Commissioner Of Income Tax v. M/S.godwin Steels Pvt. Ltd

* IN THE HIGH COURT OF DELHI AT NEW DELHI + WP(C) No.10198/2009 Reserved on : 24[th] January, 2012. % Date of Decision : 23[rd] February, 2012. …..Appellant Through: Mr Kamal Sawhney, Sr.Standing Counsel. COMMISSIONER OF INCOME TAX VERSUS …..Respondent M/s.GODWIN STEELS PVT. LTD. Through: Mr. Kaanan Kapur and Mr.Y.K.Kapur, Advs. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE R.V. EASWAR 1.Whether Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporters or not? Yes. 3. Whether the judgment should be reported in the Digest? Yes. R.V. EASWAR, J.: 1. This is a writ petition filed by the CIT(Appeal) IV, New Delhi praying for issue of a writ of certiorari and or any other writ, order or direction for quashing the order dated 20[th] October, 2008 passed by the Income Tax Settlement Commission(hereinafter referred to as “ITSC”), Principal Bench on 4[th] Floor, Lok Nayak Bhawan, Khan Market, New Delhi-110003. It is also prayed that a writ or order or direction in the ITA No.10198-09 Page 1 of 33 nature of mandamus be issued directing the ITSC, the second respondent herein, to pass a speaking order after giving adequate opportunity to the Income Tax Department to make enquiries into the affairs of the assessee. 2. The first respondent is M/s Godwin Steels Pvt. Ltd. (hereinafter also referred to as “assessee” or “Godwin”) of Rajouri Garden, New Delhi. It is a private limited company. On 27[th] August, 2004, the income tax authorities conducted a survey under Section 133A of the Income Tax Act, 1961, hereinafter referred to as “the Act”, on the premises of M/s Kumar & Company carrying on business at Ludhiana. In the course of the search 48 pocket diaries were found, including one diary containing various details of cash transactions between Kumar & Company and the first respondent herein. One Naresh Kumar Dhawan who was concerned with the affairs of Kumar & Company stated in his statement recorded on oath that the transactions in the diary reflected unaccounted sales of Rs.1,20,47,040/- made by Godwin. On the basis of the statement a survey was made by the income tax authorities on the premises of Godwin the very next day, that is, 28[th] August, 2004 in the course of which several documents and papers were found which allegedly contained details of large scale sales made by Godwin outside the books of accounts. 3. On 27[th] October, 2005 Godwin filed its return of income for the assessment year 2005-06 declaring income of Rs.4,10,184/- under Section 115JB. The return was scrutinised by the Assessing Officer who issued a detailed questionnaire seeking information from the assessee. He also ITA No.10198-09 Page 2 of 33 gave as many as 26 opportunities to the assessee to furnish the relevant particulars which were necessary for completing the assessment. Apparently, these details were not submitted to the Assessing Officer. 3. On 27[th] October, 2005 Godwin filed its return of income for the assessment year 2005-06 declaring income of Rs.4,10,184/- under Section 115JB. The return was scrutinised by the Assessing Officer who issued a detailed questionnaire seeking information from the assessee. He also ITA No.10198-09 Page 2 of 33 gave as many as 26 opportunities to the assessee to furnish the relevant particulars which were necessary for completing the assessment. Apparently, these details were not submitted to the Assessing Officer. 4. On 24[th] December, 2007 the assessee filed an application before the ITSC under Section 245C of the Act seeking a settlement of its income for the assessment year 2005-06. In the application, the assessee stated that the nature and extent of the business carried on outside the books of accounts, if any, needs to be established and the income therefrom has to be worked out, and the tax payable on the same may be determined. A request was made for waiver of interest chargeable under Section 234B and 234C as well as the penalties imposable under the various clauses of Section 271 of the Act. The assessee also sought immunity from prosecution for any offence under the Income Tax Act, the Indian Penal Code and any other Central Act for the time being in force. It was further stated in the application before the ITSC that the assessment was pending before the Assessing Officer and that there was an apprehension in the mind of the assessee that a high pitched and arbitrary assessment would be made leading to protracted litigation and undue harassment to the assessee. It was pointed out that in the questionnaire the Assessing Officer had even proposed to estimate the undisclosed income of the assessee at Rs.1,50,000/- per day per party which was devoid of any valid reasoning. The assessee also submitted that its case involved complexity of investigation arising because of the fact that various loose papers were ITA No.10198-09 Page 3 of 33 seized during the survey and heavy additions would in all probability be made leading to protracted litigation. Complexities of investigations, it was stated, were also involved in determining the source of income of the assessee on the basis of the disclosure made in the application before ITSC and utilisation of the declared amount in various moveable and immoveables assets. The genuineness and reliability of the books of accounts maintained by the assessee were also stated to be factors to be taken into account in assessing the complexity of the investigation. In the application before the ITSC the assessee, after stating the aforesaid facts, offered an amount of Rs.15 lacs for taxation on which the income tax payable was Rs. 5,16,583/- and the interest payable was Rs. 1,95,896/-, together amounting to Rs.7,12,479/- 5. On 4[th] February, 2008 the CIT filed a report before the ITSC under Rule 9 of the Settlement Commission (Procedure) Rules, 1997. In this report the CIT objected to the admission of the application of Godwin before the Settlement Commission. The objection was made on the following grounds:- (a)The assessee had not made a full and true disclosure of its income, even having regard to the materials which are in the possession of the Assessing Officer. even having regard to the materials which are in the possession of the Assessing Officer. (b)No additional income, which is not in the knowledge of the income tax authorities, has been offered for taxation in the application. tax authorities, has been offered for taxation in the application. ITA No.10198-09 Page 4 of 33 (a)The assessee had not made a full and true disclosure of its income, even having regard to the materials which are in the possession of the Assessing Officer. even having regard to the materials which are in the possession of the Assessing Officer. (b)No additional income, which is not in the knowledge of the income tax authorities, has been offered for taxation in the application. tax authorities, has been offered for taxation in the application. ITA No.10198-09 Page 4 of 33 (c)The statement of Naresh Kumar Dhawan made in the course of the survey of the premises of Kumar & Company shows that Godwin was making unaccounted cash sales not only to Kumar and Company but also to M/s. Jai Iron and Steel and M/s. Harbhajan Singh & Co. Income from these sales have not been disclosed in the application to the ITSC. survey of the premises of Kumar & Company shows that Godwin was making unaccounted cash sales not only to Kumar and Company but also to M/s. Jai Iron and Steel and M/s. Harbhajan Singh & Co. Income from these sales have not been disclosed in the application to the ITSC. (d)There is evidence and material collected during the survey which reveals unaccounted cash transaction to the tune of Rs.15 lacs on a single day with 10 parties. There is no disclosure of income from such transactions in the settlement application. reveals unaccounted cash transaction to the tune of Rs.15 lacs on a single day with 10 parties. There is no disclosure of income from such transactions in the settlement application. (e) The data from the impounded computer revealed net profit of Rs.29,55,535/-for the first four months against which the assessee had shown only Rs.4,10,184/- as profits for the full year. There is no disclosure of additional income by the assessee on this point. Rs.29,55,535/-for the first four months against which the assessee had shown only Rs.4,10,184/- as profits for the full year. There is no disclosure of additional income by the assessee on this point. 6. The CIT also commented upon the statement of facts filed by the assessee before the ITSC. He brought to the notice of the ITSC certain pertinent facts which required consideration before the application of the assessee is allowed to be proceeded with. In brief, these facts are the following:- (a)Though the assessee had declared only Rs.15 lacs as its undisclosed income, in the paper book a figure of Rs.57 lacs is undisclosed income, in the paper book a figure of Rs.57 lacs is ITA No.10198-09 Page 5 of 33 noted. It is not clear whether the assessee intended to declare Rs.57 lacs or only Rs. 15 lacs. (b)The assessee itself had admitted in its letter dated 7[th] December, 2007 filed in the course of the assessment proceedings that the unaccounted cash sales represented sales against production for which purchase of raw material and other incidental expenses have to be taken into account. But no income on this score was admitted in the application before ITSC. On the contrary only the gross profit rate was applied on such unaccounted cash sales which does not reflect the true undisclosed income. 2007 filed in the course of the assessment proceedings that the unaccounted cash sales represented sales against production for which purchase of raw material and other incidental expenses have to be taken into account. But no income on this score was admitted in the application before ITSC. On the contrary only the gross profit rate was applied on such unaccounted cash sales which does not reflect the true undisclosed income. (c) In the same letter the assessee has admitted that there has been power consumption as well as labour payments which are all recorded in the books of accounts. If this is the correct factual position then the offer of mere gross profit on the sales made outside the books of accounts cannot be accepted and the only course open is to add the entire cash sales as the unaccounted income of the assessee. The CIT also referred to certain other material facts in support of his claim that the entire cash sales should be added as undisclosed income of the assessee and these facts are mentioned in detail in paragraph 1.8 of the report. power consumption as well as labour payments which are all recorded in the books of accounts. If this is the correct factual position then the offer of mere gross profit on the sales made outside the books of accounts cannot be accepted and the only course open is to add the entire cash sales as the unaccounted income of the assessee. The CIT also referred to certain other material facts in support of his claim that the entire cash sales should be added as undisclosed income of the assessee and these facts are mentioned in detail in paragraph 1.8 of the report. (d)A statement on oath was recorded from one Brij Mohan, employee of the assessee-company who admitted that he employee of the assessee-company who admitted that he ITA No.10198-09 Page 6 of 33 collected cash from Kumar & Co., Jain Iron Steels and Harbhajan Singh & Co. Despite opportunities the assessee did not furnish details of these transactions and in the application before the ITSC the assessee merely referred to cash sales of one day to M/s Kumar & Co. The transactions with other two parties were not denied. Even so, no income was offered in the application from unaccounted transactions with the other two parties. (e) There is no justification for computing the undisclosed income of the assessee by applying the “peak theory”. The computation of the peak cash of Rs.5,22,900/- furnished before the Assessing Officer in the course of the assessment proceedings has no basis. The assessee itself has revised the computation of the peak cash to Rs.11,50,337/- before the ITSC. It is thus evident that there is no scientific basis for calculating the peak cash. of the assessee by applying the “peak theory”. The computation of the peak cash of Rs.5,22,900/- furnished before the Assessing Officer in the course of the assessment proceedings has no basis. The assessee itself has revised the computation of the peak cash to Rs.11,50,337/- before the ITSC. It is thus evident that there is no scientific basis for calculating the peak cash. (f) Evidence was unearthed during the survey operation that the assessee was in the habit of issuing the same invoice number to more than one party and when this was put to it, there was no convincing reply. Despite this, the assessee has merely stated before the ITSC that this aspect has been taken into consideration in calculating the peak cash. assessee was in the habit of issuing the same invoice number to more than one party and when this was put to it, there was no convincing reply. Despite this, the assessee has merely stated before the ITSC that this aspect has been taken into consideration in calculating the peak cash. ITA No.10198-09 Page 7 of 33 (g)There are entries discovered during the survey which indicated that the assessee has paid cash in exchange for cheque and one such entry was in the ledger account of M/s Sardar Associates. This aspect has not been covered in the application before the ITSC. that the assessee has paid cash in exchange for cheque and one such entry was in the ledger account of M/s Sardar Associates. This aspect has not been covered in the application before the ITSC. ITA No.10198-09 Page 7 of 33 (g)There are entries discovered during the survey which indicated that the assessee has paid cash in exchange for cheque and one such entry was in the ledger account of M/s Sardar Associates. This aspect has not been covered in the application before the ITSC. that the assessee has paid cash in exchange for cheque and one such entry was in the ledger account of M/s Sardar Associates. This aspect has not been covered in the application before the ITSC. (h)During the relevant accounting year the assessee has received share application monies aggregating to Rs.13 lacs which are reflected in its books of account. During the survey of the assessee’s premises, blank share transfer deeds were found and they were signed in the column where the transferor is required to sign, by the same persons who were shown to have applied for the shares and in whose names monies were credited. The application before the ITSC did not cover this aspect at all. The reply given by the assessee in the course of the assessment proceedings was devoid of merit and unconvincing. share application monies aggregating to Rs.13 lacs which are reflected in its books of account. During the survey of the assessee’s premises, blank share transfer deeds were found and they were signed in the column where the transferor is required to sign, by the same persons who were shown to have applied for the shares and in whose names monies were credited. The application before the ITSC did not cover this aspect at all. The reply given by the assessee in the course of the assessment proceedings was devoid of merit and unconvincing. (i) Several discrepancies were noticed in the maintenance of the stock records. There was difference between the actual stock declared by the assessee and the stock that was found during the survey. The assessee admitted during the survey that the actual physical stock found at the time of the survey represented the true stock. This corroborates the claim of the revenue that the assessee was indulging in unaccounted sales. stock records. There was difference between the actual stock declared by the assessee and the stock that was found during the survey. The assessee admitted during the survey that the actual physical stock found at the time of the survey represented the true stock. This corroborates the claim of the revenue that the assessee was indulging in unaccounted sales. ITA No.10198-09 Page 8 of 33 ITA No.10198-09 Page 8 of 33 (j) The books of accounts maintained by the assessee were totally unreliable. The assessee had even admitted that it had inserted entries of back dates which indicated that the books of accounts were not closed on a daily basis but were kept open to facilitate manipulation. The financial transactions recorded in the computer were captured and as per the data on the date of the survey the gross profit earned by the assessee was Rs.84,24,8099/- and the net profit was Rs.73,26,353/- After adjusting the opening and closing stock the gross and net profit figures came to Rs.40,53,851/- and Rs. 29,55,535/- just for the first four months, that is, from the 1[st] April, 2004 to 28[th] August, 2004 which is the date of survey. As against this profit of only Rs.4,10,184/- was offered. unreliable. The assessee had even admitted that it had inserted entries of back dates which indicated that the books of accounts were not closed on a daily basis but were kept open to facilitate manipulation. The financial transactions recorded in the computer were captured and as per the data on the date of the survey the gross profit earned by the assessee was Rs.84,24,8099/- and the net profit was Rs.73,26,353/- After adjusting the opening and closing stock the gross and net profit figures came to Rs.40,53,851/- and Rs. 29,55,535/- just for the first four months, that is, from the 1[st] April, 2004 to 28[th] August, 2004 which is the date of survey. As against this profit of only Rs.4,10,184/- was offered. (k)The other aspects which have not been covered by the assessee in the application before the ITSC were the applicability of Section 40A(3) of the Act, excise duty evasion etc. in the application before the ITSC were the applicability of Section 40A(3) of the Act, excise duty evasion etc. 7. After bringing the aforesaid facts to the notice of the ITSC, the CIT referred to the judgment of the Madras High Court V.M. Shaik Mohammed Rowthervs Settlement Commission (IT & WT), (1999)236 ITR 581 where it was held that there is no right in an assessee to invoke the jurisdiction of the ITSC even while continuing with his dishonest conduct. The CIT thus contended in his report that the application of Godwin before the ITSC is not maintainable and was beyond the ITA No.10198-09 Page 9 of 33 jurisdiction of the ITSC. Without prejudice to the preliminary objection, it was submitted by the CIT that further enquiry was required to determine the correct undisclosed income on the following lines: (a)Enquiry under Section 68 to examine the share capital receipts; (b)Impact of the bills raised on the same invoice number on the income of the assessee; income of the assessee; (c) Enquiries with whom the assessee entered into cash transactions worth several crores of rupees to establish the true extent thereof; worth several crores of rupees to establish the true extent thereof; (d)Comparison of the books of account manually maintained with computerised accounts to enquire and establish the correct profits for the year; computerised accounts to enquire and establish the correct profits for the year; (e) Enquiries to ascertain the actual production, electricity consumption etc. to ascertain the quantum of excise duty evasion and income tax evasion; consumption etc. to ascertain the quantum of excise duty evasion and income tax evasion; 8. On the above basis the CIT strongly objected to the admission of the application of Godwin before the ITSC. The ITSC was also invited to make further enquiries by virtue of its powers under Section 245D(3). (d)Comparison of the books of account manually maintained with computerised accounts to enquire and establish the correct profits for the year; computerised accounts to enquire and establish the correct profits for the year; (e) Enquiries to ascertain the actual production, electricity consumption etc. to ascertain the quantum of excise duty evasion and income tax evasion; consumption etc. to ascertain the quantum of excise duty evasion and income tax evasion; 8. On the above basis the CIT strongly objected to the admission of the application of Godwin before the ITSC. The ITSC was also invited to make further enquiries by virtue of its powers under Section 245D(3). 9. The ITSC took note of the report submitted by the CIT and forwarded the same to Godwin for comments. It would appear that after hearing both the sides the ITSC allowed the application filed by the Godwin to be proceeded with. There is not much reasoning in the ITA No.10198-09 Page 10 of 33 impugned order passed by the ITSC on 20[th] October, 2008 and there is no point-by-point consideration of the various objections raised by the CIT in his report under Rule 9. The entire matter was disposed of in short paragraphs. Para No.5 contained only the following reasoning for admitting the application:- “On careful consideration of both the judgments referred to by the CIT (DR), we find substance in the arguments of the Ld. A.R. that the application filed by the applicant is maintainable in law and that the Settlement Commission is fully within its powers to proceed with the same in accordance with provision of Section 245D(4). Hence, the contention of the department stands rejected.” 10. After allowing the application of the assessee to be proceeded with under Section 245C(1), by the same order the ITSC proceeded to dispose of the application on merits. 11. We have carefully gone through the reasoning of ITSC. It has proceeded to discuss the issue in the following compartments:- (1)Computation of net profit; (2)computation of income under Section 68 in respect of the share capital received; capital received; (3)computation of income by way of cash paid for cheque; ITA No.10198-09 Page 11 of 33 (4)computation of income in respect of cash collected for unaccounted sales to Kumar & Co., Jai Iron and Steel and Harbhajan Singh & Co.; In respect of the aforesaid main issues the procedure adopted by the ITSC, by and large, was to get the document and evidence verified by the Joint Director of Income Tax (JDIT) in the presence of the Assessing Officer. Thereafter the ITSC has gone by the report submitted by JDIT on 25[th]September, 2008 and 1[st] October, 2008. 12. So far as the computation of the net profit is concerned, the ITSC has noted that before the JDIT and the Assessing Officer, no difference and disputes arose in respect of explanation furnished by the assessee nor was any objection raised by the department. The ITSC has also noted that the CIT(DR), in view of the necessary verification done, did not make any further comments on this account. In paragraph 13 of its order the ITSC concluded that no adjustment was required to made on account of net profit. This paragraph is quoted below:- “We have heard both the parties and have also perused the observations by the CIT in Rule 9 report as well as the evidence available on the record. We have also looked into the report of the JDIT dated 25.09.2008 and 01.10.2008 that the JDIT has verified relevant material along with evidence furnished by the applicant in the presence of the A.O. It has also been stated that both the parties i.e. the applicant and the respondent-department were allowed opportunities to cross examine the relevant details. At the time of “We have heard both the parties and have also perused the observations by the CIT in Rule 9 report as well as the evidence available on the record. We have also looked into the report of the JDIT dated 25.09.2008 and 01.10.2008 that the JDIT has verified relevant material along with evidence furnished by the applicant in the presence of the A.O. It has also been stated that both the parties i.e. the applicant and the respondent-department were allowed opportunities to cross examine the relevant details. At the time of ITA No.10198-09 Page 12 of 33 verification, the department has not objected to the explanation furnished by the applicant that there was any discrepancy in the factual position provided by the applicant. Having regard to the facts and circumstances of the case, no adjustment is required to be made on this account and the issue stands settled, accordingly.” 13. In the case of share capital the assessee submitted before the ITSC that confirmations/affidavits from the companies have been obtained, that the investments made by the companies were reflected in the assessee’s balance sheet, that the companies investing in the shares were assessed to tax and the payments were received by account payee cheques. Reliance was placed on the judgment of the Supreme Court in the case of CIT vs. Lovely Exports (Pvt.) Ltd. (2008) 216 CTR 195. 14. In respect of the cash paid in exchange for cheque received, the assessee had put forth the submission before the ITSC that it made purchases for Rs.2,40,800/- from Sardar Associates for the accounting year relevant to the assessment year 2004-05 and that the dues were cleared by making payment by cheque. It had further submitted before the ITSC that due to some inadvertent error, instead of the word “cheque”, the word “cash” was mentioned in the seized papers. In support of the contention the assessee had furnished a confirmed copy of account of Sardar Associates and its income tax file number. The ITSC after taking note of the above and the vehement objection of the CIT(DR) concluded in para 21 as follows:- ITA No.10198-09 Page 13 of 33 “The submissions made by both the parties have been considered and the relevant papers along with evidence have also been perused. We find substance in the submissions of the Ld. AR that the mistake has occurred inadvertently and instead of “cheque” the word “cash” has been mentioned. Even otherwise, the entry under consideration does not relate to the year before us. For the reasons stated above, we do not see any reason to make further adjustment on this account.” 15. As regard the cash collected from the three firms on account of unaccounted sales made to them, the contention put forward by the assessee before the ITSC was that the transactions of sales to Kumar & Co. and Jai Iron and Steel Corporation, were not in dispute but they have been duly taken into consideration while working out the peak cash and, therefore, no further consideration was necessary. With regard to the statement of Brij Mohan, the employee of the assessee company who had confirmed that he had collected the cash from the three firms for unaccounted sales made by the assessee, the contention before the ITSC was that there was no other evidence to corroborate the statement of Brij Mohan and that there were confirmed copies of accounts from the three parties to indicate that the assessee had no transactions with Harbhajan and Co. It was also submitted that Harbhajan & Co. was assessed to tax. 16. After hearing the assessee and the revenue and after considering the report of the CIT under Rule 9, the ITSC accepted the submission of the assessee observing as under:- ITA No.10198-09 Page 14 of 33 16. After hearing the assessee and the revenue and after considering the report of the CIT under Rule 9, the ITSC accepted the submission of the assessee observing as under:- ITA No.10198-09 Page 14 of 33 “We have considered the submission made by both the parties. On careful consideration of the observations made by the CIT in the report as well as documentary evidence furnished by the applicant along with the SOF at the time of hearing, we find that cash collections from M/s Kumar & Co. and M/s Jai Iron & Steel stand covered in the peak chart of pages 620-633 of SOF. As regards M/s Harbhajan Singh & Co., no adverse inference can be drawn in the light of discussion made above. Accordingly, the issue stands settled.” 17. Besides the above main issues, the ITSC also noted that other issues related to difference in stock position, entries of M/s Kundan Iron Steel and Mahajan Alloys and determination of income on account of issuing sale invoice containing the same number to two different parties. 18. In respect of the discrepancies in the stock, the submission of the assessee before the ITSC was that the same was very minimal and amounted to only Rs.4,67,000/- and that was covered in the offer of Rs.15 lacs. As regards the entries with Kundan Iron Steel and Mahajan Alloys the submission of the assessee was that it sold goods directly to those parties or on the instructions of those parties the goods were directly sent to the other parties concerned. The copy of the accounts of these two parties in the assessee’s books were relied upon to show that they dealt with the seized paper. In respect of an entry of Rs.3 lacs appearing in the account of Kundan Iron Steels, it was submitted that this has been duly considered while calculating the peak cash. As regards the sale invoices of the same number issued to two different parties and income earned therefrom, the submission of the assessee before the ITSC was though the ITA No.10198-09 Page 15 of 33 bill was originally made in favour of Prabhu Steels the actual sales were made to M/s Mohan Suspensions, since Prabhu Steels had cancelled the order. A Copy of the order placed by M/s Mahajan Suspensions was submitted before the ITSC. In the alternative it was contended that the sales were covered by the offer of Rs.15 lacs made in the application. 19. In respect of these three issues, the ITSC accepted the assessee’s submission and concluded as follows:- “On careful consideration of the submission made by both the parties as well as the observations made by the CIT in the report and the evidence furnished during the course of hearing, we are of the view that no adjustment is required to be made on the above accounts. These issues, accordingly, stand settled.” 20. After accepting all the submissions of the assessee as noted above, the ITSC settled the additional income of the assessee at Rs.15 lacs as per the statement of facts filed by the assessee. The ITSC also granted immunity to the assessee from prosecution and penalty under the Income Tax Act to the extent and in regard to the issues raised and discussed in its order. Interest under Section 234B was directed to be charged in accordance with law as the ITSC has no power to waive the same as held by the Supreme Court in Commissioner of Income-Tax v. Anjum. M.H. Ghaswala and Ors., (2001) 252 ITR 1 (SC). The assessee had sought capitalization of Rs.12 lacs in respect of the cash disclosed before the ITSC and this request was allowed in para 38. The tax as per the computation together with interest was directed to be paid within 35 days ITA No.10198-09 Page 16 of 33 ITA No.10198-09 Page 16 of 33 of the receipt of the order of the ITSC. It was provided that the immunity may be withdrawn if the tax is not paid as directed and also if it is found that the order was obtained from the ITSC by falsity or by concealing material particulars relating to the settlement. 21. The revenue assails the order of the ITSC in the writ petition. 22. We have heard the rival contentions. We have also carefully perused the written submissions filed by the learned counsel for the respondent, with our leave. 23. The limits of judicial review of an order of a Tribunal under Article 226 have been laid down by the Supreme Court in several judgments. Suffice to refer to the observations of S.B.Sinha, J. in State of U.P. and Anr. Vs. Johrimal (2004) 4 SCC 714. The following observations sum up the entire legal position:- “It is well-settled that while exercising the power of judicial review the Court is more concerned with the decision making process than the merit of the decision itself. In doing so, it is often argued by the defender of an impugned decision that the Court is not competent to exercise its power when there are serious disputed questions of facts; when the decision of the Tribunal or the decision of the fact finding body or the arbitrator is given finality by the statute which governs a given situation or which, by nature of the activity the decision maker's opinion on facts is final. But while examining and scrutinizing the decision making process it becomes inevitable to also appreciate the facts of a given case as otherwise the ITA No.10198-09 Page 17 of 33 decision cannot be tested under the grounds of illegality, irrationality or procedural impropriety. How far the court of judicial review can reappreciate the findings of facts depends on the ground of judicial review. For example, if a decision is challenged as irrational, it would be well-nigh impossible to record a finding whether a decision is rational or irrational without first evaluating the facts of the case and coming to a plausible conclusion and then testing the decision of the authority on the touch-stone of the tests laid down by the Court with special reference to a given case. This position is well settled in Indian administrative law. Therefore, to a limited extent of scrutinizing the decision making process, it is always open to the Court to review the evaluation of facts by the decision maker.” 24. We may now notice a few judgments of the Supreme Court in which the decision of the ITSC was under challenge. In R. B. Shreeram Durga Prasad and Fatechand Nursing Das v. Settlement Commission (IT and WT) and Anr., (1989) 176 ITR 169 (SC), the Supreme Court observed that the power of judicial review is concerned not with the decision but with the decision making process. In that case the Supreme Court was concerned with the correctness of the order of the ITSC in an appeal under Article 136. It was further observed that the Court is concerned only with the legality of the order. Referring to this judgment, it was observed by Jeevan Reddy, J. speaking for the Supreme Court in the case of Jyotendrasinhji Vs. S.I. Tripathi and others (1993) 201 ITR 611 that the only ground upon which the court can interfere against the orders of the ITSC is that the orders are contrary to the provisions of the ITA No.10198-09 Page 18 of 33 Act and such contravention has prejudiced the appellant. At page 623 the Court dealt with the contention that the ITSC is not required or obligated to pass a reasoned order. Vis-a-vis this contention, the court observed as under:- ITA No.10198-09 Page 18 of 33 Act and such contravention has prejudiced the appellant. At page 623 the Court dealt with the contention that the ITSC is not required or obligated to pass a reasoned order. Vis-a-vis this contention, the court observed as under:- “Be that as it may, the fact remains that it is open to the Commission to accept an amount of tax by way of settlement and to prescribe the manner in which the said amount shall be paid. It may condone the defaults and lapses on the part of the assessee and may waive interest, penalties or prosecution, where it thinks appropriate. Indeed, it would be difficult to predicate the reasons and considerations which induce the commission to make a particular order, unless of course the commission itself chooses to give reasons for its order. Even if it gives reasons in a given case, the scope of inquiry in the appeal remains the same as indicated above viz., whether it is contrary to any of the provisions of the Act. In this context, it is relevant to note that the principle of natural justice (audi alterant partem) has been incorporated in Section 245-D itself. The sole overall limitation upon the Commission thus appears to be that it should act in accordance with the provisions of the Act. The scope of enquiry, whether by High Court under Article 226 or by this Court under Article 136 is also the same - whether the order of the Commission is contrary to any of the provisions of the Act and if so, has it prejudiced the petitioner/appellant apart from ground of bias, fraud & malice which, of course, constitute a separate and independent category.” 25. In Shriyans Prasad Jain vs. ITO (1993) 2004 ITR 616 the Supreme Court, speaking through the same learned Judge, observed as follows:- ITA No.10198-09 Page 19 of 33 “Mr. Poti, learned Counsel for the Revenue, is right in submitting that in this appeal this Court would not go onto questions of the fact or review the findings of fact recorded by the Commission. As pointed out by this Court in Jyotendrasinhji v. S.I. Tripathi's case, (supra) this Court can interfere with the Commission's order only if it is found to be "contrary to any of the provisions of the Act". To the same effect is the earlier decision of this Court in Shreeram Durga Prasad & Fatehchand Nursing Das v. Settlement Commission I.T. and W.T. (1989) ITR 169 ” 26. In Kuldeep Industrial corporation vs. ITO 1997) 223 ITR 840again the Supreme Court reiterated the view propounded as above. The same learned judge who made the aforesaid observations in the cited judgments, reiterated them in the following words:- “It has been held by this Court that the nature of jurisdiction exercised by this Court over the orders of the Settlement Commission is in the nature of judicial review. (See Sriram Durga Prasad v. Settlement Commissioner) [1979]116ITR169(Ker) and Jyotendra Singhji v. S.I. Tripathi [1993]201ITR611(SC). In these cases, we find that the impugned orders of the Commission are vitiated by more than one misdirection in law. Firstly, the Commission held, wrongly, that the Income Tax Officer had no power to proceed with or collect any material after the date of submission of the application under Section 245-C. Secondly, having rightly rejected to admit the case relating to assessment year 1977-78 for settlement, it (the majority) made out a new case for the assessee by creating a distinction between 1977-78 and 1978-79 and 1979-80, when no such distinction was suggested even by the assessee; indeed such a distinction is contrary to the case put forward by the assessee in its application under Section 245-C. The Commission (the majority) also ignored the several ITA No.10198-09 Page 20 of 33 ITA No.10198-09 Page 20 of 33 statements, admissions and averments made by the assessee before the Commission while admitting the case relating to assessment year 1978-79 and 1979-80 for settlement.” 27. Applying the ratio laid down in the aforesaid judgments to the case before us, we find that the ITSC has not disposed of the application before them in the manner required by law. The report of the CIT filed before the ITSC under Rule 9 of the Settlement Commission (Procedure) Rules is very elaborate and we have also made a reference to the same. It would appear that the ITSC has not accorded due weightage, credibility or consideration to the serious objections taken by the CIT in his report. Section 245D(5) reads as under:- “(5) Subject to the provisions of Section 245BA, the materials brought on record before the Settlement commission shall be considered by the Members of the concerned Bench before passing any order under Sub-section (4) and, in relation to the passing of such order, the provisions of Section 245BD shall apply.” (underlining ours) The aforesaid sub-section requires that the materials brought on record before ITSC shall be “considered” by the members before passing any final order under sub-section (4). The word “consideration” means an independent examination of the evidence and materials brought on record before the ITSC by the members and application of mind thereto with a view to independently assess the materials and evidence, whether adduced by the assessee-applicant or by the CIT and come to a conclusion by themselves. In Bikhubhai Vithlabhai Patel & Ors. Vs. State of Gujarat ITA No.10198-09 Page 21 of 33 and Anr. 2008 (4) SCC 144 the Supreme Court considered the expression “as considered necessary” and opined that the term “consider” means to think over and it connotes that there should be “active application of the mind”. Earlier in Commissioner of Income Tax (Central) vs. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443, a three judges Bench of the Supreme Court, while dealing with the power of the first appellate authority under the Income Tax Act to enhance the assessment, observed that the word “consideration” (in its verb form) means that there must be something in the assessment order to show that the income tax officer “applied his mind” to the particular subject matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection. It is necessary to remember that the ITSC is not deciding a case inter-parties; they are assessing or estimating the amount on which, in the interests of the country at large, the tax payer ought to be taxed. The observations made by the Court of Appeal in England in King Vs. Income Tax Special Commissioners [1936] 1K.B. 487 are relevant. Lord Wright observed that the Special Commissioners were not in the position of judges deciding an issue between two particular parties, that their obligation is wider than that, that they were exercising statutory authority and statutory duty which they are bound to carry out and it is their obligation “to exercise their judgment on such material as comes before them and to obtain any material which they think is necessary and which they ought to have, and on that material to make the assessment or the ITA No.10198-09 Page 22 of 33 ITA No.10198-09 Page 22 of 33 estimate which the law requires them to make.” These observations made in relation to the proceedings before the Special Commissioners of income tax, who proceeded to hear the appeal filed by the assessee despite notice given by him to withdraw the appeal, apply with equal force to the ITSC which has been given a special position and auth