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TMI Blog2024 (10) TMI 1585X X X X Extracts X X X X X X X X Extracts X X X X ..... en for the writ petitioner to assail the order of the ITSC only to the extent of according immunity from prosecution and penalty as contemplated under Section 245H of the Income Tax Act, 1961 [Act]. 3. It becomes pertinent to note that the writ petitioner has chosen to desist from assailing the order of the ITSC in its entirety and in terms of which, not only was a computation of income exercise in terms contemplated under Section 245D (4) undertaken, the ITSC had also framed directions for tax being computed in terms thereof and for the respondent nos. 1 and 2 being placed under the additional liability of paying interest under Sections 234A, 234B and 234C of the Act. 4. It is in the aforesaid backdrop that the petitioners were called upon to satisfy the Court as to whether a partial challenge to the order of the ITSC could be maintained. This aspect assumes significance since an order of settlement as rendered is premised on a full and true disclosure of income having been made by the applicant before the ITSC and it having processed that application on the anvil and rigors of the provisions contained in Section 245D (2) read along with Section 245D (2C). Undisputedly, the ITSC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 2 that their audited accounts could not be relied upon since they were replete with fictitious transactions. This becomes apparent from a reading of Para 22 of the order of the ITSC impugned before us:- "22. A perusal of the SOF clearly reveal that the applicant had taken the position that result of audited account will not be reliable for the reason that there are fictitious transactions and that the financial statements contain fabricated results for impressing banks with a sole purpose of impressing the banks. On the contrary, the applicant wanted the result of combined (consolidated) account to be adopted wherein all fictitious transactions of bogus concerns have been reversed or neutralized." 9. The applications for settlement appear to have been based on a combined or consolidated account which was prepared by M/s M.L. Puri & Co., Chartered Accountants. However, the aforesaid consolidated accounts were also found by the ITSC to be unreliable in light of various discrepancies which it noticed as well as the auditors themselves having expressed reservations with respect to the findings in their report and which was also qualified by various disclaimers. 10. The ITSC there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an audit. We have not performed audit and, accordingly, we do not express an audit opinion". This being the case, the so-called consolidated account is a fabricated, tailored and self serving document to suit the purpose of the applicant. Thus, the reliability cannot be accepted. xxxx xxxx xxxx 7) To sum up, having regard to the detailed discussion in the aforesaid paragraphs we are of the view that the consolidated account cannot be relied upon and does not depict a correct state of affairs. Considering inconsistencies found therein we are also of the view that rather than presenting a correct position the same account was used for a self serving intention of the applicant. Even with regard to the audited account, the applicant has expressed in no uncertain term that the account is not to be relied upon. In this circumstance, we have no option but to declare the book results of both the audited as well as the Review Report in the form of consolidated account as unreliable and therefore, reject the result. 8) In the given background and considering the constraints of inadequate records with the Department as indicated in para 17, to arrive at a fair assessment of the income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of Income u/s 245D (4) Name of the Applicant Asst. Year Total Income as per Return (in Rs.) Income disclosed u/s. 245C(1) (in Rs.) Income settled u/s 245D (4) (in Rs.) Total Income determined u/s 245D (4) (Rs.) M/s. A.S.M. Traxim Pvt. Ltd. 2006-07 0 700000 700000 700000 2007-08 -30551 800000 800000 769449 2008-09 6507439 700000 46721861 53229300 2009-10 7854719 13000000 60194325 68049044 2010-11 Not filed 100000 47665739 47665739 2011-12 Not filed 100000 53616275 53616275 Total 1433607 15400000 209698200 224029807 Computation of Income u/s 245D (4) Name of the Applicant Asst. Year Total Income as per Return (in Rs.) Income disclosed u/s. 245C (1) (in Rs.) Income settled u/s 245D (4) (in Rs.) Total Income determined u/s 245D (4) (Rs.) Agson Global Pvt. Ltd. 2004-05 -177602 200000 200000 22398 2005-06 2404670 100000 100000 2504670 2006-07 4797679 1500000 13563380 18361059 2007-08 10939800 9500000 46602925 57542725 2008-09 11859976 100000 40607700 52467676 2009-10 13106032 10000000 37241760 50347792 2010-11 24172962 100000 6521085 30694047 2011-12 Not filed 100000 100000 100000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its income and the manner in which such income has been derived, to the satisfaction of the Commission. Therefore, what is of essence is that the assessee ought to have: (a) made full and true disclosure before the Commission, and (b) co-operated with the Commission in the proceedings before it. 6.1. Upon being satisfied as to the said ingredients, the Commission may grant immunity from prosecution or from the imposition of penalty, either wholly or in part with respect to the case covered by the settlement. " 16. According to Mr. Menon, notwithstanding the computation of income having been undertaken by the ITSC and that part of the order not being questioned by the writ petitioner, the impugned order is clearly severable and this Court would thus be justified in examining whether the ITSC was justified in granting immunity. 17. Appearing for the respondents, Mr. Gulati, learned senior counsel, principally contended that the reliefs as framed would not sustain bearing in mind the limited challenge raised by the petitioners and which stands confined to the extent that the ITSC chose to grant the petitioners immunity from prosecution and the imposition of penalties. Accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings before the ITSC and agreed to collaborate in the exercise of ascertainment of a true and correct computation of income for the period in question being undertaken. It was this position as struck by parties which appears to have informed the decision of the ITSC to order a joint verification. 21. We are thus, in the facts of the present case, faced with a situation where the ITSC had at no stage come to conclude that the applications as made were liable to be rejected either on the ground that the respondents had failed to make a full and true disclosure or that they had failed to cooperate in the proceedings. If these twin conditions were found to be satisfied for the purposes of Section 245D (4), we fail to appreciate how the said issue could be questioned or reagitated while examining the validity of the discretionary power exercised by the ITSC under Section 245H. 22. In our considered opinion, once the condition of full and true disclosure is held to be satisfied, the same would not partake a separate or different hue for the purposes of Section 245H. Any view to the contrary if taken, would surely result in an incongruous situation arising. This since it would co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch persons to make true confession and to have the matters settled once for all, and earn peace of mind. It is a Forum for self surrender and seeking relief and not a 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 to the facts and circumstances of a case, which would be applicable only to that case and it has also the power to give immunity against prosecution or imposition of penalty. It is in this background we should find out the answer to the second question, namely, the scope for interference against a decision of Settlement Commission in a petition under Article 226 of the Constitution of India. The provision for settlement would show that it is in the nature or statutory arbitration, to which a person may submit himself voluntaril ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is made out; (ii) if it is found that there is no nexus between the reasons given and the decision taken by the Settlement Commission. (iii) this Court cannot interfere either with an error of fact or error of law, alleged to have been committed by the Settlement Commission. We answer the second question accordingly." 26. As was emphasized by the Supreme Court in Kotak Mahindra, the essential ingredients liable to be borne in consideration by the ITSC for the purposes of grant of immunity are cooperation by the applicant in the computation of total income in the settlement proceedings and a full and true disclosure of income being made. The Supreme Court, however, pertinently observed that what would be relevant in this respect would be the assessee offering to tax income in addition to what may have been disclosed in the return. The Supreme Court held that the settlement is premised on a full and true disclosure before the ITSC irrespective of the disclosures or discoveries that may be made before an Assessing Officer. 27. As noticed hereinabove, the joint survey which was undertaken was itself based on all original documents and material having been duly placed by the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disclosures that an applicant may choose to make. This is evident from the statutory provisions empowering and enabling it to call for reports from the Principal Commissioner/Commissioner as also the framing of directions for further inquiry and investigation being undertaken. Chapter XIX-A in our considered opinion thus enables the Income-tax Settlement Commission to holistically examine all aspects that may be said to arise from the application submitted for its consideration and enabling it to accord a full and complete closure to all disputes. 23. We note that the scope and extent of the power which the Income-tax Settlement Commission could exercise was lucidly explained by the Supreme Court in Kotak Mahindra Bank Ltd. v. CIT [(2023) 458 ITR 113 (SC); 2023 SCC OnLine SC 1215.]. The Supreme Court in Kotak Mahindra Bank [Kotak Mahindra Bank Ltd. v. CIT, (2023) 458 ITR 113 (SC); 2023 SCC OnLine SC 1215.] held (page 141 of 458 ITR): "5.2. Section 245D deals with the procedure to be followed by the Commission on receiving an application for settlement under section 245C. Sub-section (1) of section 245C enables the Commission to call for a report from the Commissioner. On the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion or from the imposition of penalty, either wholly or in part with respect to the case covered by the settlement." 24. The power conferred upon the Income-tax Settlement Commission not being confined merely to the matters spoken of and covered by the application but also extending to any other matter relating to the case was an aspect which came to be highlighted in a decision handed down by a Division Bench of the court in Tahiliani Design P. Ltd. v. Joint CIT [(2021) 432 ITR 134 (Delhi); 2021 SCC OnLine Del 3518.] wherein the following was observed (page 142 of 432 ITR): "12. Though undoubtedly (a) the application under section 245C is to have a case pending assessment settled and the Settlement Commission in exercise of powers under section 245D (4) is to pass orders as it thinks fit on the matters 'covered by the application' before it and which application of the petitioner in the present case admittedly does not cover the notice dated September 30, 2019 and in pursuance to which penalty under section 269ST has been levied on the petitioner; and (b) the argument of the counsel for the respondent that in pursuance to such an application the Settlement Commission in exercis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seizure and survey conducted qua the petitioner, as evident from a bare reading of the notice under section 271DA referred to hereinabove by us for this reason. Merit is thus found in the contention of the counsel for the petitioner that both are part of the same case. (E) The counsel for the respondent, on enquiry fairly states that if the violation of section 269ST of the Act is detected as a result of a search and seizure operation, as it is in the present case, then it is open to an applicant before the Settlement Commission to also include in the application, the violation of section 269ST of the Act and to seek settlement qua that also. (F) A co-ordinate Bench of this court in Agson Global Pvt. Ltd. v. Income-tax Settlement Commission [(2016) 380 ITR 342 (Delhi); 2016 SCC OnLine Del 49.] held that the powers and functions of an Income-tax authority which are to be exclusively exercised by the Settlement Commission must be in the context of and have a nexus with the settlement proceedings. We respectfully concur. The penalty proceedings initiated against the petitioner, as evident from the notice dated September 30, 2019, were in the context of and had a nexus with the sea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Comp Cas 1 (SC); (1988) 2 SCC 299.] held that the expression 'in relation to' has been interpreted to be the words of widest amplitude and is in the nature of a deeming provision and is intended to enlarge the meaning of a particular word or to include matters which otherwise may or may not fall within the main provisions. Again, in Thyssen Stahlunion GmbH v. Steel Authority of India Ltd. [(2000) 99 Comp Cas 383 (SC); (1999) 9 SCC 334; 1999 SCC OnLine SC 1031.] it was held that the phrase 'in relation to arbitral proceedings' cannot be given a narrow meaning to mean only pendency of the arbitration proceedings before the arbitrator; it would cover not only proceedings pending before the arbitrator but also proceedings before the court and any proceedings which are required to be taken under the old Act for award becoming decree and also appeal arising thereunder; if narrow meaning of the phrase 'in relation to arbitral proceedings' is to be accepted, it is likely to create great deal of confusion with regard to the matters where the award is made under the old Act. Applying the said law and reasoning, we hold that if we were to interpret the words 'in relation to' and 'with respec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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