TMI Blog2000 (7) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 245D(1) of the Act dated November 17, 1997. Ajmera Housing Corporation along with its other group establishments are engaged in the business as land developers, builders and contractors. The assessees had undertaken construction of a major project in Shastri Nagar at Andheri and four bungalows in Lokhandwala Complex, at Versova, in the year 1986. The assessees had also engaged in the business of export of goods and had also dealings in export and import licence activities. In exercise of powers under section 132(1) of the Act searches were conducted in the case of the present assessees and in other cases of the Ajmera group on two occasions and during the course of searches, the Department seized voluminous documents such as account books, general ledgers, loose papers and other important documents. The seized material reflected financial transactions not only of the assessee-firms but also of the Ajmera group which did not tally with the books of account maintained by them. In the month of January, 1989, the first search and seizure operation had taken place at the premises of the assessee. Series of documents, account books and loose papers, depicting transactions not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors are required to incur substantial expenses in cash for carrying out their business and pleaded impossibility to maintain truthful record of such expenses. It was further pleaded that to meet such expenses, construction contractors are required to obtain part of consideration in cash which in common parlance is known as "on money". In the account books maintained by the developers and construction contractors the amounts received as "on money" and the expenses are not recorded in the books of account. Sometimes, the entire money received as "on money" is not spent and part thereof remains with the developers or construction contractors which are utilised for developing housing complexes. The assessee further stated that in the assessment order from 1989, the Assessing Officer has made addition of Rs. 11,34,61,345 as "undisclosed sale consideration received on sale of flats" and he has further added Rs. 6,99,11,813 on account of "inflation of expenses" with regard to expenses by the firm maintained in the books of account. Consequently, additions made by the Assessing Officer were to the tune of more than Rs. 18 crores. The said assessment order was set aside by the Commissione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment shall constitute a Commission to be called the Income-tax Settlement Commission for the settlement of cases under this Chapter . . ." Section 245C provides for filing of an application by an assessee for settlement of his case, the relevant provisions thereof thus reads : "245C. (1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any Such application shall be disposed of in the manner hereinafter provided : Provided that no such application shall be made unless,--- (a) the assessee has furnished the return of income which he is or was required to furnish under any of the provisions of this Act ; and (b) the additional amount of income-tax payable on the income disclosed in the application exceeds one hundred thousand rupees . . ." Section 245D provides proced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the application, but referred to in the report of the Commissioner under sub-section (1) or sub-section (3)." Section 245H provides for power of Settlement Commission to grant immunity from prosecution and penalty. The relevant section thus reads : "245H. (1) The Settlement Commission may, if it is satisfied that any person who made the application for settlement under section 245C has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his income and the manner in which such income has been derived, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act or under the Indian Penal Code (45 of 1860), or under any other Central Act for the time being in force and also (either wholly or in part) from the imposition of any penalty under this Act, with respect to the case covered by the settlement : Provided that no such immunity shall be granted by the Settlement Commission in cases where the proceedings for the prosecution for any such offence have been instituted before the date of receipt of the application under section 245C." Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commission received under sub-section (1), and the report, if any, of the Commissioner received under sub-section (3), and after giving an opportunity to the applicant and to the Commissioner to be heard, either in person or through the representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of the Act, pass such order as it thinks fit on the matter covered by the application and any other matter relating to the case not covered by the application, but referred to in the report of the Commissioner under sub-section (1) or sub-section (3). The Commission is also empowered to direct waiver of penalty as well as interest or part thereof as prescribed in this section. It is further empowered to provide immunity from prosecution for any offence under the Income-tax Act or under the Indian Penal Code or any other Central Act for the time being in force with respect to the case covered by the settlement under orders of the Commission, subject to of course constitutional remedies. Background relating to conduct of settlement proceedings : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the claim would need to be examined to see if the same is justified and if so to what extent." The Commission also found that there were several other complexities requiring investigation and also noticed the noting made on various vouchers and documents under the signature of Shri Bipin Vora and observed after going through number of entries that examination thereof would be necessary to find out if the claim of the applicant for on-money is genuine. Accordingly, it passed an order under section 245D(1) and directed remittance of the copy of the order to the Commissioner with further direction to him to furnish a further report as required under rule 8 of the Rules. The Commissioner in compliance with the requirement of section 245D(3) submitted his report on August 30, 1995, reporting and objecting to the application of the assessee, inter alia, on the following, amongst other grounds : (A) The project completion method as suggested by the assessee should not be accepted as the same was never accepted by the Department. (B) The assessee has neither established that the expenses claimed in the sum of Rs. 11.30 crores have been made towards business nor any details thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Shastri Nagar Project as per the entries, reflected in the trial balance appears to be in the sum of Rs. 21.29 crores which does not include entire receipt of on-money on Shastri Nagar Project Phase II. Therefore, the figures of seized trial balance cannot be considered as correct and should not be relied upon. (G) The "on-money" seized on project completed and yet to be completed should be in the region of Rs. 55.02 crores which also covers the period prior to the assessment year 1989-90 for which no application has been moved by the assessee warranting full and complete disclosure of his income with the manner in which such income has been derived. (H) The assessee has neither furnished any particular details or evidence in support of his claim to substantiate the refund of Rs. 30.68 crores to the depositors on account of cancellation of bookings nor established that he has incurred any allowable expenditure. (I) The assessee has been charging the "on-money" on their project at the rate of about 50 per cent. or more of the agreed price relying on the numerous instances quoted in the report. (j) The seized documents reveal total receipt of sale proceeds in the sum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in spite of the serious objections of the Commissioner passed an order on January 29, 1999, accepting the disclosure in the sum of Rs. 23.11 crores and consequent settlement with immunity from prosecution, followed by reduction of the penalty from Rs. 562.87 lakhs to Rs. 55 lakhs however directed interest under section 234C to be charged in accordance with law. Rival contentions : Learned counsel for the petitioners urged the following contentions : (i) The application before the Commission could not have been allowed to be proceeded with, as respondent No. 2 did not make true and full disclosure of his income with full particulars of the manner in which such income has been derived as required under section 245C(1) of the Act. (ii) The Commission could not have allowed the application to be proceeded with especially when respondent No. 2 made additional disclosure of Rs. 11.41 crores on January 19, 1994, which alone was sufficient to establish that the application made on October 1, 1993, under section 245C(1) of the Act did not contain true and full disclosure of the income and the manner in which such income had been derived with particulars thereof. (iii) The impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (viii) The impugned order suffers from self-contradiction exhibiting non-application of mind and perverse approach so far is the reasons recorded in paras. 7 and 20 of the impugned order are concerned. As such. it cannot stand the scrutiny of law. (ix) Section 245H contemplates honest true and full disclosure of income and the manner in which it was derived as envisaged under section 245C(1) of the Act, coupled with co-operation extended by the assessee to the Settlement Commission in the proceedings. As against this, what was taken into account by the Commission was only alleged co-operation by the assessee for explaining various entries disclosed by it. However, the Commission did not take into account the complete failure on the part of respondent No. 2 to disclose full and true income and the manner in which such income has been derived. As such, the power under section 245H has not been properly exercised by the Commission. Thus, the illegal decision-making process has vitiated the impugned order. On the other hand, learned counsel for respondent No. 2 made the following submissions : (a) Respondent No. 2 made further disclosure prior to the hearing of his applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal over the decision of the income-tax authorities and the correctness of the conclusions reached by those authorities. Therefore, the impugned orders are not matters which fall within the writ jurisdiction of the High Court. In support of this submission, reliance was placed on the judgment of the Supreme Court in the case of V. V. Iyer v. Jasjit Singh, AIR 1973 SC 194. Findings on the rival submissions : The first question we have to consider is what is the scope of the writ jurisdiction under article 226 of the Constitution of India while examining the order of the Settlement Commission ? Broadly speaking an essential feature of the writ of certiorari is that the control which is exercised through it over judicial or quasi-judicial bodies is not in an appellate but supervisory capacity. One consequence of this is that the court will not review findings of fact reached by the inferior court or Tribunal, even if they be erroneous. A writ of certiorari can be issued to correct an error of law. But it is essential that it should be something more than mere error ; it must be one which must be manifest on the face of the record. The principles are well settled when the writ ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that any proceeding under this Chapter before the Settlement Commission shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228 and for the purposes of section 196 of the Indian Penal Code. When it is declared to be a judicial proceeding, the prescribed procedure has to be followed. In the instant case, if we look at the facts in the light of the legal canvass, in our opinion, the Commission at the very inception ought to have addressed itself on the question as to whether the application was in compliance with the first and foremost requirement of section 245C(1). The Commission ought to have noticed that in the application under section 245C(1) disclosure was to the extent of Rs. 1.94 crores. The report of the Commissioner as envisaged under section 245D(1) was called for and submitted and thereafter just before the order could be passed under section 245D(1) the assessee-respondent No. 2 declared additional income of Rs. 11.41 crores. At this stage itself, it was obligatory on the part of the Settlement Commission to apply his mind to the issue as to whether full and true disclosure of the income and the manner in which it was derived, has been m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diction of this court. The legality of the said order under section 245D(1) can always be examined in the writ jurisdiction while examining the ultimate final order passed by the Settlement Commission under sub-section (4) of section 245D of the Act. The scheme of the Act will further reveal that after receipt of the application under section 245C(1) of the Act, the Settlement Commission is required to call for a report from the Commissioner and the Commissioner is obliged to furnish such report within a period of 45 days from the date of communication by the Settlement Commission and, there after, the Settlement Commission on the basis of the material contained in the said report and having regard to the facts and circumstances of the case and/or complexity of the investigation involved therein may by an order, allow the application to be proceeded with or reject the application. In the instant case, after the second disclosure of the amount of Rs. 11.41 crores, the Settlement Commission ought to have called for the report from the Commissioner and ought to have given him an opportunity to file his objection. Had such opportunity been given to the Commissioner, the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because it was in violation of the principles of natural justice, the principles enunciated by the apex court in the case of State of Orissa v. Dr. (Miss) Binapani Dei, AIR 1967 SC 1269, is that an order in violation of the principles of natural justice, is void or of no value. Breach of the principles of natural justice nullifies the order made in breach. It has no value. If that be so, then the order dated November 17, 1994, made in violation of the principles of natural justice will have to be treated as AB initio void and, therefore, all subsequent proceedings and orders passed therein will be of no consequence and they will have to be set aside because the subsequent order under section 245D(4) can only survive subject to the validity of the order required to be passed under section 245D(1). As we have pointed out, the order under section 245D(1), dated November 17, 1994, is AB initio void and, therefore, the subsequent order will be of no consequence. If that be so, then the application made under section 245C(1) shall have to be treated as still pending before the Commission and direction would be necessary to the Commission to try the said application afresh on its own meri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in two instalments one being of Rs. 2.76 crores and the second containing income of Rs. 7 crores. Further, in respect of both these figures no manner as to how the income has been derived has been disclosed. The Settlement Commission did not call for any additional report from the Commissioner as contemplated under section 245D(1) of the Act. Even enquiry as contemplated under section 245D(3) has not been made as contemplated under section 245D(4) in respect of disclosure of the last two instalments during the course of hearing of the proceeding under section 245D(4). Under these circumstances, this is a patent case wherein procedure prescribed by the Act has not at all been followed and the order has been passed contrary to the provisions of the Act. The reading of the order shows that the Commission failed to address itself to the basic requirement of section 245C(1) and did not record any finding as to whether the application moved by the assessee contained full and true disclosure of his income and the manner in which such income has been derived. Omission to consider the very basic requirement goes to the very root of the maintainability of the application. The impugned or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g process has not been validly followed. We, therefore, find fault even with the decision-making process followed by the Commission. In the present case the Settlement Commission has essentially relied upon the second trial balance prepared by the assessee on November 17, 1992, which trial balance was prepared by the assessee after the first search was carried out. This second trial balance was allegedly made on the basis of the seized trial balance dated August 31, 1992, and cash book A/6. The Settlement Commission ought to have considered a further factor, viz., that the accountant of the assessee fled with the bag containing the account books. The said accountant tried to avoid the search and seizure. He absconded with the bag. He threw the bag in the drainage. Moreover, no enquiry has been made by the Settlement Commission as to whether any back-up was maintained by the assessee particularly when it was found that the hard disk got corrupted. The conduct of the assessee was also an important fact which the Settlement Commission ought to have kept in mind while deciding the applicability of section 69A of the Income-tax Act. Further if as stated hereinafter the expenses were o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. The Settlement Commission has not considered the issue as to whether the assessee has made full and true disclosure of his income and the manner in which the same has been derived. On the contrary, disclosure of income in various instalments in various stages of the proceeding ought to have been taken into account by the Settlement Commission while granting immunity from prosecution and penalty. On this count also, in our opinion, the order suffers from patent error apparent on the face of the record and non-application of mind on the part of the Settlement Commission. The Commission also failed to appreciate the conduct and role played by Shri Bipin Vora in preparing false accounts and concealment thereof in spite of specific material brought on record in this behalf. The Commission also failed to consider the effect of omission to include income earned during the assessment year 1989-90 in the application under section 245C(1) of the Act in spite of the specific objection by the Commissioner in this behalf. The Commission was expected to address itself on the vital question as to whether in the absence of an application under section 245C(1) of the Act for the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er under sub-section (4) thereof. As, already pointed out by us, the order dated November 17, 1994, being in breach of principles of natural justice has no value. With the result, in our opinion, the application made for settlement under section 245C of the Act shall have to be treated as still pending before the Commission and it would be appropriate to direct the Commission to hear and decide the application afresh after following mandate of the Act and after affording full opportunity to both the parties. Learned counsel for the petitioners contended that in the event of remand the matter be ordered to be heard by any other Bench other than the one who have passed the impugned order. We are unable to accept this contention for want of any material on record in support of this contention. In the result, we declare that the order passed under section 245D(1) of the Act dated November 17, 1994, is AB initio void and the order dated January 29, 1999, is quashed and set aside and the proceedings are remitted to the Settlement Commission keeping all questions open with a direction to decide the application within a period of six months from the date of receipt of the writ from thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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