/- respectively and requested the additional tax of ₹ 57, .....

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r examining the settlement application and the documents filed, by order dated 13.3.2013, the Settlement Commission allowed the settlement applications to proceed for the assessment years 2006-07 to 2012-13 under Section 245D(1) of the Income Tax Act and necessary directions were issued to the jurisdictional Commissioner for adjusting the amount lying in the said Account against the demand (tax and interest) in respect of income declared in settlement application with a further direction to subm .....

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ion and further the assessees have neither offered full and true particulars nor disclosed the manner in which such income had been derived, thereby making their applications invalid. The facts which were relied upon for opposing the settlement applications of the petitioners by the CIT were that numerous proprietary concerns in different names were actually owned by the applicants either partly or fully and the applicants had fraudulently withdrawn monies from BCCL (a PSU), the contractee and C .....

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thus it could not be said at that stage that all the three applicants had indulged in embezzlement in respect of the entire receipts disclosed in their settlement applications. After noting the same and relying upon a decision dated 10.11.2005 of the Delhi High Court in Central Excise Vs. True Woods Pvt. Ltd. & Ors., the Commission held that the issue of disclosure being full and true will remain alive even during the course of 245D(4) proceedings and further under Section 245D(6), the sett .....

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tlement applications filed by the applicants were held as not invalid by the order dated 20.5.2013 passed under Section 245D(2C) of the Act and the issue of disclosure under Section 245D(4) remained alive. Thereafter a report under Rule 9 of the Income Tax Settlement Commission Rules, 1997 was submitted by the CIT on 2/6.8.2014. Further, a prayer was made on behalf of the CIT to permit the Department to carry out necessary inquiry under Section 245D(3) of the Act which was ultimately permitted b .....

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der dated 23.9.2014 held as follows in paragraphs 33 to 39 which are quoted below, except the tables quoted therein: 33. Certain events are more than mere coincidence when they are considered in the above backdrop. The CIT has reported that the books and documents were stolen and lost on 21.4.2013 which was duly reported to the police authorities by the applicants. From the CIT‟s reply dated 10.7.2014, the CBI had filed FIR on 31.1.2013 against Shri Kumbh Nath Singh. Shri Kumbh Nath Singh .....

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to works executed by the applicants. Be that as it may from CIT‟s report dated 10.7.2014, it transpires that certain records had been reported to be lost owing to fire at the BCCL, Dhanbad. Suffice it would be to say that the consequences of these incidents was loss of material evidence at both ends. 34. Then, one must also take notice of the fact that in the returns being filed the applicants were following the mercantile system of accounting. The statement of facts filed by the applican .....

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te all banks deposits, transfers, withdrawals and capital expenditure to re- construct account. The expenditure had been claimed on the basis of internal vouchers. The Department‟s allegations were too general in nature, and on the one hand, it was stating that the Department was not in possession of any evidence of expenditure, while concluding that such expenditure was for illegal gratification. However, if the nature of receipts is illegal, the expenditure incurred‟ on the basis o .....

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d and Shri Sanjay Chatterjee, A.R. The reconciliation statement is as under. Sl. No. Rs. In crore Remarks I. Turnover shown by applicants Group 2005-06 to F.Y. 2011-12 201.87 No dispute II In addition to above turnover, Department has argued to consider Following item as part of turnover (a) Bill raised and submitted by the Applicants group to BCCL (After search) 101.46 (b) Liability shown by BCCL in their Books of accounts including ₹ 1.01 crore of bills without date11.98 (c) Contingent l .....

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t for which bills were raised is not considered as a part of contract receipts. Otherwise also till date the amount has not received from the BCCL. Therefore, same may be considered as a bad debt. It has also been pointed out that during the course of 245D(3) enquiry, the A.O. has recorded the statement of Manoj Kumar Gupta, Area Finance Shri Manoj Kumar Gupta, Area Finance Manager of BCCL has stated that no such bills were handed over by the erstwhile Kustore Area. These are mere correspondence .....

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bill. Prima facie the genuineness of so claimed bills appear to be doubtful. 2. It has been argued on behalf of the applicants that as and when amount will receive, same will be offered as an income in relevant assessment years. The similar argument was taken for liabilities shown by BCCL in their Books of Accounts. 3. As far as contingent liability is concerned, same is only part of notes of accounts of BCCL. Further, the A.R. has submitted that if any amount is received in future, same will b .....

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amount actually received in those financial years has been considered as a part of turnover which comes to ₹ 20.38 crore. The department has not provide any bifurcation or details in respect of balance ₹ 30.30 crore. Therefore, same may not be considered as a part of turnover. 5. The A.R. has pointed out that applicant is filing an affidavit accepting the fact that entire receipts which were received and deposited in bank accounts have been considered as a part of turnover and furth .....

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ined in these applications. The enormity of the receipts in the range (as accepted by the CIT and acceptable to the applicants) and the various individuals in which seizures effected in para (5) of this order would only reinforce the view that the requirement of "full and true disclosure" and also "the manner in which income is earned" are met.(sic) 36. We must, however, revert to paras 32 and 33 where an attempt has been made to take an overview of all relevant and material .....

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oss profit and net profit ratios for various years for the applicants. For an overview, the gross profit percentage and yet profit percentage have been worked and tabulated from Annexure A‟,‟B‟ and C‟ for the three applicants. Careful perusal would indicate phenomenal increase in turnover in these years in all cases - the highest being ₹ 70 crore and odd in F.Yr. 2010-2011 from ₹ 1 lac and odd in F.Yr. 2005-06 in the case of Shri Lal Bahadur Singh and the gros .....

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ins unverifiable. Needless to add, these figures do not include the disputed receipts referred to in para 35, sought to be included by the CIT in his report. ......... ........ Consequently, the year-wise accretion to net capital is similarly unrealistic, skewed and defies patterns of normal growth, without any exceptional reason. It is also noted by us that immediately after the dates on which the payments were received, the amounts had been withdrawn. Immediately thereafter, substantial round .....

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on the contention of the applicant that the books of accounts, the vouchers and other materials in respect of such a large number of entities could not have been accommodated in one packet which the applicants claim to have lost. It is also observed by us that since F.Yr. 2009-10 onwards there is an astronomical jump in the total receipts of the applicant-group during which a very substantial portion of the receipts have been invested by the group either in the FDRs or the immovable property or .....

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e, the assessee was a rich businessman from whom ₹ 1 crore (approx) of cash was seized. The stakes ran into a crore or so ( (for A.Yr. 1962- 63 to 1973-74) plus a prosecution under Section 277 of the Act with unpredictable prospects of sentences. That was the narrative on which the assessee had approached the settlement Commission. The apex Court on the law as it then stood had expressed concern on the kind of cases that may find their way undeservedly to the Commission. The facts in the p .....

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ission. On the facts too, the assessees should face the rigours of the law, including possible penalties and prosecutions as suggested in Justice Iyer‟s judgment. Under the circumstances, the applicant(s) do not meet the twin requirements of "full and true disclosure" and the "manner in which such income is derived" of Section 245C. 38. It may be added, that where these twin conditions are not met, the proceedings could be allowed to abate at any stage of the proceeding .....

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ed not be examined and authoritatively determined at the threshold of any proceeding initiated before the Commission under Chapter - V. There may be case where it is possible for the Commission to require a finding that the disclosure made in the application is "full and true". There may, however, the situation 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 le .....

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till the conclusion thereof. The commission may consequently be justified in throwing out the application at any stage if it comes to the conclusion that the disclosure made by the assessed is either incomplete or untrue." 39. In view of the above, no order under section 245(D) (4) is being passed in the case of the three applicants. That being so, the settlement applications filed by Shri Lal Bahadur Singh, Shri Kumbh Nath Singh and Shri Bharat Singh are hereby rejected." Learned cou .....

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ssion having repeatedly held by examining all the materials both in the order under section 245D(1) and 245D(2C) turning down the plea of the Department that there was no full and true disclosure and the manner in which the income was earned had not been shown. It is further submitted that while allowing the request of the Commissioner to file a report under Section 245D (3) of the Act, it was specifically directed by the Settlement Commission that no enquiry is required as to the contention tha .....

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he source is definite. Learned counsel also submits that it was not open to the Settlement Commission to rely upon the legality of the transactions as there is no allegation by BCCL of any misappropriation except a small amount, in comparison to the amount of settlement exceeding ₹ 200 crores, of ₹ 1.23 crore against two of the petitioners only and even after all these years there being no such enquiry regarding siphoning of the amount of ₹ 200 crores of the BCCL, the same is m .....

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as the case of the Commission that these amounts are proceeds of misappropriation, then the Settlement Commission ought to have recorded categorical finding to that effect and held that the assessees were not liable to tax on such receipts and thrown out the application without passing order under Section 245D (4) but it was not open to the Settlement Commission to stop short as it has done. It is also the stand of learned counsel that reliance upon the decision of the Supreme Court by the Settl .....

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mmissioner raises an objection on the ground that the concealment of income is likely to be established or is already established. It is submitted that the Parliament having by amendment taken away the powers of the Commissioner to make such objection during settlement proceedings, it was not open for the Settlement Commission to have relied upon the said judgment of the Apex Court in the matter. Learned counsel also submits that when a party goes to the Settlement Commission it makes confidenti .....

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can do the Settlement Commission has been empowered under Chapter 19A of the Act to do and thus by rejecting the applications of the petitioners at the stage of Section 245D(4) it has shirked its responsibility by relegating it to the Assessing Officer to decide on the same facts. It is further submitted by learned counsel that the amendments made to the provisions of Chapter 19A of the Act from time to time, and specifically to Section 245D, relating to Settlement Commission clearly indicates a .....

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ull and true disclosure by stating that the petitioners had reported their income on cash basis of payments made after deduction of income tax at source by the BCCL which came to ₹ 211.87 crores, whereas the impugned order takes into account bills which were either not accepted or rejected by the BCCL or not paid and thus there was no discrepancy in reporting of true and full particulars of the income by the petitioners. It is urged by learned counsel that under the Income Tax Act the peti .....

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ing instead of outright rejecting the settlement applications on the said ground. In support of his aforesaid stand learned counsel relies upon a decision of a Division Bench of the Karnataka High Court in the case of N. Krishnan Vs. Settlement Commission & Ors: 180 ITR 585 (Karnataka) = (1989) 47 Taxman 294 in para-15 of which it has been held as follows:- 15. With reference to the second question arising for our consideration, as we have pointed out earlier, the provision for constitution .....

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forum for challenging the legality of assessment order or orders passed in any other proceedings. This is not only evident from the provision of the Act which prevents the application made, from being withdrawn as also the provision which makes the decision of the Settlement Commission final and conclusive both on question of law and fact. 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 t .....

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untarily. Therefore, it appears to us that the scope is much more restricted than the power of the Court to interfere within arbitration award. Regarding the jurisdiction of the civil court to deal with an arbitration award, the Supreme Court in the case of Coimbatore District Podu Thozillar Samgam v. Bala Subramania Foundry (sic) has stated thus: "The Court was also entrusted with the power to modify or correct the award on the ground of imperfect form or clerical errors, or decision on qu .....

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th 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 bindin .....

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grounds on which arbitration award could be set aside, could not be available in view of the nature and jurisdiction of the Settlement Commission. We are of the view that decision of Settlement Commission could be interfered with only: (i) if grave procedural defect such as violation of the mandatory procedural requirements of the provisions in Chapter XIX-A and/or violation of rules of natural justice is made out; (ii) if it is found that there is no nexus between the reasons given and the deci .....

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45,46, 55 and 56 of which are quoted below:- "22. It must be appreciated that the assumption made by the Wanchoo Committee and the rationale given by it setting up a settlement body are still valid, and the Respondents have not submitted anything to the contrary. The Wanchoo Committee assumed that the primary objective of fiscal coming forward to make a clean breast of his affairs - this is also not doubted; if a settlement machinery is not provided for, the investigational machinery of the .....

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for having settlement machinery. In CIT v. Express Newspaper Ltd. (1994) 206 ITR 443 the Supreme Court noted that there may be certain cases that need to be given a quietus to, once and for all, and they should not be fought through the usual channels. For example, there may be cases that are complex or cases that may require a prolonged investigation or cases that may require a cumbersome investigation etc., and it is these kinds of cases that may be entertained by the Settlement Commission. 24 .....

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? The fact that the Settlement Commission has been allowed to exist, and continues to exist and entertain fresh settlement applications, clearly suggests that it is needed, even if it is for a few cases. And, if it is needed for a few cases, why is it not needed for a greater number of cases? These are a few of the many doubts that the Respondents have not even cared to respond to or clear. 25. In this context, it is also important to note three other facts which suggest that the Settlement Comm .....

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tlement Commission (not further proceed with) or it would have to result in a settlement under section 245D(4) of the Act. Thirdly, section 245-I of the Act makes every order passed by the Settlement Commission conclusive as to the matters stated therein and no matter covered by the final order passed by the settlement Commission shall be reopened in any proceeding under the Act or under any other law for the time being in force. All these facts show the enormous power wielded by the Settlement .....

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fficers with integrity and wide knowledge and experience to accept assignments on the Tribunal" and so the status and emoluments of its members should be as of the members of the Central Board of Direct Taxes ( the CBDT‟). The Act requires that the members of the Settlement Commission must be persons of integrity and outstanding ability, having special knowledge of, and experience in, problems relating to direct taxes and business accounts‟. [Section 245B(3)]. In contrast, once .....

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ionable, per se, but coupled with other factors, it would have an adverse impact on the Petitioners. Proceedings before the Settlement Commission are conducted by a Bench of independent persons and they are judicial proceedings for all intents and purposes but the proceedings before the Assessing Officer are conducted by only one person and they are only quasi-judicial. The Assessing Officer is an officer of the Income-Tax Department, having loyalty to his department (not that there is anything .....

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is Chapter (XIX-A), be reopened in any proceeding under this Act or any other law for the time being in force.‟ [Section 245-I]. A settlement application is decided on a one-stop basis but an aggrieved Petitioner would still have a constitutional remedy of judicial review in a High Court. However, in the case of a regular assessment after abatement of a settlement application, the Petitioner would have to go through a plethora of appeals and authorities before a final decision is taken in .....

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ioners can be settled before the Settlement Commission, impartially and quickly, as postulated by the Wanchoo Committee. As a part of the settlement, the Settlement Commission also has the plenary power to grant immunity from prosecution and penalties to the petitioners (Section 245H). On the other hand, the income-tax authority, after abatement of a settlement application has no such exclusive jurisdiction or plenary power. Even in the matter of grant of immunity from prosecution and penalties, .....

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the way in which the problem is viewed and addressed by the appropriate authority. The Assessing Officer to whose jurisdiction the Petitioners are relegated on the abatement of the settlement application, is himself a litigant before the Settlement Commission having a right to oppose (and in many cases having opposed) admission of a settlement application. If the assessment of the Petitioners‟ income is to be made by someone who has opposed the case of the Petitioners, it is not possible .....

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ntext of bias and a fair hearing but also in the context of the Petitioners having to go through a multiplicity of proceedings rather than getting a one-stop settlement from the Settlement Commission. 38. Another issue that greatly agitated learned counsel for the Petitioners relates to a breach in the confidentiality of materials made available to the Settlement Commission. To appreciate the prejudice to the Petitioners after abatement of the settlement application, it is necessary to understan .....

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nt Commission are completely confidential and any material adverse to the applicant is kept away from the public eye and cannot be used against the applicant for any purpose whatsoever. 45. Our attention was drawn to Chhotalal S. Ajmera (HUF) v. CIT [2007] 289 ITR 1, wherein the Supreme Court has considered the annexure to Form 34B in Appendix II to the Income-tax Rules as a confidential document, which is not disclosed to the Commissioner of Income-tax until the Settlement Commission admits the .....

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nfidentiality of the settlement proceedings, earlier guaranteed by the Act and the Rules framed thereunder, has now been taken away and materials that were strictly within the domain of the Settlement Commission prior to the Finance Act, 2007 can now be used against the Petitioners for all purposes including for assessment proceedings, penalty proceedings and for prosecution purposes also. This appears to us to be clearly arbitrary. 55. In our opinion, the learned Additional Solicitor General ha .....

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before the Settlement Commission. The confidential information cannot be used for any purpose other than for the settlement of application filed under section 245C(1) of the Act. The procedure having been set into motion by the Petitioners by filing settlement application under section 245C of the Act, they are precluded from withdrawing that application and the Settlement Commission is obliged to settle or decide the matter one way or the other, as required by law. There is no halfway house on .....

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nce Act, 2007 and the entire confidential and undisclosed material can be used by any income tax authority for any purpose, prejudicial to the interests of the petitioners. The confidential information disclosed by the petitioners will be put into the hands of the Assessing Officer who is likely to have an implicit and inherent bias against them knowing fully that they have approached the Settlement Commission for a settlement in respect of income which they have not disclosed to any income-tax .....

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ssion, it is evident that the petitioners had not made full and true disclosure of income in their settlement application nor had they shown the true manner in which the income has been derived except to state that they have received it from BCCL. Further, according to learned counsel the petitioners had not deposited the additional amounts of income tax payable on such income and they had neither paid the tax and interest on such additional amounts on or before the date of making the applicatio .....

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ting to ₹ 13.23 crores were to be treated as contingent liability as per the said audit report for the financial years 2010-11 and 2011-12. Reference was also made therein to correspondences of the petitioners during October-November, 2013 requesting the Area Finance Manager, PB Area with which Kustore Area was merged to release payments for a number of bills totaling to ₹ 118.78 crores. On the basis of the aforesaid fact it is stated that the total turn over for the years 2009-10, 2 .....

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and lost on 23.4.2013 and the copy of the station diary filed before the police station to this effect was enclosed. It is also asserted that considering the turn over of the applicants during the years in question and their own admission that IVPS, KVPs and post office deposits in question are required for collateral or earnest money deposits in the case of tenders and contracts but in their applications they have owned the KVPs, IVPs of ₹ 2,30,000/- only which was grossly inadequate in .....

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by the petitioners is that they were following the mercantile system of accounting and thus it is not open to the petitioners to argue that the figures supplied by them in their settlement application were on cash basis. It is submitted that they had given incorrect figures ignoring their own choice of mercantile system of accounting at the time of filing of the application before the Settlement Commission, as full and true disclosure could only have been under the mercantile system which has n .....

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d counsel to the fact that there was huge variation in the net profit ranging from 1% to 98% which was taken into account by the Settlement Commission and which clearly go to show that it was not a business activity on the basis of contract work and supplies being carried out by the petitioners and would further go to show that the manner in which the income has been derived has also not been fully and truly disclosed before the Commission. Learned counsel further submits that at least two of th .....

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was any finality to what was decided at that stage and in view of the further facts which came on the record on the basis of the report dated 15.5.2014 of the jurisdictional CIT, it was evident that there has not been full and true disclosure by the petitioners and therefore, it cannot be argued by the petitioners that there was no fresh material before the Settlement Commission to take a different view in the matter. In support of her stand learned counsel relies upon a decision of the Supreme .....

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ttlement 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 CIT. The CIT 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 cas .....

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lso direct the CIT to make further enquiry and investigations in the matter and furnish his report. Thereafter, after examining the record, CIT‟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 CIT under sub-s(1) or sub-s.(3) of the said sec .....

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ure 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 CIT. 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 CIT. In our opinion even when the Settlement Commissi .....

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ion. It is plain from the language of sub-s.(4) of s. 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 CIT under sub-s.(1) or sub- s.(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 applicat .....

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ve 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 sub-s.(3) of s. 245C of the Act otiose and meaningless. In our opinion, the scheme of said Chapter is clear and admits no ambiguity. 27. It is trite law that a taxing statute is to be const .....

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of the statute and interpret them. Considerations of hardship, injustice and equity are entirely out of place in interpreting a taxing statute.[ Also see: CST Vs. Modi Sugar Mills Ltd. 1961 (2) SCR 189]." Learned counsel also relies upon a decision of the Bombay High Court in the case of Hassan Ali Khan Vs. Settlement Commission & Ors: 299 ITR 127 = (2008) 217 CTR 163 in para 16 of which it has been held as follows:- 16. It was also argued that the Section 245D(2C) as now introduced by .....

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5 of the Constitution of India. Section 245D(2C) reads as under: 245D(2C). Where a report of the Commissioner called for under Sub-section (2B) has been furnished within the period specified therein, the Settlement Commission may, on the basis of the report and within a period of fifteen days of the receipt of the report, by an order in writing, declare the application in question as invalid, and shall send the copy of such order to the applicant and the Commissioner. Provided that an applicatio .....

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Referring to Black's Law Dictionary, 6th Edition the word "void" has been given meanings such as null, ineffectual, nugatory, having no legal force or binding effect, unable, in law, to support the purpose for which it was intended. In State of Kerala v. M.K.Kunhikannan Nambiar it has been held that word "void" has a relative rather than an absolute meaning, it only conveys the idea that the order is invalid or illegal. It can be avoided. There are degrees of invalidity .....

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id. In that context if we examine the phraseology of Section 245D(2C) it would be clear firstly that the application must meet the requirements of Section 245C(1). In other words complying with the requirements of full and true disclosure and the manner in which such income has been derived. On complying with those requirements the next step would be to follow the procedure under Section 245D. It is not as if the moment an application is made and there is compliance of the requirements of Sectio .....

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derived. The expression "invalid" will have to be given a meaning of 'non est', in other words as if not made on and from the inception. If on the material it arrives at a conclusion even prima facie that there was no true and full disclosure it has then the right to declare the application as invalid. Read in this context there is power conferred on the Commission based on the material before it, to form an opinion if the party has concealed facts and/or not made true disclos .....

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tion 245D(1) indicate that there are three circumstances which ought to be considered. This judgment had come up for consideration in Haji N. Abdulla v. Income Tax Settlement Commission and Ors. Writ Petition No. 1427 of 2007 decided on 8th October, 2007. Both these judgments were considering application which were made and disposed off before the Finance Act, 2007 w.e.f. 1st June, 2007. What has to be considered now is Section 245D(2C). We have discussed what is invalid. Next reference was also .....

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ission on the ground that the income which they were disclosing was income from horse racing. There was material before the Settlement Commission that there were acts which would constitute foreign exchange dealings without following the due procedure of law. If there was prima facie such material it is always open to the Commission to have rejected the application made by the petitioners. Once the decision is taken by the Settlement Commission, which acts in a quasi judicial capacity, it is for .....

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The Commission on the material placed before it has treated the application as invalid. It is not a case where the Commission could not have taken such a decision or the decision taken is based on no material and/or decision which is totally perverse warranting this Court to draw an inference that the order suffers from error of law apparent on the face of the record. Even otherwise as explained earlier these were applications made after a search operation when prima facie material of evasion h .....

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he record. The contention, therefore, urged on that count has to be rejected. Further reliance is placed by learned counsel upon a decision of the Bombay High Court in the case of Commissioner of Income Tax (Central) Vs. Income Tax Settlement Commission (ITSC) 361 ITR 68 (Bom) = 267 CTR 7, paras 19 and 20 of which is quoted below:- "19. The judgment of the Supreme Court in Ajmera Housing Corporation is a clear authority for the principle that in order to constitute a valid application under .....

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n 245D as to whether the application is invalid. The Commission has to be satisfied from the report of the Commissioner and upon hearing the applicant that the application is not invalid. For, it is only then that the Commission has the jurisdiction to proceed. 20. The error in the order of the Commission in the present case lies in permitting the application to proceed without that satisfaction being recorded by the Commission, which is a fundamental aspect which goes to the root of its jurisdi .....

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fundamental issue as to whether the application was or was not invalid. This exercise had to be carried out by the Commission at the stage of the proceedings under sub-section 2C of Section 245D on the basis of the report submitted by the Commissioner and after hearing the applicant. The Commission has abdicated the discharge of that obligation at that stage, by deferring its consideration at a later stage. The Commission, in our view, was completely in error in holding that unless it is establ .....

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on could not have declined to determine as to whether the application fulfilled the requirements or prerequisites of a valid application under Section 245C(1). We may clarify, however, that we are not for the purposes of this case inclined to hold that the Commission cannot at a later stage of the proceedings reject the application where facts come to its knowledge even subsequently that there is either a suppression of full and true material facts, a misstatement or failure on the part of the a .....

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11 = (1993) 111 CTR 370, in para 14 of which it has been held as follows: "14. It is true that the finality clause contained in Section 245-I 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 t .....

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o 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 .....

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iry 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 partem) has been incorporated in Section 245-D 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 .....

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g 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 decision-making 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 wa .....

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ons 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 .....

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The order passed by the Settlement Commission has been treated to be conclusive. It can be recalled only under the circumstance if it is subsequently found by the Settlement Commission that the order was obtained by fraud or misrepresentation of facts, as per sub-s. (6) of s. 245D of the Act. On a conjoint reading of sub-ss. (4) and (6) of s. 245D and ss. 245F(4) and 245-I, it would appear that except in the case of fraud or misrepresentation of facts, the order passed by the Settlement Commiss .....

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ecision." We have considered the submissions of learned counsels for the parties and perused the materials on the record. It is evident from the decision of the Karnataka High Court in the case of N. Krishnan (supra), relied upon by learned counsel for the petitioners, that in writ proceedings the decision of the Settlement Commission can be interfered with only if there has been grave procedural defect or violation of the mandatory procedural requirements of the provisions in Chapter-19-A .....

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of the decision making process and not of the decision itself. It is true in the present matter that in the order under Section 245D(1) it was concluded by the Settlement Commission that the petitioners had complied with the requirements of the conditions as prescribed under Section 245C(1) and thus the application would be allowed to be proceeded with under the said sub-section but it must be remembered that the stage under Section 245D(1) is a preliminary stage when the department is not in t .....

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fore the date of making the application was attached, rather the prayer had been made to get the amount adjusted from the amounts seized by the Department during the course of search and seizure under Section 132. It is clear that the applicants did not comply with the third condition. However, the said issue may not be relevant considering the fact that ultimately the applications have been rejected at the stage of Section 245D(4). The next question would be whether the finding regarding there .....

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nnot be said that a final irrevocable finding had been given by the Settlement Commission in favour of the petitioners with regard to the true and full disclosure, which may not have been gone into again at the stage of 245D(4) order. The question then would be as to whether there was some material before the Commission to have arrived at the said conclusion. In our view such materials are to be found in the further reports of the Commissioner, particularly the report under Section 245D (3) wher .....

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me and the receipts and expenditure shown in the said account on a cash basis, whereas the admitted position is that the returns of the petitioners were being filed on mercantile basis and there could be no occasion for the petitioners to have approached the Settlement Commission on the basis of a cash system of accounting. The same may itself lead to a situation of non-disclosure of the full and true income of the applicants and in the present matter has led to non-disclosure of a huge amount o .....

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ultimate income rather in the mercantile system of accounting the incomes would have to be shown on an accrual basis which has admittedly not been done by the petitioners. Thus, it was open to the Settlement Commission to have considered it as a failure to make full and true disclosure by the petitioners. Having arrived at the said conclusion it may not be necessary for us to deal with the other issues raised by learned counsel for the petitioners but we may consider them shortly. It is true th .....

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rived remains. In the present matter even the manner in which the income has been derived does not appear to fully meet the requirements of law. The petitioners claim to have been carrying the business of civil construction related work, repairing work of plant and machinery and consultant work on the basis of procuring contract against tender floated by the BCCL. It is not in dispute that such tenders were open tenders in which there would be other participants and the contract would be awarded .....

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the income disclosed and not the nature of the transactions even if they amounted to a criminal act. The provisions of Section 245C make it very clear that not only full and true disclosure of income has to be made but also the manner in which the income has been derived. It is true that grounds of criminality may not lead to a situation where the Settlement Commission shall refuse to go ahead with the settlement, otherwise there would have been no occasion to confer upon it powers under Sectio .....

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ome has been derived and thus we see no reason to consider the conclusion of the Commission as suffering from any infirmity. We do not find any substance in the submission of the learned counsel for the petitioners that the Settlement Commission must record categorical finding that the incomes were the proceeds of misappropriation. It is quite open to the Settlement Commission not to enter into any such arena for rejecting the application on account of non-compliance of the requirement with rega .....

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ady disclosed before the assessing authority in the returns filed under Section 153A and 139 practically the entire amounts which had come out during the search and seizure as undisclosed income of the petitioners which was running into almost 200 crores rupees and thereafter they declared additional income before the Settlement Commission only to the extent of about 2 crores rupees. Whatever else has been discovered is on the basis of investigation carried out by the Department and not on accou .....

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