Contention Raised Is Based On The Judgment Of The Hon’ble Supremecourt Reported In Mohtesham Mohd. Ismail v. Wp(C)

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN TUESDAY, THE 10TH DAY OF JANUARY 2017/20TH POUSHA, 1938 PETITIONER(S):---------------- W.P.(C).No.34690 of 2007 (D)------------------------------------ COMMISSIONER OF INCOME-TAX (CENTRAL),OFFICE OF THE COMMISSIONER OF INCOME-TAX (CENTRAL), 5TH FLOOR, KANDAMKULATHY TOWERS, M.G.ROAD, KOCHI-682 011. BY STANDING COUNSEL FOR GOVT. OF INDIA TAXES SRI.JOSE JOSEPH. RESPONDENT(S):---------------- 1. THE SETTLEMENT COMMISSION (IT & WT), DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, ADDITIONAL BENCH, SATHGURU COMPLEX, 640, ANNA SALAI, CHENNAI-600035. 2. M/S.AYURVEDIC BEACH RESORT PVT. LTD., CHOWARA, BALARAMAPURAM, TRIVANDRUM-695 501, REPRESENTED BY ITS MANAGING DIRECTOR. 3. M/S.MANALTHEERA BEACH RESORT PVT. LTD., CHOWARA, BALARAMAPURAM, TRIVANDRUM-695 501, REPRESENTED BY ITS MANAGING DIRECTOR. 4. M/S.SOMATHEERAM AYURVEDIC HOSPITAL & YOGA CENTRE PVT. LTD., TRIVANDRUM-695 501, REPRESENTED BY ITS MANAGING DIRECTOR. 5. SHRI.BABY MATHEW, ARAMBANKUDY HOUSE, SOMATHEERAM, CHOWARA P.O., BALARAMAPURAM - 695 501. R1 BY CENTRAL GOVERNMENT COUNSEL SRI.M.A.VINOD. R2 TO R5 BY ADVS.SRI.E.K.NANDAKUMARSRI.P.BENNY THOMASSRI.P.GOPINATHSRI.K.JOHN MATHAISRI.RAMESH CHERIAN JOHN THIS WRIT PETITION (CIVIL)HAVING BEEN FINALLY HEARD ON 05-12-2016, THE COURT ON 10-01-2017 DELIVERED THE FOLLOWING:- W.P.(C) No.34690 OF 2007-D APPENDIX PETITIONER'S EXHIBITS:- ------------------------ EXT.P1TRUE COPY OF THE FINAL ORDER DATED 22.5.2007 PASSEDBY THE 1ST RESPONDENT. EXT.P2TRUE COPY OF THE COMMUNICATION ISSUED FROM THE OFFICE OF THE DIRECTOR GENERAL OF INCOME TAX (INVESTIGATION, KOCHIDATED 21.08.2007. RESPONDENT'S EXHIBITS:- ------------------------- NIL. Vku/- [ true copy ] K. Vinod Chandran, J --------------------------------------- W.P.(C) No.34690 of 2007-D --------------------------------------- Dated this the 10[th] day of January, 2017 JUDGMENT The Commissioner of Income-tax (Central) impugn ExhibitP1 order passed by the Additional Bench of Income Tax SettlementCommission, Chennai [for brevity “Settlement Commission”] in theabove writ petition filed under Article 226 of the Constitution. Theobjection is with respect to the refusal of the Settlement Commissionto make any additions on the basis of the entries in the Cash FlowStatement ; of the alleged advances taken by the assesse,coming to a whooping amount of Rs.4,13,52,150/-. The computationof income made by the Settlement Commission on the assesseecomes to only less than Rs.65,00,000/-. 2. The assessee-respondent raises a preliminary objection that the Commissioner of Income Tax is not entitled to file a writpetition challenging the order of the Settlement Commission going bythe scheme of Chapter XIX A of the Income Tax Act, 1961 [for brevity“the Act”], being a statutory authority under the Act. The specific contention raised is based on the judgment of the Hon’ble SupremeCourt reported in Mohtesham Mohd. Ismail v. Spl. Director,Enforcement Directorate and Another [2007 (8) SCC 254]. Theargument is that a specific authorisation from the Government ofIndia is required to file a writ petition against such order of theSettlement Commission; which only the Government of India couldhave assailed and not the authorities constituted under the Act.The Commissioner being an adjudicating-authority under the Act,could not have challenged the order passed by the SettlementCommission. The further contention is based on the conclusivenature of the orders passed by the Settlement Commission as hasbeen specified by Section 245-I, for which reliance is placed onDhampur Sugar (Kashipur) Ltd. v. State of Uttaranchal andOthers [2007 (8) SCC 418]. 3. The learned Standing Counsel appearing for theDepartment, however, would draw a distinction as to the facts andthe respective material provisions of law, in this case andMohtesham Mohd. Ismail. It is also contended that DhampurSugar has not in any manner restricted the jurisdiction of the HighCourt under Article 226 of the Constitution and has merely made observations with regard to the manner in which such jurisdiction hasto be exercised. Specifically on point is Jyotendrasinhji v.S.I.Tripathi and Others [1993) 201 ITR 611], argues theDepartment. 4. Mohtesham Mohd. Ismail was a case in which theadjudicating authority had at the first instance imposed a penaltyunder the Foreign Exchange Regulation Act, 1973 [for brevity“FERA”], for contravention of its provisions; with respect to foreignremittances made. The appellant was successful in the first appeal,which order was challenged before the High Court under Article 226,by the adjudicating authority itself. The Hon'ble Supreme Court foundthat the writ petition was filed by the adjudicating authority who wasspecifically conferred with powers to adjudicate cases ofcontravention of any of the provisions of the statute. Section 54 ofFERA, which provided for an appeal to the High Court, specifically byExplanation (ii) provided for the appeal to be filed in the High Courtwithin the jurisdiction of which the respondent ordinarily resides orcarries on business, where the Central Government is the aggrievedparty. The notification relied on by the Department before the Hon'bleSupreme Court to sustain the writ petition before the High Court was one which authorised an officer to enforce the provisions of the Actand specifically empowered such officer to adjudicate upon thedispute. There was also no notification pointed out as to anyempowerment or authorisation with respect to filing of an appeal onbehalf of the Central Government. The material provisions sonoticed are distinctively different from that in the present case. 5. The writ petition is not filed from an order passed bythe petitioner herein, who per-chance happens to be also anadjudicatory authority under the Act. Chapter XIXA provides for atotally different scheme of assessment, which all the same has to bemade under the provisions of the Act. The Commissioner normallywould have, by himself or an authorised officer, made theassessment pursuant to the search conducted under Section 132 ofthe Act. But the assessee chose to approach the SettlementCommission, disclosing the undisclosed income revealed on thesearch and inspection; which is permissible under Section XIXA ofthe Act. Hence the scheme and procedure under that Chapter has tobe first understood. 6. A Constitution Bench of the Hon'ble Supreme Court inBrij Lal v. CIT [(2011) 1 SCC 1] held that “assessment in law is 6. A Constitution Bench of the Hon'ble Supreme Court inBrij Lal v. CIT [(2011) 1 SCC 1] held that “assessment in law is different from assessment by way of settlemnent” (sic. - para 23). Allthe same, it was held that from a reading of the provisions of Section245C and Section 245D it is clear that the various provisions of theAct and the concepts of self-assessment, assessment, regularassessment and computation of total income have been engrafted inChapter XIX-A. Hence, the assessment by settlement ascontemplated under Chapter XIX-A though different from a regularassessment as otherwise provided in the IT Act, has to be made inaccordance with the provisions of the Act itself. The SettlementCommission would be regulated by various provisions of the Act inmaking such assessment by way of settlement.7. Section 245D(1) is the stage at which the SettlementCommission decides as to whether the application filed by anassessee is to be proceeded with. Sub-section (3) of Section 245Dspeaks of calling for the records from the Commissioner when theSettlement Commission decides to proceed on the application filedby the assessee. The said sub-section also confers power on theSettlement Commission to direct the Commissioner to make orcause to be made such further enquiry or investigation and furnish areport on the matters covered by the application and any other matter relating to the case. The Commissioner, on such direction, isalso obliged to furnish a report within a period of ninety days of thereceipt of the communication from the Settlement Commission;failing which the Settlement Commission could proceed with theapplication even without such report, as empowered under theproviso. Sub-section (4) empowers the Settlement Commission topass such order, as it thinks fit, on the matters covered by theapplication and any other matter relating to the case not covered bythe application, but referred to in the report of the Commissioner,after examination of the records and the report of the Commissionerand also affording an opportunity of hearing to the applicant and tothe Commissioner. 8. Chapter XIXA is a code by itself and the SettlementCommission is the authority empowered to pass the order ofassessment. The Commissioner does not have any adjudicatorypower under Chapter XIXA and the role is more adversarial. TheCommissioner is entitled to make a report on the matters specified inthe application and even those not specified therein, on which theSettlement Commission is also empowered to pass orders as itdeems fit; but, as is seen from sub-section (4) of Section 245D “in accordance with the provisions of this Act”. The Commissioner, onsuch reasoning, is entitled to move a writ petition before this Court, since the report filed by the Commissioner before the SettlementCommission in the application filed by the assessee is not in thenature of an adjudication, which, under Chapter XIXA, is a powerconferred on the Settlement Commission. 9. The further contention with respect to theconclusiveness obviously cannot oust the jurisdiction of the HighCourt under Article 226 or Article 227 of the Constitution. Dhampur Sugar specifically held that “statutory finality” does not oust thejurisdiction of a High Court under Articles 226/227 of theConstitution”. More in point is Jyotendrasinhji, wherein the finality oforders passed by the Settlement Commission under Chapter XIXAitself came up for consideration. The “finality” was found to be not abar to writ jurisdiction of the High Court or Special Leave jurisdictionof the Supreme Court. The scope of judicial review was held to berestricted to considering whether the order is contrary to anyprovision of the IT Act, apart from grounds of bias, fraud or malice. Inthe present case, the only contention raised is the non-considerationof the report and the provision relating to assessment having not Sugar specifically held that “statutory finality” does not oust thejurisdiction of a High Court under Articles 226/227 of theConstitution”. More in point is Jyotendrasinhji, wherein the finality oforders passed by the Settlement Commission under Chapter XIXAitself came up for consideration. The “finality” was found to be not abar to writ jurisdiction of the High Court or Special Leave jurisdictionof the Supreme Court. The scope of judicial review was held to berestricted to considering whether the order is contrary to anyprovision of the IT Act, apart from grounds of bias, fraud or malice. Inthe present case, the only contention raised is the non-considerationof the report and the provision relating to assessment having not been adverted to with respect to the advances from others, as seenfrom the CFS. 10. The advances from other sources originally shown atRs.3,54,59,150/- in the CFSs were revised to Rs.4,13,52,150/-. It ispertinent that the report of the Commissioner had merely beenreferred to and the contention with respect to the advances said tohave been obtained from others was accepted by the SettlementCommission without any discussion. As is evident from the report nodetails of the creditors; who are said to have advanced the loans, asper the CFS, was revealed by the petitioner. In this context, thedecision of the Hon'ble Supreme Court in CIT v. Om Prakash Mittal[(2005) 273 ITR 326] assumes relevance. Om Prakash Mittal was acase in which the assessee claimed to have received an amount ofRs.1.5 crores on 31.03.1985, by way of loans from seven persons, incash. After the order of the Settlement Commission was passed, inwhich the contention of advances was accepted, an application wasfiled by the Commissioner pointing out certain misrepresentations;which was refused to be entertained by the Commission finding thatthere is no power of review conferred on the Commission. TheHon'ble Supreme Court found that the Commission had missed the true scope and ambit of Section 245D(6) and if the Commissionerwas able to establish that the order of the Commission was obtained on misrepresentation of facts, then it was open to the Commission todecide the issue and the same would not lead to any review of theearlier orders. It was also categorically held so: “Further the conclusions of the Commission regardingthe genuineness of the loan transactions were arrivedat without indicating reasons. It only referred to therespective stands and the submissions of theassessee's counsel. That was not the proper way todeal with the matter”. 11. The manner in which the Settlement Commissiondealt with the claim of advances is seen at page 5, paragraph 5, ofExhibit P1: “5. Advances from others: Advances from others shown at Rs.3,54,59,150/- inthe original CFSs have been revised to Rs.4,13,52,150/-.The AR pointed out that the details of these loans wereavailable in the seized records and that the relevantPromissory Notes were also seized during the course ofsearch. Rate of interest on these loans is also mentionedin the seized records. Further, the confirmation letters from the creditors have also been filed before the Addl.DIT. The applicant pointed out that the relevant details areavailable at pages 39, 70, 80, 308, 392 and 402 of APB. 5.1.The CIT in Rule-9 report stated that the details ofthe loan creditors were not furnished. Hence, thecreditworthiness of the loan cannot be verified. 5.2.The learned A/R stated that the details of the loansand repayments were available in various seized recordssuch as AM83, AM85, AM89, BM12, BM23, PQ31, AM4,AM17, AM46 etc. He also pointed out that seized recordof M68 contained a number of discharged promissorynotes in respect of loans taken and repaid. He submittedthat the details available in the seized records have beenconsidered to quantify the loan taken and interest paidon the loans has been taken as outflow. 5.3.We have considered the submissions and we areof the view that no addition is called for on this account”. 5.1.The CIT in Rule-9 report stated that the details ofthe loan creditors were not furnished. Hence, thecreditworthiness of the loan cannot be verified. 5.2.The learned A/R stated that the details of the loansand repayments were available in various seized recordssuch as AM83, AM85, AM89, BM12, BM23, PQ31, AM4,AM17, AM46 etc. He also pointed out that seized recordof M68 contained a number of discharged promissorynotes in respect of loans taken and repaid. He submittedthat the details available in the seized records have beenconsidered to quantify the loan taken and interest paidon the loans has been taken as outflow. 5.3.We have considered the submissions and we areof the view that no addition is called for on this account”. 12. The manner in which additions have been refused to be made, is without any reasoning especially when theCommissioner of Income Tax had specifically, in his report, statedthat the details of the creditors were not furnished and there was no manner in which the credit-worthiness of the said persons could beverified. The loans if not proved have to be computed as total income and additions made in a normal assessment, which principleregulates the Settlement Commission too. 13. On the above reasoning, it has to be held that theSettlement Commission had not properly considered the issue ofaddition or the genuineness of claim of advances from others. To thatextent, Exhibit P1 order would stand set aside to the extent noticedabove and the matter is remanded to the Settlement Commission forconsideration of the particular aspect which this Court has interferedwith. The writ petition would stand allowed. No costs. vku/- K.Vinod ChandranJudge.