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TMI Blog2017 (5) TMI 1055X X X X Extracts X X X X X X X X Extracts X X X X ..... Bindals Duplex Limited ('BDL') and the Petitioner in WP (C) No.5428/2016, Tehri Pulp & Paper Limited, are engaged in the business of manufacturing of craft paper. The other two Petitioners i.e., Swabhiman Vyapaar Private Limited, Petitioner in WP(C) No.5425/2016 and Brina Gopal Traders Private Limited, Petitioner in WP(C) No.5427/2016 are entities created by the Bindal Group for providing entries to facilitate unaccounted income/funds generated by the group for unaccounted business transactions and inflation of expenses. 3. A search was undertaken on various premises of the Bindal Group under Section 132 of the Income Tax Act, 1961 ('Act') on 7th March, 2014. Proceedings under Section 153A and 143(3) of the Act were initiated for AYs 2008-09 to 2014-15, and for AY 2015-16. Returns were filed and the assessment was pending. Pursuant to the notices issued to each of the ten companies including the present four Petitioners under Section 153A of the Act for AYs 2008-09 to 2013-14, the Petitioners filed their respective returns. 4. While the assessments were pending, applications were filed by the Petitioners and the six other companies comprising the Bindal Group before the ITSC on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the promoters indulged in sales outside books and in suppressing production end by raising bogus bills for inflation of capital expenditure. The details of such receipts were set out. The details of non-genuine share capital and nongenuine unsecured loans introduced in different AYs in different group companies were set out in a tabular chart as set out in para 7 of the statement. 7. Inter alia, the fact that the four Petitioners herein were also beneficiaries of the unaccounted funds generated in the group and the introduction of funds in the Petitioner companies by way of accommodation entries for share capital was disclosed. In para 12 of the application, the 'manner of earning income' was given for each of the applicants. 8. On 30th March 2016, the ITSC passed an order under Section 245D (1) of the Act. In para 7 of the said order, it was recorded as under: "7. We have carefully considered the contents of the settlement applications filed before us/ the paper books filed along with the applications, submissions made during the hearing by the Learned AR, details filed before us and clarifications given to queries made by us, all the technical requirements prescribed u/s 245C( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /unsecured loans transactions within the meaning of Section 68 of the Act. Further, under the head 'other issues' in the report, it was stated that the Assessee had submitted "a detailed cash flow evidently to take advantage of netting/telescoping". 11. It was further stated by Respondent No.1 in the report that the above cash flow prepared with an intention to establish non-existent availability of cash on account of unaccounted sales made in the case of Bindals Sponge Industries Ltd., where the Assessee Company had huge business losses and unabsorbed depreciation allowances. The cash flow statement indicated that the closing balance was in excess of Rs. 10 crores for many financial years, which was highly improbable. It was observed that "no prudent business person would keep such amount of cash idle at his residential or business premises especially considering the business of the Assessee where heavy capital is required and huge working capital loan is always required on which substantial interest has been paid by the Assessee group to the Banks." No supporting evidence had been filed. The transactions mentioned in the cash flow statement were held not to be supported by the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain the non-genuine share capital and non-genuine unsecured loans. Various receipts claimed as 'deemed income' were shown as receipts in the hands of the six other applicants. The non-genuine loans un-explaining credit balance, stock, unaccounted expenditure declared in the hands of four applicants in their settlement applications were "not covered by the above consolidated cash flow." (b) The Petitioners had not explained the manner of deriving the undisclosed income used in acquiring such assets incurring such expenses. 16. Accordingly, it was held that the four Petitioners had not satisfactorily explained the manner of deriving such additional income. Therefore, the mandatory requirement for a valid application under Section 245C (1) of the Act was not complied with. The applications were said to be invalid and were not allowed to be proceeded with. 17. This Court has heard the submissions of Mr. Ajay Vohra, learned Senior counsel for the Petitioner and Mr. Zoheb Hossain, learned Senior standing counsel for the Revenue. 18. Mr. Vohra submitted that in the settlement applications filed by the four Petitioners and also six other companies of the Bindal Group, it was el ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion v. Commissioner of Income Tax (2010) 8 SCC 739. He submitted that the ITSC was fully within its powers to reject the applications when it had become crystal clear that the Petitioners did not fulfil the requirements of a settlement proceeding. 22. Mr Hossain submitted that in the present writ petition, the Court should only be concerned with the legality of the procedure followed by the ITSC and not with the validity of the order. He placed reliance on the decision in R.B. Shreeram Durga Prasad & Fatechand Nursing Das v. Settlement Commission (IT & WT) (1989) 1 SCC 628 reiterated in Jyotendrasinhji v. S.I. Tripathi (1993) Supp (3) SCC 389. Mr. Hossain submitted that the scope of interference by this Court with the impugned order of the ITSC under Article 226 of the Constitution was limited. Once the ITSC had exercised its powers and jurisdiction consistent with the law declared by the Supreme Court in Ajmera Housing Corporation (supra), this Court ought not to interfere with the impugned order merely because the applications of the six other companies which were part of the Bindal Group were permitted to be proceeded with. There was a rational basis for a different treatment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue appears to have accepted a part of this order in regard to those six companies. Why it should allow the Petitioners here to be treated differently is not clear. How it could prejudice the Revenue if the Petitioners' applications were allowed to be proceeded with is also not clear. As rightly pointed out on behalf of the Petitioners, it will not be possible for the ITSC to appreciate the extent and manner of generating undisclosed income in the hands of the four companies / Petitioners constituting a part of the Bindal Group without viewing it in the context of the activities of the other six companies. 28. While indeed the scope of this Court under Article 226 of the Constitution is limited, the Court finds that as far as the impugned order of the ITSC is concerned, it does not spell out any rational criteria for distinguishing between six companies of the Bindal Group and the four Petitioners. Further, the ITSC proceeded to reject the settlement application of the four Petitioners on a ground that was not urged by the Revenue viz., the failure to disclose the manner of earning undisclosed income. Merely because the consolidated cash flow was not in respect of four Petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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