TMI Blog2016 (8) TMI 1358X X X X Extracts X X X X X X X X Extracts X X X X ..... t do without taking into account value of stock entered at the beginning and at the end of the year by assertaining difference between two. - ITSC in this case warrants no interference as there is no contravention of any provision of statute - thus writ petition lacks merits and is dismissed - WRIT TAX No. - 773 of 2013 - - - Dated:- 29-8-2016 - Hon'ble Sudhir Agarwal And Hon'ble Dr. Kaushal Jayendra Thaker, JJ. Counsel for Petitioner :- Ashok Kumar(S.S.C.in.Tax),Bharat Ji Agarwal,S. Chopra, Manish Goel Counsel for Respondent :- S.D. Singh,Ashish Bansal,Nishant Mishra,S.K. Garg 1. Heard Shri Manish Goel learned counsel for the petitioner and Shri S.D.Singh, learned Senior Advocate assisted by Shri Nishant Mishra, learned counsel for the respondent. 2. This writ petition has been filed by Commissioner of Income Tax (Central) Kanpur (hereinafter referred to as CIT ) being aggrieved by order dated 20.12.2012 passed by Income Tax Settlement Commission, New Delhi (hereinafter referred to as ITSC ). 3. Salimuddin, Prop.M/s Akbar International, Agra is an individual Assessee and assessed to Tax by Assistant Commissioner of Income Tax, Central Circle, Agra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 245-C(1) needs disclosure of full and true particulars of undisclosed income, hence, application not being consistent to the requirement of Section 245 C(1), was not eligible to be proceeded. 8. He further contended that Assessee has no right to revise an application, and relied on Azmera Housing and another versus CIT 2010 326 ITR 642. He further contended that application, if inconsistent with Section 245-C(1), was not maintainable and if ITSC has proceeded and passed order, such order of ITSC shall be invalid and liable to be set aside. To buttress above submission, Shri Manish Goel, learned counsel for petitioner relied on a Madras High Court judgment in ACE Investment Ltd.versus Settlement Commission (2004) 186 CTR (Madras) 486 and Kerala High Court in Jyotendrasinghji versus S.I.Tripathi others in (1993) 201 ITR 611 . 9. Shri S.D.Singh, learned Senior Counsel however, submitted that initially CIT took an objection that additional income disclosed was less than ₹ 50 lacs, hence, application was not eligible and liable to be rejected. Reason being that additional income of ₹ 3,21,85,040/- was inclusive of income of ₹ 1,76,50,000/- shown in regular re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000/-. A chart showing income as per original income and shown in returns filed under section 153-A for assessment years 2004-2005 to 2011-2012 reads as under: Asstt.Year Income as per original return Income as per return u/s 153A/142(1)/139 2004-2005 1,69,52,775 2,25,46,910 2005-2006 3,85,15,060 4,25,15,060 2006-2007 3,97,16,743 4,32,16,740 2007-2008 4,14,96,340 4,30,96,713 2008-2009 4,78,27,710 4,88,77,710 2009-2010 2,95,03,950 3,20,03,950 2010-2011 2,46,68,100 2,46,68,100 2011-2012 2,92,29,380 2,92,29,380 13. However, before ITSC, Assessee disclosed additional income of ₹ 3,21,85,040/-. It is not disputed before us that said income disclosed before ITSC was not inclusive of income dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but ITSC after considering submissions of both sides took average rate of gross profit as 45% of sale-price. 17. On the question of unexplained stock of Rs.,7,30,01,487/- which was highlighted by Revenue before ITSC, in paragraph 7 of order it has observed that though in the inventories prepared by Department, there were several deficiences yet Assessee, in the spirit of settlement and to buy peace of mind, made an offer of 90 lacs on account of stocks. Assessee had claimed that they used to pay commission to agents who bring customers to showroom and that was claimed at 32%. During proceedings before ITSC, Assessee however, agreed to a suggestion of ITSC for addition of income by treating commission to 8.5% only instead of 32%. 18. Hence, ITSC neither accepted version of Revenue nor that of Assesse as such, instead followed a middle path, made certain suggestions to Assessee to accept some increased undisclosed income which was admitted by Assessee. 19. Shri Manish Goel however, contended that after filing application before ITSC under section 245-C(1) and submission of report by CIT, Assessee if made a further declaration, meaning thereby, he has revised his undisclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proof of such payment is attached with the application. Explanation.-For the purpose of clause (ia),- (a) the applicant, in relation to the specified person referred to in clause (ia), means,- (i) where the specified person is an individual, any relative of the specified person; (ii) where the specified person is a company, firm,association of persons or Hindu undivided family,any director of the company,partner of the firm,or member of the association or family, or any relative of such director,partner or member; (iii) any individual who has a substantial interest in the business or profession of the specified person, or any relative of such individual; (iv) a company, firm, association of persons or Hindu undivided family having a substantial interest in the business or profession of the specified person or any director, partner or member of such company, firm,association or family, or any relative of such director, partner or member; (v) a company, firm, association of persons or Hindu undivided family of which a director, partner or member,as the case may be, has a substantial interest in the business or profession of the specified person; or any director, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax calculated under that clause; (b) in a case referred to in clause (ii) of that sub-section, the amount of tax calculated under that clause as reduced by the amount of tax calculated on the total income returned for that year; (c) [***] (1D) Where the income disclosed in the application related to more that one previous year, the additional amount of income -tax payable in respect of the income disclosed for each of the years shall first be calculated in accordance with the provisions of sub-section (1B) and (1C) and the aggregate of the amount so arrived at in respect of each of the years for which the application has been made under sub-section (1) shall be the additional amount of income-tax payable in respect of the income disclosed in the application. (1E)[***] (2)Every application made under sub-section (1) shall be accompanied by such fees as may be prescribed. (3) An application made under sub-section (1) shall not be allowed to be withdrawn by the applicant. (4) An assessee shall, on the date on which he makes an application under sub-section (1) to the Settlement Commission, also intimate the Assessing Officer in the prescribed manner of having mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure was disclosed therein to the tune of ₹ 155 crores and odd which could not be substantiated before ITSC at all. Figures were imaginary, artificial and founded on unfeasible estimation. This has been castigated by ITSC itself and learned counsel for petitioner could not show anything wrong on the part of ITSC in making such observations against colossal imaginary figure worked out by Revenue and mentioned by CIT in its report dated 5/11/2011. 25. The entire dispute has centered around valuation of stock which Assessee had disclosed to worth ₹ 90 lacs while CIT claimed more than 7 crores. 26. Scope of Section 245C(1) and the procedure presecribed in Section 245D of Act 1961 was considered by a three judges Bench in Commissioner of Income Tax versus Express Newspapers (1994) 206 ITR 443 (SC). Court observed, when an application is filed before ITSC by an Assessee, CIT had an opporutnity to submit report and raise objection regarding eligibility of application. Thereafter ITSC shall decide, whether application is valid and it should proceed or not. In the present case within prescribed time under section 245-D(2B) , CIT did not raise any objection by submitting rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation discovered some income which was not disclosed by Assessee and had added it to Assessee's income, in such a case ITSC cannot be approached by filing application under section 245C in respect to income which has been discovered by Assessing Officer. Similarly, there may be cases where Income-Tax Authorities after gathering information and material, are likely to establish that Assessee has concealed particulars of a particular income and in that respect also ITSC may not admit an application. The underlying idea, therefore, is that the disclosure under section 245C must be of an income neither disclosed by Assessee before Assessing Officer nor Assessing Officer has already discovered it nor has either gathered material to establish particulars of such income or fraud or is at a stage of investigation/enquiries where material gathered by him is likely to establish particulars of such income or fraud. Assessee cannot be allowed to defeat or forestall the entire exercise of Income-Tax Aauthorities just by approaching ITSC. When an application however, is made, the requirement of Section 245C is that Assessee must mention full and true disclosures. 30. The term full and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment. Settlement is intended to be final, comprehensive and conclusive. Orders which ITSC would pass are on matters covered by application and on any matter relating to the case not covered by application but referred to in the report of CIT. Vide Section 245F, ITSC, untill an order is passed under section 245-D(4), would have jurisdiction to exercise powers and perform functions of an Income Tax Authority under Act 1961 in relation to the case. 34. In a further recent decision of Bombay High Court in Commissioner of Income Tax versus Income-Tax Settlement Commission and others (2016) 65 taxmann.com 40 (Bombay), ITSC determined additional income during proceedings of the case, changed disclosed income by Assessee in his application. Before ITSC, during the course of hearing, Assessee who had disclosed additinoal income of ₹ 8.54 crores during assessement years 2004-2005 to 2009-2010, increased his offer for settlement by offering ₹ 59.11 cores and ₹ 3 crores. ITSC considered and accepted the same. Order of ITSC was challenged by Revenue on the same ground that additional offer admitted by Assessee during proceedings of hearing before ITSC would mean that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Obviously acceptance during the course of hearng is only with a view to expeditiously settle the dispute and buy peace. 36. A similar view has been taken by Kerala High Court in Commissioner of Income Tax versus K.T.P Mohammed Mazhar (2015) 58 taxmann.com 315. Court rejected a similar contention raised by Revenue and in paragraph 8 of judgment, said as under: 8. The primary contention of the learned senior counsel for the petitioner is that the very fact, that additional amounts were offered by the respondent- assessee before the Settlement Commission, would indicate that the original declaration made by the respondent - assessee, along with the application filed before the Settlement Commission, did not contain a full and true disclosure of the undisclosed income or the manner in which such income was derived. While considering a similar contention, raised in the other batch of cases that I has decided namely, in Writ Petn. No. 2637 of 2014 and connected cases, I had examined the scheme of the Chapter XIX-A of the IT Act and found as follows: It is apparent from a perusal of the scheme of Chapter XIX-A of the IT Act that the jurisdictional fact that confers the Settle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commission finding the disclosure of income made by an assessee as being full and true and yet requiring minor adjustments to include even those amounts, which though disputed by the assessee, would nevertheless be offered by the assessee in the interests of putting an end to litigation and in the spirit of settlement. These could be amounts, in respects of which, neither the Department nor the assessee have sufficient material to substantiate their contentions, but the assessee is nevertheless willing to give up his claim in the interests of finality to litigation. The consent by an assessee to forgo such amounts, at the suggestion of the Settlement Commission, cannot have the effect of rendering his original disclosure dubious for the purposes of settlement under the Act. In my opinion, it is only in those cases where an assessee resiles from his original declaration of undisclosed income, by sua motu effecting revisions thereto, that he renders his application invalid for the purposes of settlement. In cases where additional amounts are offered by an assessee, persuant to a relinquishment of his claims with regard to the non-taxability of such income, it would not be a case whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t after second disclosure to the tune of ₹ 11.41 crores, ITSC did not seek any report from CIT though if it was a new application and hence it was incumbent upon ITSC to seek report of CIT. Court observed: Therefore, in our opinion, it was obligatory on the part of the Settlement Commission to have considered whether an additional or supplementary report from the Commissioner immediately after the second disclosure as contemplated under section 245D(1) of the Act was necessary and ought to have further considered whether an opportunity to the Commissioner to file his objection, and advance his submissions in support of his report through the departmental representative was necessary or not. We, therefore, find fault with the decision -making process adopted by the Commission, in exercise of our powers of judicial review. As pointed out in Jyotendrasinji v. S.I.Tripathi [1993] 201 ITR 611 (SC), this court can interfere with the order if it is found to be contrary to the provisions of the Act. As already recorded herein, we have pointed out as to how the order is in breach of the principles of natural justice and also contrary to the provisions of section 245C(1) and sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ujarat High Court judgment in Mohanlal S.Doppa versus Commissioner of Income Tax (2002) 253 ITR 33. The dispute was, whether penalty proceedings could have been initiated where ITSC order did not contain any specific direction for levy of penalty. Court observed that: After receiving the report, the Settlement Commission is to give an opportunity of hearing to the Assessee as well as to the Department and thereafter the Commission is to pass an order which shall provide for the terms of the settlement including any demand for tax, penalty and interest and the manner in which any sum due under the settlement shall be paid and all other matters to make the settlement effective . 44. It is thus said, once application was entertained by ITSC, it has jurisidction to decide all matters pertaining to that case and if ITSC does not impose any penalty or does not give any direction for imposition of penalty, it is to be treated as that ITSC has exempted Assessee from imposition of penalty. Court held: Looking to the constitution of the Settlement Commission as set out in section 245B of the Act,it is obvious that once the Settlement Commission decides the application for settl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a mere rubber stamp or yet another limb of ordinary executive mechanism of tax-gatherers. Neither Revenue nor taxpayer can, therefore, play truant with that high, responsible, purpose-actuated an result-oriented mechanism. 48. In Director of Income-Tax (internatinoal Taxation) versus Income-Tax Settlement Commission and others (2014) 365 ITR 108(Bom), a Division Bench held that a suggestion made by ITSC, if accepted by Assessee to bring an end that dispute with Revenue, it cannot be said to be a case of revised application or multiple disclosures by Assessee. Assessee has not detracted disclosure made in application but further amount offered by ITSC, as a gesture of bonafide or goodfaith, if accpeted by Assessee, cannot be treated at par with a case where Assessee has withdrawn earlier application and filed another application disclosing additional income. Acceptance of certain amount before ITSC on its suggestion would not amount to, as if, original application did not contain full and true disclosure. 49. Nothing of that sort has been shown to us also during course of arguement by Shri Manish Goel as to how application filed by Assessee did not contain true and full parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting require that in the profit and loss accounts of merchant's or manufacturer's business, the values of the stock- in-trade at the beginning and at the end of the period covered by the account should be entered at cost or market price, whichever is lower, although there is nothing about this in the taxing statute..... 52. In Commissioner of Income Tax versus British Paints India Ltd.(Supra) Court also said, where market value has fallen before the date of valuation and on that date, market value of article is less than its actual cost, Assessee is entitled to value the articles at market value and thus anticipate loss which he will probably incur at the time of sale of goods. 53. Valuation of stock-in-trade at cost or market value, whichever is lower, is a matter entirely within the discretion of Assessee. But whichever method he adopts, it should disclose a true picture of his profit and gains. If, on the other hand, he adopts a system which does not disclose true state of affairs for determination of tax, even if ideally suited for other purposes of his business, such as the creation of a reserve declaration of dividends, planning and the like, it is duty of Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of closing stock. The popular system is cost or market, whichever is lower. However, adjustments may have to be made in the principle, having regard to the special character of assets, the nature of the business, the appropriate allowances permitted, etc., to arrive at taxable profits. 58. In Commissioner of Income Tax versus Ponni Sugars and Chemicals Ltd.(Supra) (2008) 306 ITR 392 (SC) closing stock of incentive sugar should be allowed to be valued at levy price, was upheld though it was less than the cost of manufacture of sugar, this is one example of adjustment in special cases. 59. Similar views have been expressed in Commissioner of Income Tax, Delhi versus Woodward Governor India Private Limited (2009) 13 SCC 1 observing that Act 1961 makes no provision with regard to valuation of stock. The ordinary principle of commercial accounting requires that in profit and loss account, value of stock-in-trade at the beginning and at the end of the accounting year should be entered at cost or market price whichever is lower. This is how business profits arising during the year need to be computed. Court observed For valuing the closing stock at the end of a particular year, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income and submission is that it amounts to withdrawal of application disclosing particular income and substituting the same by another quantum of income. This submission, in our view is not correct. During proceeding before ITSC, it has ample power, to go for such offer as that is the process implicit in 'settlement' and such settlement cannot be read or interpreted in a restricted and narrow manner as suggested by Shri Goel on the part of Revenue. 63. Looking to these facts in its entirety, we do not find any manifest error or infirmity in the decision taken by ITSC being contrary to any provision of statute so as to warrant interference. 64. Even otherwise, Scope of judicial review against order passed by ITSC is extremely limited. Court would not be justified in re-appreciating findings based on record. In Jyotendrashinhji versus S.I.Tripathi (1993) 201 ITR 611/68 Taxman 59, it was held, if the order of ITSC is contrary to any provision of Act or is directed on account of bias, fraud and malice, only then judicial review is permissible and not otherwise. Similar view was expressed in Union of India Ors.v.Ind-Swift Labouratories Ltd. (2011) 4 SCC 635 where Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
