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2017 (7) TMI 537 - GUJRAT HIGH COURT

2017 (7) TMI 537 - GUJRAT HIGH COURT - Tmi - Additions made by the Settlement Commission under the head of 'unaccounted production' - Held that:- The factors taken into account by the Settlement Commission, which in our opinion were relevant, were that registers relating to the manufacturing unit of the company which were found, established unaccounted production, admission by the employees that the company was engaging in such unaccounted production, the number of employees at the time of searc .....

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e conclusion of the Settlement Commission. - Disallowance of claim of deduction under section 80IB - Held that:- The process of manufacturing jarikasab commenced from acquisition of jumbo rolls of metalized lacquered polyester film. Such raw material undergo processes which can be broadly classified into three categories before the final product of jarikasab would come into existence. The entire process was one integrated manufacturing process. By no stretch of imagination a single integrate .....

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gregate a portion of such manufacturing process to hold that since no new marketable product came into existence, such process did not amount to manufacturing. Even within the narrow confines of our judicial review, in the order of Settlement Commission on this issue, we must intercept. This issue is therefore decided in favour of the assessee. - Expenditure towards higher studies expenses of the Directors of the company - Held that:- The higher education of a partner of a firm or director o .....

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ature. Since no perversity is established we refuse to interfere. - SPECIAL CIVIL APPLICATION NO. 13218 of 2013 - Dated:- 5-7-2017 - MR. AKIL KURESHI AND MR. BIREN VAISHNAV, JJ. For The Petitioner : Mr B S Soparkar, Advocate For The Respondent : Mr Sudhir M Mehta, Advocate, MRS Mauna M Bhatt, Advocate (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged an order dated 29.03.2012 passed by the Income Tax Settlement Commission ['the Settlement Commission' for short]. .....

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s of the company. During such search operation, a statement of the Managing Director of the company, Shri Mahesh Jariwala, was recorded on 21.01.2009, in which, he declared undisclosed income of ₹ 15 crores. He also paid tax on such undisclosed income on 29.09.2009. However, in the return of income for the assessment year 2009-10 filed by the company on 30.09.2009, the disclosure of ₹ 15 crores was not made and the statement of the Director was retracted through a note appended to th .....

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Chapter XIX-A of the Act pertaining to settlement of cases, the Settlement Commission proceeded to pass final order dated 29.03.2012 in terms of section 245D (4) of the Act and took up various contentious issues. The petitioner has challenged the said order to the extent it is aggrieved. 5. The petitioner has three distinct grievances. We will address these three issues separately. For the present, we may briefly refer to them. Issue No. 1: This pertains to the additions made by the Settlement C .....

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rough three stages. Stage 1 does not amount to manufacturing and the expenditure relatable to such stage, therefore, would not qualify for deduction under section 80IB of the Act. The assessee contends that the unit paid excise duty on the entire activity of manufacturing and, in any case, no single activity can be isolated for examining whether it amounts to manufacturing or not? Issue No. 3: This issue pertains to disallowance of ₹ 39.30 lacs (rounded off) by the Settlement Commission de .....

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ed date wise details of samples of various rolls tested in the laboratory relevant to the assessment years 2006-07 and 2007-08. The search team questioned employees regarding these registers and gathered that every volume produced is tested and entered in these registers. The department, therefore, linked these registers as production registers and compared them with the excise registers to work out the volume of unaccounted production for the said Kim-1 and Kim-2 units. The department also note .....

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he same period and found that unaccounted production was 69.67% of the accounted production. He extrapolated this data for the period between April 2008 and January 2009 i.e. up to the date the search and concluded that the unaccounted production for this period would be 72% of the accounted production. 8. On the basis of the comparisons between B1-13 to B1-16 registers and B1-19 register with the excise registers for the corresponding periods, the Assessing Officer worked out the data of accoun .....

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1,42,600 6,66,039 14,76,551 221.00 % 22,14,84,150 2007-08 (Apr 2007- Mar 2008) 22,37,400 11,05,250 11,32,149 102.00 % 16,98,22,492.50 2008-09 (Apr 2008- Nov 2008) 14,85233,370 8,62,432,900 6,22,800,470 72.00% 9,34,200070.50 Total 58,65,233,370 26,33,721,950 32,11,511,420 122.00 % 48,47,26713.00 9. As per this table, the Assessing Officer believed that for the entire period during the assessment year 2006-07 to assessment year 2008-09 (part) average unaccounted production was 122% of the accounte .....

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lected during the search as well as during the assessment proceedings. The Settlement Commission was also not prepared to accept the working out of the Assessing Officer of the unaccounted production being 122% on an average of the accounted production. The Settlement Commission was of the opinion that registers B1-13 to B1-16 were lab registers and therefore, would not accurately represent the data of production. The Settlement Commission accepted the assessee's contention that many batches .....

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production put at ₹ 150/- per kg by the Assessing Officer. The Settlement Commission did not accept the unaccounted production reflected from B1-19 register at 72%, as worked out by the Assessing Officer or even 69.67% plainly flowing on comparison of the said register with the excise register for the precise matching periods but took a more conservative figure of 40% for the assessment years 2007-08 to 2009-10. The Settlement Commission projected these figures only for the assessee's .....

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mmission did notice assessee's contention that for the said period, no incriminating material was found during the search and that therefore, no additions can be made for the said period by extrapolation. The Settlement Commission, however, referred to the decision of the Supreme Court in case of Commissioner of Sales Tax, Madhya Pradesh vs. H.M.Esufali H M. Abdulali, reported in 90 ITR 271 and considering the facts and circumstances of the case, adopted a ratio of 35%, 25% 25% and Nil of th .....

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04-05 and 2005-06 respectively. These additions are questioned before us by the petitioner. 14. Learned counsel Mr. Soparkar for the petitioner contended that no incriminating material was found during the search concerning the said assessment years and it was, therefore, wholly impermissible for the Settlement Commission to make any addition on the basis of extrapolation of the figures concerning later assessment years. He submitted that the decision of Supreme Court in case of Commissioner of .....

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r hand, learned counsel Mr. Bhatt for the department opposed the assessee's contention. He submitted that where the judicial review against the order of assessment is extremely narrow. As long as the order passed by the Settlement Commission is in accordance with the provisions of the Act, this Court would not interfere. He submitted that the Settlement Commission has given due consideration to the materials on record and made additions on the basis of estimates. The entire consideration, th .....

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Lachman Das reported in [2012] 25 Taxmann.com 227. 16.The entire controversy on this issue is limited to the additions made by the Settlement Commission under the head of 'unaccounted production' for the assessment years 2003-04 to 2005-06 [though technically assessment year 2006-07 would also fall in this category, the same is not referred since the addition is Nil] for the assessee's manufacturing unit at Kim-1. Upon perusal of the order of the Settlement Commission, we gather tha .....

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ter is that as per the statements of the employees, the registers for the earlier periods were destroyed under the instructions of the employer. 17.Based on these materials on record, the Settlement Commission split the two periods for different treatment for estimate of the unaccounted production for the assessment years 2007-08 to 2009-10. The Settlment Commission adopted a more conservative figure of 40% of the accounted production as against the actual data of 69.67% flowing from B1 register .....

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nd to be some guess work. As long as the same is done bona fide and on the basis of some material on record and not arbitrary, the same would be permissible in law. 19.Allahabad High Court in case of Commissioner of Income Tax vs. R.M.L. Mehrotra (supra) did observe that best judgement assessment made on the basis of search could not have been made in a block assessment in the case. It was observed that the principle laid down by the Supreme Court in case of Commissioner of Sales Tax, Madhya Pra .....

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ting material being found during the search for a particular period of the block assessment, any addition with the aid of best judgement can be made or not? This is so because if one looks at the overall evidence and material on record as well as examination by the Settlement Commission, this is not a case where no material whatsoever for the earlier periods was found. The factors taken into account by the Settlement Commission, which in our opinion were relevant, were that registers relating to .....

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vailable figure of unaccounted production over the entire period by adopting what can, at best, be stated as a conservative figure and by recording proper reasons, it would not be possible for us to interfere with such ultimate conclusion of the Settlement Commission. 20. In case of Fatechand Nursing Das vs. Settlement Commission (IT And WT) and anr reported in 176 ITR 169 the Supreme Court observed that in exercise of power of judicial review of the decision of the Settlement Commission, the Co .....

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is not barred. The Supreme Court further observed that judicial review flowing from exercise of such powers would be restricted to considering whether the order of the Settlement Commission is contrary to the provision of Income Tax Act. It was 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 condone the defaults and lapses on the part .....

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ext, it is relevant to note that the principle of natural justice (and alteram partem) has been incorporated in Section 245-D itself. The sole overall limitation upon tire 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 also the same whether the order of the Commission is contrary to any of the provisions of the Act and if so, has it prejudiced the p .....

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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 was equated to power of judicial review, where the appeal is directed against the orders' of the Settlement Commission. For all the .....

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y 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. 22. Under the circumstances, the assessee's challenge on issue No.1 fails. 23.Issu .....

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9;pankets' are converted into 'metalic yarn' using the machines which is then wound on bobbins by using winding machine. At the third stage, the metallic yarn is twisted alongwith polyester thread to prepare jarikasab. This process involves twisting machine and autoclave to heat and set the yarn. The jarikasab is wound on cone by using coning machine. 24.The Settlement Commission noted that the department had been contesting the assessee's claim for the deduction in relation to t .....

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refused to comment on the same since the entire issue was pending before the Settlement Commission. Neither side is therefore, bound by any earlier decision of any authority or the Tribunal. Having heard learned counsel for the parties on this issue, we find that the Settlement Commission has committed a serious error in law in disallowing this claim of the assessee. As noted, the process of manufacturing jarikasab commenced from acquisition of jumbo rolls of metalized lacquered polyester film. .....

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