Assistant Commissioner Of Income Tax, Central Circle v. Union Of India

IN THE HIGH COURT OF JUDICATURE AT PATNACivil Writ Jurisdiction Case No.13346 of 2016 ====================================================== Assistant Commissioner of Income Tax, Central Circle-3, Patna, through Mr.Praveen Kamal Srivastav, Son of Sri K.Lal Srivastav, Resident of I.T. Colony,D-8, Khajpura, P.S.- Shastri Nagar, Patna ... ... Petitioner Versus 1. Union of India through its Secretary Income Tax Settlement Commission,Kolkata having its office at 10C, Middleton Street, Kolkata. Kolkata having its office at 10C, Middleton Street, Kolkata. 2. M/s Tirupati Homes Limited, Arvina Apartment, Nageshwar Colony, BoringRoad, Patna-800001 (Bihar). ... ... RespondentsRoad, Patna-800001 (Bihar). ... ... Respondents ====================================================== with Civil Writ Jurisdiction Case No. 13743 of 2017 ====================================================== M/s Tirupati Homes Limited, Arvina Apartment, Nageshwar Colony, BoringRoad, Patna, Bihar through its Managing Director Sri Shashi Bhushan Sinha,S/o Late Chandrika Prasad, R/o- 501 Laxmi Hariniwaz, Nageshwar Colony,Kaviraman Path, PO- GPO, P.S.- Buddha Colony, District- Patna. ... ... Petitioner Versus 1. The Settlement Commissioner through its Secretary, (IT.WT) AdditionalBench, 10-C Middleton Raw, Second Floor, Kolkata- 700071. Bench, 10-C Middleton Raw, Second Floor, Kolkata- 700071. 2. The Commissioner of Income Tax, Central, Central Revenue Building,Birchand Patel Path, Patna. Birchand Patel Path, Patna. 3. The Assistant Commissioner of Income Tax, Central Circle-3 AnnexyBuilding, Birchand Patel Path, Patna. ... ... RespondentsBuilding, Birchand Patel Path, Patna. ... ... Respondents ====================================================== Appearance :(In Civil Writ Jurisdiction Case No. 13346 of 2016)For the Petitioner/s: Ms. Archana Sinha @ Archana Shahi, Adv.For the Respondent/s: Mr. Krishna Mohan Mishra, Adv.(In Civil Writ Jurisdiction Case No. 13743 of 2017)For the Petitioner/s: Mr.Arjun Prasad, Adv.For the Respondent/s: Ms. Archana Sinha @ Archana Shahi, Adv. ====================================================== CORAM: HONOURABLE MR. JUSTICE JYOTI SARAN and HONOURABLE MR. JUSTICE ARVIND SRIVASTAVAORAL JUDGMENT(Per: HONOURABLE MR. JUSTICE JYOTI SARAN)Date : 08-01-2019 The Department of Income Tax through the Assistant Commissioner is before us, as a writ petitioner to question theorder dated 30.9.2015 passed by the Settlement Commission inpurported exercise of powers vested under section 245D(4) of theIncome Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the assessment years 2011-12 and 2012-13. The assessee- respondent,on the other hand, has also filed separate writ petition feelingaggrieved by the same order of the Settlement Commission dated30.9.2015 in so far as it has awarded interest under section 234A,234B and 234C of ‘the Act’, which is placed analogous forconsideration. and HONOURABLE MR. JUSTICE ARVIND SRIVASTAVAORAL JUDGMENT(Per: HONOURABLE MR. JUSTICE JYOTI SARAN)Date : 08-01-2019 The Department of Income Tax through the Assistant Commissioner is before us, as a writ petitioner to question theorder dated 30.9.2015 passed by the Settlement Commission inpurported exercise of powers vested under section 245D(4) of theIncome Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the assessment years 2011-12 and 2012-13. The assessee- respondent,on the other hand, has also filed separate writ petition feelingaggrieved by the same order of the Settlement Commission dated30.9.2015 in so far as it has awarded interest under section 234A,234B and 234C of ‘the Act’, which is placed analogous forconsideration. The facts of the case briefly stated is that respondentno.2 is a Company registered under the Companies Act, 1956 andas per their submission, has been filing their returns regularlyunder ‘the Act’. The records of the proceeding transpire that asearch and seizure operation was carried out in the businesspremises of the Company as well as on the residential premises ofits Managing Director on 28.4.2011 and following which theAssessing Officer in the rank of the writ petitioner issued searchnotice in purported exercise of powers vested under section 153Aand 153C of ‘the Act’, copies of which are enclosed in the writpetition filed on behalf of the assessee. The respondent- assesseefiled his returns for the assessment years in question i.e. for theyear 2011-12 on 9.9.2013 and for the assessment year 2012-13 on15.10.2013. Despite the position a second notice was issued undersection 153 of ‘the Act’ by the Department to the assessee forfiling fresh returns. The respondent- assessee looking into the complexity ofthe proceeding so initiated took recourse to the remedy available tohim under Chapter XIXA of ‘the Act’ by filing an application forsettlement of his case in the manner so provided thereunder and byfiling an appropriate application to such effect under section245C(1) thereof. A copy of such application is on record asAnnexure 2 to the writ petition filed by the assessee. According tothe respondent- assessee, it disclosed its total income for each ofthe two assessment years in question to the tune ofRs.1,60,40,700/- which was inclusive of additional income ofRs.1,05,00,000/- for the assessment year 2011-12. In a similarmanner the Company made a true and proper disclosure of thetotal income for the assessment year 2012-13 to the tune ofRs.1,05,94,182/- which was inclusive of additional income ofRs.40,00,000/-. According to the assessee, the tax admissible onthe income so dislcosed was Rs.53,28,320/- for the assessmentyear 2011-12 and Rs.34,37,283/- for the assessment year 2012-13.As per assessee, he has paid admissible interest on the amount ofincome tax payable, by making a total payment inclusive ofinterest for the period 2011-12 to the tune of Rs.75,22,464/- andfor the assessment year 2012-13 to the tune of Rs.35,32,192/-. Asper respondent-assessee, the application filed by him under section 245C of ‘the Act’ was entertained by the Commission by passingan order to such effect under section 245D(1) of ‘the Act’ on4.4.2014. 245C of ‘the Act’ was entertained by the Commission by passingan order to such effect under section 245D(1) of ‘the Act’ on4.4.2014. According to the Department, the order dated 4.4.2014allowing the settlement application was not correct because theassessee had not made full and true disclosure of his income. Therecords transpire that on 21.5.2014 an order was passed by theSettlement Commission under section 245D(2C) treating theapplication as not invalid and thus fit to be proceeded with. Thenotice was issued to the Commissioner of Income Tax forsubmission of his report under Rule 9 of the Rules framedthereunder and which has been furnished by the Commissioner ofIncome Tax, which is enclosed as Annexure 3 to the writ petitionfiled by the Department and which is dated 25.7.2014. Accordingto the Department, the case was fixed for hearing and passing finalorders under section 245D(4) of ‘the Act’ on 28.7.2015 on whichdate a written submission as well was submitted by theDepartment regarding holding of a special audit. However, theSettlement Commission has passed final orders on 30.9.2015without having regard to the objection raised by the Departmentand feeling aggrieved the Department is before this Court throughthe writ petition in question and alongside the assessee has followed suit to question the order of the Commission in so far asit awarded interest. Ms. Archana Sinha, learned counsel has appeared onbehalf of the Department while Mr. Krishna Mohan Mishra,learned counsel has appeared for the assessee. The issues that have been framed in paragraph 2 of thewrit petition by the Department is ornamental in nature save andexcept the issue of perversity, if any, so committed by theSettlement Commission while passing the impugned order. Theother issue canvassed by Ms. Sinha is that the assesseee havingfailed to make true and full disclosure of his income in the mannerprescribed, he was not entitled to the benefit of the remedyavailable under Chapter XIXA of ‘the Act’. We have heard learned counsel for the parties and haveperused the records. The two issues that we have noted above are the onlyissues which in our opinion may invite an examination underArticle 226 of the Constitution of India. Chapter XIXA by way ofa special remedy, has been incorporated under ‘the Act’ to bringabout a settlement, without the parties having to go through thelong drawn process of the assessment, appeal, revision etc. Theremedy provided under Chapter XIX of ‘the Act’ by the Parliament is special in nature and is founded on sound principles of voluntarydisclosure by the assessee of his full and true income. The schemeunderlying Chapter XIXA of ‘the Act’ presupposes a suppressionby an assessee in disclosing his true income before the AssessingOfficer and affords him an opportunity to make good the lapse bytaking recourse to this remedy after making a full and truedisclosure of his income in his settlement application before theSettlement Commission which would be inclusive of such incomewhich was not disclosed by him before the Assessing Authority. There are certain definite constraints accompanyingsuch remedy but for the purpose of the present adjudication we areonly to see whether or not the assessee has made such true and fulldisclosure of his income before the Settlement Commission whichhe did not do before the Assessing Authority and/or whetherdespite the objections raised by the Commissioner of Income Taxin his report submitted under Rule 9 of ‘the Rules’, there has beenany perversity in disposal by the Commission of the settlementapplication by the order impugned. For the purpose we would be referring to the relevantparagraphs of the report of the Commissioner of Income Taxsubmitted under Rule 9 of ‘the Rules’ in so far as it raisesobjections on the prayer made by the assessee for the settlement of his case by the Settlement Commission for the assessment year2011-12 and 2012-13. “Assessment year 2011-12 For the purpose we would be referring to the relevantparagraphs of the report of the Commissioner of Income Taxsubmitted under Rule 9 of ‘the Rules’ in so far as it raisesobjections on the prayer made by the assessee for the settlement of his case by the Settlement Commission for the assessment year2011-12 and 2012-13. “Assessment year 2011-12 As already discussed, on the basis of entries foundrecorded in various seized documents, the“unaccounted for” cost of projects is worked out atRs.23,70,22,535/- as against Rs.10,85,25,511/-declared by the applicant in the Settlement application.So, there is a discrepancy of Rs.12,84,97,024/- betweenthe unaccounted for cost of projects worked out by theapplicant and that worked out on the basis of entries inseized documents as discussed already. Hence, theadditional undisclosed amount of Rs.12,84,97,024/-should be added back to his total undisclosed incomefor A.Y. 2011-12. Therefore, it is strongly felt that theassessee has dodged the Department by not makingtrue and full disclosure before the Hon’ble SettlementCommission.” Similarly for the assessment year 2012-13 the operativeportion of the report of the Commissioner of Income Tax runsunder: “ In the audited accounts submitted by the assesseeitself, total expenses incurred by the assessee duringthe F.Y. 2011-12 were shown at Rs.9,64,73,029/- asagainst a receipt from business of Rs.10,14,84,111/-.Nowhere in his submission, the assessee has claimedany further expenses incurred for earning suchadditional revenue of Rs.6,00,00,000/-. So, it can be undoubtedly said that the net profit of the assessee forthe F.Y. 2011-12 should be enhanced to the extent ofhis additional receipts of Rs.6,00,00,000/- keeping thetotal expenses at Rs.9,64,73,029/-. This again revealsthat the assessee has not make a true and full disclosurebefore the Hon’ble Settlement Commission, Hence, theamount of Rs.6,00,00,000/- should be added to the totalincome of the assessee during the year underassessment.” The main thrust of argument of Ms. Sinha, learnedcounsel appearing on behalf of the Department to question theorder of the Settlement Commission is that despite theCommissioner of Income Tax having demonstrated before theSettlement Commission that yet the assessee had not made full andtrue disclosure of his income but the Settlement Commission hasignored the objection and instead of rejecting the application onthis count, has proceeded to dispose of the same on the basis ofmaterials on record, which exercise is dehors the statutoryprovisions for once it is demonstrated that the assessee had failedto make full and true disclosure of his income even before theSettlement Commission, the remedy provided under ChapterXIXA of ‘the Act’ would not be available for such assessee but thisrelevant aspect of the matter has been bypassed by theCommission. According to the learned counsel, this default by theCommission renders the order perverse. Mr. Mishra, learned counsel appearing for the assessee,while supporting the order impugned in so far as it proceeds tocompute total income has submitted that there was no suppressionby the assessee who had made true and full disclosure of incomebefore the Commission and the relevant papers in support of whichwere also forwarded to the Commissioner of Income Tax for hisreport. In reference to the objections raised by the Commissioner,Income Tax in paragraph 3 in so far as assessment year 2011-12and 2012-13 is concerned, he submits that each of the objectionsso raised by the Commissioner, Income Tax has been well takencare of by the Settlement Commission to record its opinion andwhich suffers no infirmity. In reference to the application filed bythe assessee under section 245C of ‘the Act’, a copy of which isenclosed with the second writ petition, he submits that a bareperusal of the documents and the statements made in theapplication would confirm that there was no suppression by theassessee and it is thus being satisfied on this score that the orderhas been passed by the Commission which suffers no infirmityexcept that the situation did not warrant imposition of interestunder sections 245A, 245B and 245C of ‘the Act’ whichimposition has been questioned by the assessee in the second writpetition arising from C.W.J.C.No. 13743/2017. Having noted the rival submissions it is now to be seenwhether the Settlement Commission has defaulted in its exercise towarrant any interference. The thrust of objections taken by theCommissioner, Income Tax in his report in respect of each of thetwo assessment years 2011-12 and 2012-13 which we havereproduced hereinabove would confirm that in the opinion of theCommissioner there has been a discrepancy of Rs.12,84,97,024/-and which needs to be added to the total undisclosed income forthe assessment year 2011-12 which disclosure has not been madeby the assessee before the Commission. In so far as the assessment year 2012-13 is concerned,according to the department a sum of Rs.6,00,00,000/- is to beadded to the total income for the assessment year in question. Before we would advert our attention to the finding onthe Settlement Commission on the objection so taken, we deem itnecessary to reproduce the submissions of the assessee before theSettlement Commission on the undisclosed income in respect ofeach of the two assessment years. In so far as the assessment year2011-12 is concerned, a specific statement is made by the assesseein his settlement application after discussing the complexity ofinvestigation so initiated by the Department following the searchand seizure, wherein he has made the following disclosure: “ During the course of search operation, the ManagingDirector, namely, S.B.Sinha was coerced and cajoled tomake disclosure of undisclosed income of Rs.15 crorein respect of his business activities.” In so far as the assessment year 2012-13 is concerned, the Commissioner in his report, the extract of which we havereproduced hereinabove, has mentioned that the assessee whileworking out its work in progress during the assessment year 2012-13 has accepted a receipt of Rs.6,00,00,000/- which requires to betaken into account. In the nature of the objections so raised by theCommissioner Income Tax seen alongside the statement of theassessee in his application, it needs to be seen whether theSettlement Commission has in any manner defaulted in itsexercise. For the purpose we would be referring to the relevantparagraphs of the order impugned in so far as it discusses theobjections raised by the Commissioner, Income Tax in his reportand the manner of its disposal. While paragraph 5 to 5.15 of the order impugnedconcludes on the claim put forth on the application in so far as itrelates to the assessment year 2011-12, paragraph 5.16 and 5.17deals with the objections taken by the Commissioner, Income Taxfor the assessment year 2012-13. For the sake of convenience we In the nature of the objections so raised by theCommissioner Income Tax seen alongside the statement of theassessee in his application, it needs to be seen whether theSettlement Commission has in any manner defaulted in itsexercise. For the purpose we would be referring to the relevantparagraphs of the order impugned in so far as it discusses theobjections raised by the Commissioner, Income Tax in his reportand the manner of its disposal. While paragraph 5 to 5.15 of the order impugnedconcludes on the claim put forth on the application in so far as itrelates to the assessment year 2011-12, paragraph 5.16 and 5.17deals with the objections taken by the Commissioner, Income Taxfor the assessment year 2012-13. For the sake of convenience we are persuaded to reproduce paragraph 5.15 and paragraph 5.17which would amply demonstrate that the objections raised by theCommissioner, Income Tax as regarding the assessment years inquestion stands well noted. “5.15 The CIT in his Rule 9 report has stated that thework in progress as estimated by the applicant in thesettlement application at Rs.85 lakh has no basis andthe unaccounted profits, earned from business wasutilized in acquiring land and land development rights,procuring materials, meeting personnel expenditure ofDirectors and their family members. On the basis ofentries found recorded in various seized documents, the‘unaccounted for cost of projects is worked out atRs.23,70,22,535/- against Rs.10,85,25,511/- declaredby the applicant in the Settlement Application. So thereis a discrepancy of Rs.12,84,97,024/- between the‘unaccounted for’ cost of projects worked out by theapplicant and that worked out on the basis of entries inseized documents. Therefore, Rs.12,84,97,024/- shouldbe added to the undisclosed income of the applicant forassessment year 2011-12. 5.17 The CIT has further submitted that duringassessment year 2012-13 the applicant has accepted areceipt of Rs.6 crore over and above the businessreceipt of Rs.10,14,84,111/- as per books. This hastaken his total business of Rs.17 crore. In the auditedaccounts, total expenses incurred by the applicantduring (FY 2011-12) A.Yr. 2012-13 were shown at Rs.9,64,73,029/- and nowhere the applicant hasclaimed any further expenses incurred for earning suchamount of Rs.6 crore. Hence, the net profit of theapplicant for this year should be enhanced to theadditional receipt of Rs.6 crore keeping the totalexpenses at Rs.9,64,73,029/-. Thus, Rs.6 crore shouldbe added back to the additional income of theapplicant.” Paragraph 10 to 11.2 of the order passed by the Settlement Commission records the conclusion and runs under: “10. We have considered the facts carefully. We notethat purchases and expenditure are omitted, in fact, theassessee did not maintain accounts in a proper manner,and incriminating loose sheets only confirm theaccounts are not maintained in any complete manner.For a proper and fair estimate, on the basis of materialbefore us, the ‘inferable’ inference has to be drawn. Wenote that (i) the applicant had entered into joint development agreement with holders of and- projects, namely RamGobind Enclave; Uday Kranti Ratan Sethee Apartment;Royal Garden Enfield and Hotel Ness Inn, wereundertaken in F.Yr. 2008-09 and F.Yr. 2009-10. (ii) the applicant did not in any of these projects ownland, and therefore, the appreciation lacked therein wasnot monetized in any project; (iii) the receipts of the developer do not inspireconfidence after considering the issues raised in theRule 9 report by the C.I.T.; (iv) the expenditure is also available in theincriminating papers seized; (v) the applicant’s inventory had unsold stock ofcompleted apartments; (vi) the construction in the five blocks is not formally‘complete’, and is stayed by the High Court’s order, asG + 4 floor levels are permissible. agreement with holders of and- projects, namely RamGobind Enclave; Uday Kranti Ratan Sethee Apartment;Royal Garden Enfield and Hotel Ness Inn, wereundertaken in F.Yr. 2008-09 and F.Yr. 2009-10. (ii) the applicant did not in any of these projects ownland, and therefore, the appreciation lacked therein wasnot monetized in any project; (iii) the receipts of the developer do not inspireconfidence after considering the issues raised in theRule 9 report by the C.I.T.; (iv) the expenditure is also available in theincriminating papers seized; (v) the applicant’s inventory had unsold stock ofcompleted apartments; (vi) the construction in the five blocks is not formally‘complete’, and is stayed by the High Court’s order, asG + 4 floor levels are permissible. 11. On these facts, we are of the view that in the abovematerial facts, the gross receipts both disclosed andundisclosed have to be considered, and a net profit rateapplied. Though the view of applying the rate of theprovisions 44AD was canvassed by the A.R., we notethat this is for civil construction business and, wherethe turnover is below Rs.40 lac. The underlyingprinciple in that section would not be appropriate, asthe parameters are different. The joint venture in realestate flats has been carried by the applicant. Theappreciation in land is embedded, and the profitelement increases if the land is held for a longer time.We consider this an important element in adopting thenet profit. The applicant’s submission regardingduplication of items of cost of labour (in para 9) andexpenditure below Rs.20,000/- (in item 7 of para 8)have merit. We are therefore, inclined to estimateundisclosed receipts after factoring the applicant’ssubmission. The undisclosed receipts in assessmentyear 2011-12 are estimated at Rs.15,00,00,000/- plusdisclosed receipt Rs.5.83 crore on which a rate of 10%would be reasonable, from the point of equity andfairness. After considering all materials facts, the total receipts i.e. undisclosed and disclosed are adopted atRs.15.00.00.000/- for A.Yr. 2011-12, on which the netprofit rate of 10% is applied. 11.1 For A.Yr. 2012-13, regular audited accounts havebeen filed. The undisclosed receipts have been shownon estimate basis at Rs.6 crore for F.Yr. 2011-12. Inview of the above and considering the totality of thesituation, we are of the considered view that a netprofit rate of 10% on (Rs. 6 crore + Rs.10 crore ondisclosed receipts i.e. Rs.16 crores) will be fair enoughto be taken into account as income of the applicantcompany for the assessment year 2012-13. 11.2 In view of the discussion made above, the incomeof the applicant from real estate business is therforecomputed assessment year-wise as under: The Settlement Commission has also taken note ofundisclosed amount of lease rent for the assessment year 2011-12at paragraph 12 and has computed income of undisclosed notionalrent to the tune of Rs.9,54,630/- for the assessment period 2012-13, whereupon the computation of total income has been madewhich accompanies the impugned order by way of annexure. In our opinion, the Department can raise no objectionson this count because every objection raised by the Commissioner,Income Tax as regarding non-disclosure by the assessee is welldiscussed and disposed with reasons. 11.2 In view of the discussion made above, the incomeof the applicant from real estate business is therforecomputed assessment year-wise as under: The Settlement Commission has also taken note ofundisclosed amount of lease rent for the assessment year 2011-12at paragraph 12 and has computed income of undisclosed notionalrent to the tune of Rs.9,54,630/- for the assessment period 2012-13, whereupon the computation of total income has been madewhich accompanies the impugned order by way of annexure. In our opinion, the Department can raise no objectionson this count because every objection raised by the Commissioner,Income Tax as regarding non-disclosure by the assessee is welldiscussed and disposed with reasons. In the nature of exercise so undertaken by theCommission, we completely fail to appreciate as to the cause ofaction for the Department to maintain this writ petition. As wehave noted above, Chapter XIXA of ‘the Act’ incorporates aspecial procedure for settlement on the basis of full and truedisclosure of income by an assessee and considering that theCommission has taken note of each of the objections raised by theCommissioner in his report and after testing the same against thedisclosure made by the assessee in his application, proceeded todispose of the matter by the order impugned, in our opinion, it ison a misconception of a legal position that the writ petition hasbeen filed which does not raise any issue having lawful supportwarranting any indulgence. As we have already noted above, the power exercised bythis Bench to examine an order passed by the SettlementCommission is limited on its statutory compliance or perversityand we do not find any instance present in the order impugned which draws itself in either of the two class requiring interferenceby this Court. We also do note that the Chairman and the ViceChairman of a Settlement Commission are appointed fromamongst serving Chief Commissioners or Principal ChiefCommissioners or Principal Commissioner of Income Tax ofequivalent rank and which again is a relevant factor for theDepartment to ponder, whether at all any order of a SettlementCommission unless staring on statutory violation or on perversity,should be assailed in a routine manner as having been done in thepresent case. For the reasons so discussed, C.W.J.C.No. 13346/2016lacking in merit is dismissed accordingly. Re: C.W.J.C.No. 13743 of 2017 This writ petition has been filed by the assessee toquestion award of interest by the Settlement Commission by theorder impugned dated 30.9.2015 in purported exercise of powervested under section 234A, 234B and 234C of ‘the Act’. Learned counsel appearing for the contesting parties arein agreement that a Special Leave Petition involving the sameissue is pending consideration before the Supreme Court in SLP (Civil) No. 29660 of 2017 and in our opinion thus, this writpetition should await outcome of the said proceedings. Learned counsel have also invited attention to an orderpassed by this Court in C.W.J.C.No. 11442/2016 heard analogouswith C.W.J.C.No. 12419/2016 to submit that this Court taking noteof similar circumstance arising in the said writ petitions, hasadjourned the same for its posting, on disposal of the SpecialLeave Petition in question vide order passed on 4.12.2018. Having considered the submissions of learned counseland taking note of the issue raised, let C.W.J.C. No. 13743 of 2017 come up for consideration on disposal ofSLP (Civil) No. 29660/2017. Parties would be at liberty to make a motion on disposalof the matter by the Supreme Court. (Jyoti Saran, J) ( Arvind Srivastava, J) Surendra/- AFR/NAFRAFRCAV DATENAUploading Date08.01.2019Transmission DateNA