Anbuchezhian v. Income Tax Settlement Commission, Additional Bench, Chennai, Ministry Of Finance, Department Of Revenue, 640, Anna Salai, Nandanam, Chennai-600 035

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 19.01.2018 CORAM: THE HONOURABLE Mr.JUSTICE T.S.SIVAGNANAMWrit Petition No.666 of 2018andWMP Nos.836 to 838 of 2018 Orders reserved on Orders pronounced on 11.01.201819.01.2018 Anbuchezhian, S/o.Neelamegam. ... Petitioner Vs. 1.Income Tax Settlement Commission, Additional Bench, Chennai, Ministry of Finance, Department of Revenue, 640, Anna Salai, Nandanam, Chennai-600 035. 2.Assistant Commissioner of Income Tax, Central Circle 2(2), Chennai, New No.46, Mahatma Gandhi Road, Chennai-600 034. ... Respondents Petition filed Under Article 226 of the Constitution ofIndia for issuance of Writ of Certiorarified Mandamus, callingfor the records of the first respondent contained in itsimpugned order bearing No.TN/CN 52/2017-18/57-IT dated05.01.2018 and to quash the same as arbitrary, unjust andillegal, and to consequently direct the first respondent toreconsider the application filed by the petitioner bearingNo.TN/CN 52/2017-18/57-IT and pass a fresh order under Section245D(1) of the Income Tax Act, 1961 after affording thepetitioner a sufficient opportunity of being heard, inaccordance with law. https://hcservices.ecourts.gov.in/hcservices/ For Petitioner : Mr.R.V.Eshwar, Senior Counsel for Mr.R.Sivaraman for Mr.R.Sivaraman For Respondents : Mr.A.P.Srinivas, Senior Standing Counsel assisted by Mr.A.N.R.Jayapradhap, Junior Standing Counsel Junior Standing Counsel ****** O R D E R The petitioner has filed this writ petition challenging theorder passed by the Income Tax Settlement Commission(hereinafter referred to as “the Settlement Commission”),Additional Bench, Chennai, dated 05.01.2018, passed underSection 245D(1) of the Income Tax Act, 1961 (hereinafterreferred to as “the Act”). By the impugned order, thepetitioner's application for settlement of his case was rejectedon the ground that he failed to make full and true disclosureand also the manner of earning such income, which are therequisite conditions laid down in Section 245C(1) of the Act.As the petitioner has not satisfied the conditions laid down inthe said provision, the application filed by the petitionerdated 26.12.2017, for the assessment years 2010-11 to 2016-17was not allowed to be admitted under Section 245D(1) of the Act.The application dated 26.12.2017, was the second applicationfiled by the petitioner for settlement of his case. The firstapplication was made on 28.07.2017, which was rejected by orderdated 10.08.2017, under Section 245D(1) of the Act. Thefollowing facts would be necessary for considering as to whatrelief the petitioner is entitled to in this writ petition. 2.The petitioner is an individual carrying on business ofdistribution of films produced by third parties primarily in thearea of Madurai - Ramnad Districts and occasionally in otherdistricts and he is an assessee on the file of the secondrespondent, the Assistant Commissioner of Income Tax, CentralCircle 2(2), Chennai. 3.According to the petitioner, his line of business was toensure the smooth running of his film distribution business, forwhich purpose, he had opened multiple Bank accounts in variousBanks in the names of different persons/entities to ensure https://hcservices.ecourts.gov.in/hcservices/ 2.The petitioner is an individual carrying on business ofdistribution of films produced by third parties primarily in thearea of Madurai - Ramnad Districts and occasionally in otherdistricts and he is an assessee on the file of the secondrespondent, the Assistant Commissioner of Income Tax, CentralCircle 2(2), Chennai. 3.According to the petitioner, his line of business was toensure the smooth running of his film distribution business, forwhich purpose, he had opened multiple Bank accounts in variousBanks in the names of different persons/entities to ensure https://hcservices.ecourts.gov.in/hcservices/ timely realizations and also for the sake of his convenience.The advances made by the petitioner to the film Producers andothers in connection with the distribution business are routedthrough Bank accounts by way of RTGS/Cheques and also from cashwithdrawals. In case of distribution basis, the movies arereleased for and on behalf of the Producers generally in Madurai– Ramnad area and for having done this the petitioner charges ashare of profit of the film out of the net share of theProducer, normally in the range of 2% to 10%. That apart, filmsare also released on minimum guarantee basis, where an initialsum is paid to the Producer by the distributor irrespective ofhow the film performs. 4.The petitioner would state that out of the monies earnedin his business, certain portion of it was used towards purchaseof immovable properties, investments, jewellery, loans andadvances and the balance is retained as cash or Bank balance.The collections from the theatres in connection withdistribution business are partly in cash and partly throughBank. Further, the payments made to Producers/Sub-distributorsare also partly in cash and partly through Bank, as the natureof trade is such. A search proceeding under Section 132 of theAct was conducted in the offices and residential premises of thepetitioner in Chennai and Madurai on 30.09.2015 and 01.10.2015,during which, materials were seized/impounded as well as cashamounting to Rs.67,00,000/- from the residential premises of thepetitioner. Pursuant to the search, notices under Section 153Aof the Act dated 28.11.2016, were issued for the assessmentyears 2010-11 to 2015-16. The petitioner, over and above theincome returned for the relevant assessment years amounting toRs.5,91,56,880/-hadadmittedundisclosedincomeofRs.25,10,95,304/- under Section 132(4) of the Act. 5.The petitioner would state that for the assessment year2016-17, he filed original return under Section 139(1) of theAct on 15.12.2016, declaring the total income ofRs.4,00,00,000/-. Thereafter, the petitioner preferred anapplication before the Settlement Commission on 28.07.2017, tosettle the issues. The said application was rejected by orderdated 10.08.2017, apart from other reason that the petitionerhad reduced the quantum of transactions as per the seizedmaterial from Rs.357 Crores to Rs.175 Crores. Pursuant thereto,the petitioner preferred the second settlement application dated26.12.2017, before the Settlement Commission to settle threeissues for the block assessment period 2010-11 to 2016-17. Thethree issues being, (a) undisclosed income of the petitioner forthe relevant assessment years arising out of the materialsseized/impounded in the search proceedings and also to determine the consequential tax and interest thereon payable under theAct; (b) the petitioner be granted immunity from all thepenalties and prosecution under the Act; (c) the petitioner begranted capitalization of undisclosed income offered before theSettlement Commission. the consequential tax and interest thereon payable under theAct; (b) the petitioner be granted immunity from all thepenalties and prosecution under the Act; (c) the petitioner begranted capitalization of undisclosed income offered before theSettlement Commission. 6.The petitioner would further state that he had paid anadditional tax of Rs.13,31,02,037/- for the relevant assessmentyears, which were covered in the settlement application. So faras the major portion of the undisclosed income is concerned,which were retrieved by the Department through diary notings,loose sheets at the premises of the petitioner provided pagewise explanation with counter party confirmations from theparties to whom monies were advanced for the purpose ofproduction/distribution of films. This second application wasrejected vide order dated 05.01.2018, by the SettlementCommission. This order is impugned in this writ petition. 7.Mr.R.V.Eshwar, learned Senior Counsel for Mr.R.Sivaram,learned counsel for the petitioner prefaced his submissions bystating that the petitioner has filed voluminous documentsbefore the Settlement Commission in the form of paper book in 12volumes and the Settlement Commission did not consider thereconciliation provided by the petitioner and the explanationoffered and rejected the application without properconsideration. The Settlement Commission without forming areasoned opinion had applied the provisions of Section 292C ofthe Act to the application for settlement. The SettlementCommission ought to have considered the submissions made by thepetitioner with respect to the absolute admissibility of thecontents of the diary notings seized from the search action. 8.The petitioner contended that the entire diary notingswere only tentative documents that ought not to have been fullyrelied on by the Department, more particularly, when thepetitioner had made extensive submissions, explanations andevidences with respect to the undisclosed income. TheSettlement Commission ought to have appreciated the page wiseexplanation of seized materials and detailed explanations ofseized annexures along with confirmations received from thecounter parties. The Settlement Commission erred in observingthat the diary notings did not match with the amount offered bythe petitioner despite the authorized representative explainingthe modus operandi of the petitioner that the SettlementCommission ought to have formed a prima facie opinion on theaspect of full and true disclosure of the particulars of incomeafter going through the contents, submissions and additionalpaper books preferred by the petitioner. The Settlement Commission did not provide reasonable opportunity to thepetitioner to clearly substantiate their claims and arbitrarilypassed the impugned order. 9.The learned Senior Counsel has drawn the attention of thisCourt to the order passed by the Settlement Commission dated10.08.2017, by which, the first application for settlement wasrejected and pointed out that the Settlement Commission had heldthat the petitioner reduced the quantum of transactions as 'nottransactions' and while submitting the second application dated26.12.2017, the petitioner had offered Rs.3,46,86,58,764/-,which was not taken into consideration by the SettlementCommission. The petitioner had given full explanation of thequantum of transactions by producing necessary documents inassessee's paper book IV for Rs.386 Crores, which aspect was notappreciated by the Settlement Commission. 9.The learned Senior Counsel has drawn the attention of thisCourt to the order passed by the Settlement Commission dated10.08.2017, by which, the first application for settlement wasrejected and pointed out that the Settlement Commission had heldthat the petitioner reduced the quantum of transactions as 'nottransactions' and while submitting the second application dated26.12.2017, the petitioner had offered Rs.3,46,86,58,764/-,which was not taken into consideration by the SettlementCommission. The petitioner had given full explanation of thequantum of transactions by producing necessary documents inassessee's paper book IV for Rs.386 Crores, which aspect was notappreciated by the Settlement Commission. 10.It is further submitted that the assessee may bejustified in requesting the Settlement Commission to examine thevoluminous record, but there is sufficient machinery availablewith the Settlement Commission, apart from the power of theCommission to call for a report in terms of Rule 9 or toexercise its powers under Section 245D(3) of the Act and callfor a report from the Principal Commissioner of Income Tax,which procedure was not adopted. Thus, the SettlementCommission ought to have considered that the grounds on whichthe first application was rejected were made good by thepetitioner in the second application, which aspect was notappreciated by the Settlement Commission. Therefore, thelearned Senior Counsel would submit that the matter may beremanded for fresh consideration before the SettlementCommission giving an opportunity to the assessee to explain thevoluminous documents placed before it and also to direct theSettlement Commission to cause enquiry into those documents byexercising power under Rule 9 or under Section 245D(3) of theAct or with the machinery available with the SettlementCommission. 11.Mr.A.P.Srinivas, learned Senior Standing Counsel assistedby Mr.A.N.R.Jayapradhap, learned Junior Standing Counselappearing for the Revenue submitted that by the impugned order,the second application for settlement has been rejected by theSettlement Commission and the issues pointed out by theSettlement Commission are all factual and this Court exercisingjurisdiction under Article 226 of the Constitution would notmake a fact finding exercise to ascertain the correctness of thesubmissions of the assessee and the assessee should be relegated to adopt normal course of assessment under the provisions of theAct. 12.Heard the learned counsels for the parties and carefullyperused the materials placed on record. 11.Mr.A.P.Srinivas, learned Senior Standing Counsel assistedby Mr.A.N.R.Jayapradhap, learned Junior Standing Counselappearing for the Revenue submitted that by the impugned order,the second application for settlement has been rejected by theSettlement Commission and the issues pointed out by theSettlement Commission are all factual and this Court exercisingjurisdiction under Article 226 of the Constitution would notmake a fact finding exercise to ascertain the correctness of thesubmissions of the assessee and the assessee should be relegated to adopt normal course of assessment under the provisions of theAct. 12.Heard the learned counsels for the parties and carefullyperused the materials placed on record. 13.The submissions of the learned Senior Counsel for thepetitioner convinced this Court to remand the matter to theSettlement Commission for fresh consideration. This submissionis largely based on the materials placed before the SettlementCommission along with the second application, which arevoluminous and require thorough verification. It is not indispute that the second application is maintainable before theSettlement Commission. Nevertheless it has to be seen as towhether the order passed by the Settlement Commission is soarbitrary or unreasonable suffering from errors apparent on theface of the order or that no reasonable person could comprehendthe reasons assigned by the Settlement Commission for rejectionof the application. It is no doubt true that the object ofintroduction of Section 245 into the provisions of the IncomeTax Act is to bring about an early resolution of tax disputes,by which the assessee gets immunity from penalty andprosecution. However, the provision contain strict parameters,which guide the Settlement Commission as to how to go about whenan application for settlement is made. The first and foremostcondition for an assessee to fulfill before the SettlementCommission is to satisfy the Commission that his disclosure wasfull and true. If this basic ingredient is not satisfied, theCommission can reject the application at the very threshold, ashas been done by the impugned order at the stage of Section 245D(1) of the Act. Thus, the impugned order has to be tested onthe anvil of the parameters pointed out above and this Courtcannot convert itself as an appellate authority over thefindings recorded by the Settlement Commission. Undoubtedly,this Court is exercising jurisdiction under Article 226 of theConstitution of India cannot convert itself into that of anappellate authority over and above the order passed by theSettlement Commission to consider the correctness of the same byre-appreciating the documents placed before the Commission.Thus, we would have to look into the impugned order and thereasons assigned therein. 14.Admittedly, the petitioner does not allege that theimpugned order suffers from errors apparent on the face of therecord. The endeavour of the assessee is to show to the Courtthat proper appreciation of the documents filed by the assesseewas not done by the Settlement Commission, especially when the petitioner had made good whatever was pointed out by theSettlement Commission while rejecting the first application.Thus, I proceed to examine as to whether the reasons assigned bythe Settlement Commission are just and proper and as to whetherthey call for interference. 14.Admittedly, the petitioner does not allege that theimpugned order suffers from errors apparent on the face of therecord. The endeavour of the assessee is to show to the Courtthat proper appreciation of the documents filed by the assesseewas not done by the Settlement Commission, especially when the petitioner had made good whatever was pointed out by theSettlement Commission while rejecting the first application.Thus, I proceed to examine as to whether the reasons assigned bythe Settlement Commission are just and proper and as to whetherthey call for interference. 15.The petitioner's case before the Settlement Commissionwas that he could not maintain proper Bank accounts, as he wasfocusing his time on his business and the returns of income forvarious years were filed only on estimate basis. The petitionerclaimed that the seized materials are only notes containing thedetails of enquiry relating to distribution advances made withproducers, theatre owners etc., and not actual transactions andsought to sustain this submission by relying on paper book IV.Further, the petitioner admitted that he had opened multipleBank accounts in various Banks in the names of differentpersons/entities and the advances were made through Bank accountby way of RTGS, cheques and cash withdrawals. 16.The Settlement Commission considered the aspect asregards full and true disclosure of income and summarized themanner of earning additional income as propounded by thepetitioner in paragraph 5.2 of the impugned order. TheSettlement Commission has recorded that it considered theapplication filed by the petitioner, the paper books filed, thesubmissions of the authorized representative of the petitionerand the available records and recorded the submissions made onfacts. After considering the same, the Settlement Commissionpointed out that the authorized representative of the petitionerwas not able to cogently explain any of the entries relating tothe applicant's claim on 'not done' transaction. Therefore,opined that trueness and fullness of the disclosure is lackingin the application. The Settlement Commission took intoconsideration the written submissions filed by the authorizedrepresentative of the petitioner during the course of hearingsaid to contain the co-relation statement of diary notings withactual transaction and list of 'not done' transaction as claimedby the petitioner. The Settlement Commission pointed out thatthe authorized representative was unable to clarify the notingsin diary and the quantum of transaction in paper book IV. 17.The Settlement Commission appears to have pointed outcertain deficiencies with regard to full and true disclosure ofthe petitioner's income and the manner of earning the same,including further disclosure of additional income of Rs.5Crores. It is recorded by the Settlement Commission that whenthese deficiencies were pointed out, the authorized representative relied on paper book IV and paper book V.However, on perusal of the same, the Settlement Commission foundthat the entries appearing in the seized documents (paper bookV) did not match with the explanations appearing in paper bookIV and certain entries were pointed out such as the entriesappearing in the name of Gnanavel, being part of the seizedmaterial placed in paper book V. To the specific query made tothe authorized representative to explain 'not done' transaction,it was observed that he was not able to explain and match thetransactions with the entries appearing in the paper bookssubmitted by the assessee. 18.Further, the Settlement Commission observed that theexplanation of the manner of earning the further additionaldisclosure of Rs.5 Crores made in the second application did notform part of the SOF nor the authorized representative of thepetitioner was able to explain about the nature of details ofthe disclosure. 18.Further, the Settlement Commission observed that theexplanation of the manner of earning the further additionaldisclosure of Rs.5 Crores made in the second application did notform part of the SOF nor the authorized representative of thepetitioner was able to explain about the nature of details ofthe disclosure. 19.Further, it appears that the Settlement Commissionpointed out these deficiencies to the authorized representativeduring the course of hearing, who was unable to give anyclarification and therefore, came to the conclusion that therehas been no full and true disclosure. On the above grounds, theapplication has been rejected. Thus, the case on hand is notone where the Settlement Commission brushed aside the documentsfiled by the petitioner. In fact an exercise has been done bythe Settlement Commission to examine the stand taken by theassessee, giving liberty to the assessee to explain from thedocuments filed in the paper book. It needs to be pointed outthat vital aspects, which were queried by the Commission, theauthorized representative of the petitioner was unable toexplain or clarify or match the transactions. An argument wasput forth that the Settlement Commission ought to have utilizedthe machinery available with it to cause clarification or tocall for a report under Rule 9 or to call for a report underSection 245D(3) of the Act. 20.Be noted that the application is at the stage ofadmission and the petitioner should satisfy the SettlementCommission that there has been full and true disclosure. Atthat stage of the matter, the Settlement Commission cannot beexpected to or cannot be compelled to utilize the machineryavailable with it or to invoke Rule 9 or Section 245C of theAct. It is for the Settlement Commission to regulate itsbusiness. The manner in which the Settlement Commissionproceeded cannot be stated to be either arbitrary or unreasonable. The Court cannot dictate the procedure that theSettlement Commission has to follow at the stage of Section 245D(1) of the Act unless there is a palpable error or violation ofany procedures under the Act. In other words, broad parametersrequired to satisfy a prima facie case before a Court of law iswhat is required at the stage of Section 245D(1) of the Act.The degree of proof for a prima facie case is on higher pedestalbefore a judicial forum. It is no doubt true that Section 245was inserted into the provisions of the Income Tax Act for anearly resolution of complicated tax disputes, where the assesseegets relief, more particularly from penalty and prosecution.However, to be entitled for such a remedy, the conduct of theassessee is primordial. In my considered view, the conduct ofthe assessee as pointed out by the Tribunal definitely leads tothe irresistible conclusion that there has been no full or truedisclosure. Thus, for the above reasons, this writ petition fails andthe same is dismissed. No costs. Consequently, connectedmiscellaneous petitions are closed. Sd/- Assistant Registrar(CS V) //True Copy// Sub Assistant RegistrarabrTo 1.The Income Tax Settlement Commission, Additional Bench, Chennai, Ministry of Finance, Department of Revenue, 640, Anna Salai, Nandanam, Chennai-600 035. 2.The Assistant Commissioner of Income Tax, Central Circle 2(2), Chennai, New No.46, Mahatma Gandhi Road, Chennai-600 034. +1 cc to Mr.A.P.Srinivas Advocate sr 4680 Writ Petition No.666 of 2018 aa01/02/2018