Income Tax Settlement Commission, Additional Bench, 640, Anna Salai, Nandanam, Chennai 600 035. ..2[Nd] Respondent In Both W.ps v. Cit 328 Itr 477

THE HONOURABLE MR.JUSTICE C.SARAVANAN Principal Commissioner of Income Tax,Central-2,No.46, Mahathma Gandhi Road,Chennai 600 034. .. Petitioner in both W.Ps. vsS.Chandralekha ..1[st] Respondent in W.P.No.31351 of 2015K.Velusamy-Majoir HUF ..1[st] Respondent in W.P.No.31352 of 2015 2.Income Tax Settlement Commission, Additional Bench, 640, Anna Salai, Nandanam, Chennai 600 035. ..2[nd] Respondent in both W.Ps. Prayer in W.P.No.31351 of 2015 : Writ petition filed underArticle 226 of the Constitution of India praying for issuance ofa writ of Certiorari, calling for the records on the2[nd] respondent in TN/CN 52/13-14/18/IT dated 2.03.2015 and quashthe same, insofar as it includes the advance amount which isdeemed divided under Section 2(22)(e) from the total income ofthe 1[st] respondent and the direction to levy interest underSection 234A and 234B runs contrary to the provisions of theIncome Tax Act, 1961 and the law laid down by the Hon'ble ApexCourt in Brij Lal and Others vs CIT 328 ITR 477. Prayer in W.P.No.31352 of 2015 : Writ petition filed underArticle 226 of the Constitution of India praying for issuance ofa writ of Certiorari, calling for the records on the 2[nd]respondent in TN/CN 52/13-14/17/IT dated 2.03.2015 and quash thesame, insofar as the direction to levy interest under Section234A and 234B runs contrary to the provisions of the Income TaxAct, 1961 and the law laid down by the Hon'ble Apex Court inBrij Lal and Others vs CIT 328 ITR 477. For Petitioner : Mr A.P.Srinivas, (in both W.Ps.) Senior Standing Counsel For R1 : Mr.S.Sridhar (In both W.Ps.) C O M M O N O R D E R Both these writ petitions have been filed by the PrincipalCommissioner of Income Tax against the impugned orders dated2.3.2015 passed by the second respondent, Income Tax SettlementCommission, Chennai settling the case of the first respondent inthe respective writ petitions under section 245D( 4) of theIncome Tax Act, 1961. 2. By the impugned orders, the second respondent has cometo a conclusion that the 1[st] respondent in their respective writpetitions have made adequate disclosures for settling the caseand therefore has granted a waiver to the first respondent inthe respective writ petitions, from payment of penalty andimmunity from the prosecution in terms of section 245H of theIncome Tax Act, 1961. 3. By the impugned orders, the 2[nd] respondent, Income TaxSettlement Commission, has settled the case by determining theincome of the first respondent in the respective writ petitionsas follows:- 2015 i) Dr.Chandralekha, the 1[st] respondent in W.P.No.31351 of Additional Amount offered for Tax : (Rs.28,04,72,938 –Rs.20,69,51,822/- = Rs.7,35,21,116/-) ii) Dr.K.Veluswamy, the 1[st] respondent viz in W.P.No.31352of 2015 https://hcservices.ecourts.gov.in/hcservices/ = Rs.3,01,42,866/-) 4. Thus, a sum of Rs.10,36,63,982/- [Rs.7,35,21,116 +Rs.3,01,42,866) was determined as the consolidated additionalincome of both the 1[st] respondent in the respective writpetitions. 5. By the impugned orders, the 2[nd] respondent Income TaxSettlement Commission has also directed the respectiveapplicants ( 1[st]respondent) to pay interest with the followingobservation:- Charging of Interest: 2015 i) Dr.Chandralekha, the 1[st] respondent in W.P.No.31351 of Additional Amount offered for Tax : (Rs.28,04,72,938 –Rs.20,69,51,822/- = Rs.7,35,21,116/-) ii) Dr.K.Veluswamy, the 1[st] respondent viz in W.P.No.31352of 2015 https://hcservices.ecourts.gov.in/hcservices/ = Rs.3,01,42,866/-) 4. Thus, a sum of Rs.10,36,63,982/- [Rs.7,35,21,116 +Rs.3,01,42,866) was determined as the consolidated additionalincome of both the 1[st] respondent in the respective writpetitions. 5. By the impugned orders, the 2[nd] respondent Income TaxSettlement Commission has also directed the respectiveapplicants ( 1[st]respondent) to pay interest with the followingobservation:- Charging of Interest: Prayer for waiver of interest is not acceptedand the same will be charged as per law. Whilecalculating the interest, the Assessing Officerwill keep in view the decision of the Hon’bleSupreme Court in Civil Appeal No.516-527 of 2004dated 21.10.2010 in the case of Brij Lal andOthers vs. CIT (2010) 328 ITR 477(SC). In view ofSec.234A read with Sec.245C, interest underSection 234A is to be charged for delays infiling of original return under Section139/153A/153C as the case may be on the totalincome determined under Section 245D(4) of theAct. Interest under Section 234B is to be chargedfrom the 1[st] day of the assessment year till thedate of order passed by the Settlement Commissionunder Section 245D91). Further, as has beendecided by the Hon’ble High Court of Calcuttareversing the decision of the Special Bench inthe case of M/s.G.M.Foods& Another in W.P.No.44 of 2015, interest under Section 234 B has also tobe charged on the income as disclosed in theapplication under Section 245 C of the Act. (Note:Both para 10.3 and 11.3 of the respectiveImpugned orders read as extracted above) 6. The impugned order settling the case of the1[st]respondent in the respective writ petitions of the2[nd] respondent, Income Tax Settlement Commission has beenchallenged primarily on the ground that the 2[nd] respondent IncomeTax Settlement Commission erred in settling the cases for theAssessment year 2012-13, even though, the 1[st] respondent in therespective writ petitions did not offer any additional incomefor settling the case for the Assessment year 2012-13. 7. It is therefore submitted that the 2[nd] respondent IncomeTax Settlement Commission ought not to have settled the caseinasmuch as no additional income was offered by them for theAssessment year 2012-13. 8. That apart, it is submitted that in the impugnedorders, the 2[nd] respondent Income Tax Settlement Commission erredin directing the payment of interest contrary to the decision ofthe Hon’ble Supreme Court in Brij Lal and Others vs. CIT (2010)328 ITR 477(SC). 9. It is therefore submitted that Dr.S.Chandralekha, 1[st]respondent in W.P.No.31351 of 2015 who had received loan fromM/s.Palani Medical Centre Private Limited, of which, she was aDirector and since the amount was paid to her from the saidcompany in which her shareholder and director, the amountreceived by her, was to be considered as a deemed dividendwithin the meaning of Section 2(22) (e) of the Income TaxAct,1961 and therefore was liable to tax in her hands and noincome was offered. 10. I have also heard the learned Senior Standingcounsel for the petitioner and the learned counsel for the 1[st]respondent in the respective writ petitions based on thesubmissions of the learned counsel for the respondent. Nocounter has been filed for the respective contestingrespondents. As there are no disputed questions of facts, I amgiving a final disposal to these writ petitions and thedocuments. I have perused the affidavit filed in support ofthe respective writ petitions. 10. I have also heard the learned Senior Standingcounsel for the petitioner and the learned counsel for the 1[st]respondent in the respective writ petitions based on thesubmissions of the learned counsel for the respondent. Nocounter has been filed for the respective contestingrespondents. As there are no disputed questions of facts, I amgiving a final disposal to these writ petitions and thedocuments. I have perused the affidavit filed in support ofthe respective writ petitions. 11. The first respondent in W.P.No.31351 of 2015,Dr.S.Chandralekha, a Gynecologist was running a hospital underthe name and style of M/s.Iswarya Fertility Centre at Palani,Coimbatore and Chennai when the applications were filed beforethe 2[nd] respondent Income Tax Settlement Commission. https://hcservices.ecourts.gov.in/hcservices/ 12. The 1[st] respondent in W.P.No.31352, Dr.K.Velusamy, aCardiologist was running a hospital in the name of K.V.Hospital,Chennai when the applications were filed before the2[nd] respondent Income Tax Settlement Commission. 13. According to the petitioner, a search was conductedby the Income Tax Department on 28.11.2011 and 24.11.2011 at theresidence, clinics and hospitals of the respective 1[st] respondentin the respective writ petitions which revealed that they hadsuppressed a substantial income of Rs.19,12,72,956/- whilefiling returns. 14. During the search, the Income Tax Departmentrecovered a sum of Rs.12.30 crores in cash apart from variousincriminating documents from them. Out of the aforesaid amount,they have offered to pay tax on Rs.10,49,06,782/- [7,47,65,916+3,01,42,866] before the 2[nd] respondent, Income Tax SettlementCommission. 15. The 1[st] respondent in the respective writ petitionswere issued earlier with two separate notices dated 20.11.2012under Section 153 A of the Act for the Assessment Years 2006-07to 2011-12. 16. These notices also called upon them to furnish thereturn of income for these Assessment Years. A separate noticedated 20.11.2012 was also issued to the respective applicantsfor the Assessment Years 2012-13 under Section 142(1) of theAct. 17. It is under these circumstances, the 1[st] respondent inthe respective writ petitions filed the applications forsettling their dispute before the 2[nd] respondent, Income TaxSettlement Commission on 25.09.2013. 18. That a part, it has been stated that the applicantMrs.Chandralekha ( 1[st] respondent in W.P.No.31351 of 2015) hadreceived a sum of Rs.39,90, lakhs on various dates from theCompany. 19. It is submitted that the 2[nd] respondent, Income TaxSettlement Commission wrongly accepted the claim ofDr.Chandralekha for the aforesaid amount was utilized by her inthe hospital ran under her proprietary name by interlacing fundsand was purely on the commercial basis and the same has alsodeemed dividend within the meaning of Section 2(22)(e) of theAct as per the decision of this Court in Commissioner of IncomeTax vs. F.Praveen (2008) 220 CTR 639 (Mad). 20. It is submitted that the 2[nd] respondent, Income TaxSettlement Commission committed a mistake in relying on the saiddecision of the case. 21. On the other hand, it is submitted that the issueought to have examined from the purview of the followingdecisions of the Hon’ble Supreme Court : 22. Learned Counsel for the 1[st] respondent in therespective writ petitions defends the impugned orders andsubmits that the impugned orders of the 2[nd] respondent Income TaxSettlement Commission was well reasoned and requires nointerference. He submits that the impugned order of the2[nd] respondent were final and conclusive under Section 245 D (1)of the Income Tax Act 1961 and therefore cannot be interfered. 20. It is submitted that the 2[nd] respondent, Income TaxSettlement Commission committed a mistake in relying on the saiddecision of the case. 21. On the other hand, it is submitted that the issueought to have examined from the purview of the followingdecisions of the Hon’ble Supreme Court : 22. Learned Counsel for the 1[st] respondent in therespective writ petitions defends the impugned orders andsubmits that the impugned orders of the 2[nd] respondent Income TaxSettlement Commission was well reasoned and requires nointerference. He submits that the impugned order of the2[nd] respondent were final and conclusive under Section 245 D (1)of the Income Tax Act 1961 and therefore cannot be interfered. 23. Under Section 245 of the Income Tax Act, 1961 anassessee can approach the Income Tax settlement commission atany stage for settling the case by filing application in theprescribed manner containing full and true disclosure of theincome which was not disclosed before the Assessing Officer, themanner in which such income has been arrived, the additionalamount of income tax payable on such income and such particularas may be prescribed. Such application shall be disposed in themanner provided in the Act. 24. The expression “case” means any proceeding forassessment under the Act, of any person in respect of anyassessment year which may be pending before an Assessing Officeron the date on which an application under sub- section (1) ofsection 245 C is made. 25. Thus, a composite application can be filed forsettling the case by an assessee as is event from a reading ofSection 245 of the Income Tax Act,1961 read with the definitionof the word “case in Section 245C of the Act. Sine qua-non forfiling such application is true and full disclosure of theincome which was not disclosed before the assessing officer.Additional income offered for settling the case should exceedRs.50 lakhs in case of an assessee where proceedings forassessment or re-assessment have been initiated under Section153 A (1)(b), Section 153B(1)(b) or Section 153C of the IncomeTax Act, 1961. In this case, notices were issued to thepetitioner under Section 153A of the Income Tax Act, 1961. 26. A reading of Section 153A (1)(b) of the Income TaxAct, 1961 makes it clear that the assessment in the case ofsearch or requisition is to be made from the total income of sixyears immediately preceding the assessment year relevant for theprevious year in which such searches conducted or requisition ismade. 27. Thus, for the preceding six assessment years prior toNovember 2011 are 2006-07,2007-08,2008-09, 2009-10, 2010-11 and2011-12. In this case, the application filed by the firstrespondent in the respective writ petitions were partly coveredfor the period under the block assessment period under Section153A and thereafter for the assessment year 2012-13 for whichnotice under Section 142(1) was issued to them on 20.11.2012. 28. The application filed by the 1[st] respondent in therespective writ petitions for the period covered by noticesissued under Section 153 A of the Income Tax Act, 1961 were inorder. The 1[st] respondent in the respective writ petitionssatisfied the statutory requirement of the sub- clause (i) tothe first proviso to section 245C of the Income Tax Act, 1961inasmuch as the additional amount of income disclosed forsettling the case exceeded Rs.50 lakhs. Thus, there is no meritin the challenge to the impugned orders to that extent. 28. The application filed by the 1[st] respondent in therespective writ petitions for the period covered by noticesissued under Section 153 A of the Income Tax Act, 1961 were inorder. The 1[st] respondent in the respective writ petitionssatisfied the statutory requirement of the sub- clause (i) tothe first proviso to section 245C of the Income Tax Act, 1961inasmuch as the additional amount of income disclosed forsettling the case exceeded Rs.50 lakhs. Thus, there is no meritin the challenge to the impugned orders to that extent. 29. However, no additional income was disclosed for theassessment year 2012-13 (period outside the notice issued undersection 153 A for block assessment) by the first respondent inthe respective writ petitions. As per the aforesaid provision,the 1[st] respondent in the respective writ petitions should havedisclosed additional income above Ten Lakh. Therefore objectionof the petitioner is valid. Therefore, they have not satisfiedthe statutory requirement under sub- clause (ii) to the firstproviso to Section 245C. 30. I therefore,accept the argument advanced on behalf ofthe petitioner by the learned Senior Standing counsel for thepetitioner Income Tax Department in so far as the assessmentyear 2012-13 is concerned. To that extent the impugned order ofthe [2nd] respondent Income Tax Settlement Commission settling thecase of the 1[st] respondent in the respective writ petitions areliable to be set aside. 31. As far as the other objection to the deemed dividendis concerned, I am of the view there is no scope forinterference under Article 226 of the Constitution of India.Though, this Court exercise vide power Article 226 of theConstitution of India. its jurisdiction is narrow. 32. The court is really not concerned with the ultimatedecision of the 2[nd] respondent, Income Tax Settlement Commission,but only with the decision-making process. The Court can https://hcservices.ecourts.gov.in/hcservices/ interfere only where there is perversity and arbitrariness inthe order impugned before it. 33. Question the regarding true and full disclosure ofincome for the purpose of settling the case before the 2ndrespondent Income Tax Settlement Commission is a question offact. The Income Tax Settlement is the final fact findauthority. Therefore, to that extent, the impugned ordersettling the cases of the 1[st] respondent in the respective writpetition covering the period covered by section 153A of theIncome Tax Act, 1961, there is no merit in the writ petition. 34. The petitioner has also not demonstrated anyextraordinary circumstances, which warrants interference on theissues arising of the facts determined by the second respondentIncome Tax Settlement Commission. 35. The other issue remaining point for consideration inthese Writ Petitions is whether the Settlement Commission candirect payment of interest contrary to the decision of theHon’ble Supreme Court in Brij Lal Vs Commissioner of Income Tax(2011) 1 SCC 1 ;[2010] 328 ITR 477. Answer is no. In para 33 and34 the Court held as under:- 34. The petitioner has also not demonstrated anyextraordinary circumstances, which warrants interference on theissues arising of the facts determined by the second respondentIncome Tax Settlement Commission. 35. The other issue remaining point for consideration inthese Writ Petitions is whether the Settlement Commission candirect payment of interest contrary to the decision of theHon’ble Supreme Court in Brij Lal Vs Commissioner of Income Tax(2011) 1 SCC 1 ;[2010] 328 ITR 477. Answer is no. In para 33 and34 the Court held as under:- 33. Under Sections 245-C(1-B) and (1-C) theadditional amount of income tax payable on theundisclosed income shall be on the total income ascalculatedunderSection245-C(1-B).Oncomputation of total income under Sections 245-C(1-B) and (1-C) is made, interest follows suchcomputation. It is important to note that interestfollows computation of total income. Once suchcomputation takes place under Section 245-C(1-B)then Section 234-B(2) applies. The said sub-section deals with the situation where beforedetermination of the total income under Section143(1) or Section 143(3) tax is paid under Section140-A or otherwise interest shall be calculated inaccordance with Section 234-B(1) up to the date onwhich tax is so paid. In that sense an applicationunder Section 245-C(1) is a return. Section 245-C(1) deals with computation of total income.34. There is one more way of looking at the Act.Chapter XIX-A refers to the procedure ofsettlement [see Section 245-D(1)]. As statedabove, Section 245-D(1) provides for expeditiousrecovery of tax by way of pre-assessmentcollection. Interest on default in payment ofadvance tax comes under Sections 234-A, 234-B,234-C, which fall in Chapter XVII which deals withcollection and recovery of tax. It is important to note that interest follows computation ofadditional payment of income tax under Sections245-C(1-B) and (1-C). This is how Sections 234-A,234-B and 234-C get engrafted into Chapter XIX-Aat the stage of Section 245-D(1). 35.As stated, till the Settlement Commissiondecides to admit the case under Section 245-D(1)the proceedings under the normal provisions remainopen. But, once the Commission admits the caseafter being satisfied that the disclosure is fulland true then the proceedings commence with theSettlement Commission. In the meantime, theapplicant has to pay the additional amount of taxwith interest without which the application forsettlement would not be maintainable. Thus,interest under Section 234-B would be payable upto the stage of Section 245-D(1). Our view issupported by the amendment made by the Finance Actof 2007 w.e.f. 1-6-2007 in which interest isrequired to be paid for maintainability of theapplication for settlement. 36. Dealing with a somewhat similar circumstances, in para36 the Court posed the following question to itself which readsas under:-“ 36.The question is — what happens in caseswhere 90% of the assessed tax is paid but onthe basis of the Commission's order underSection 245-D(4) the advance tax paid turns outto be less than 90% of the assessed tax asdefined in the Explanation to Section234-B(1)?”. 37. The Court answered the position as follow:- 37. As held hereinabove, under Section 245-C(1)read with Section 245-C(1-B)(ii) and Section 245-C(1-C)(b), the additional amount of income taxpayable is to be calculated on the aggregate oftotal income returned and the income disclosed inthe settlement application as if such aggregateis the total income. Thus, the scheme of the saidsections is based on computation of total incomeand in that sense we have stated that suchapplication for settlement is akin to a return ofincome. The said provision deals with “totalincome”. Thus, as stated above, Sections 234-A, Band C are applicable up to the stage of Section245-D(1) order passed by the Settlement 37. The Court answered the position as follow:- 37. As held hereinabove, under Section 245-C(1)read with Section 245-C(1-B)(ii) and Section 245-C(1-C)(b), the additional amount of income taxpayable is to be calculated on the aggregate oftotal income returned and the income disclosed inthe settlement application as if such aggregateis the total income. Thus, the scheme of the saidsections is based on computation of total incomeand in that sense we have stated that suchapplication for settlement is akin to a return ofincome. The said provision deals with “totalincome”. Thus, as stated above, Sections 234-A, Band C are applicable up to the stage of Section245-D(1) order passed by the Settlement Commission. However, Parliament has not extendedthe provisions and the liability to pay interestbeyond the date of application for settlement.This is the position even after the Finance Actof 2007. 38. In para 49 the Court ultimately concluded as follows:- (1)Sections 234-A, 234-B and 234-C are applicableto the proceedings of the Settlement Commissionunder Chapter XIX-A of the Act to the extentindicated hereinabove. (2) Consequent upon Conclusion (1), the terminalpoint for the levy of interest un as the case maybe der Section 234-B would be up to the date ofthe order under Section 245-D(1) and not up tothe date of the order of settlement under Section245-D(4). (3)The Settlement Commission cannot reopen itsconcluded proceedings by invoking Section 154 ofthe Act so as to levy interest under Section 234-B, particularly, in view of Section 245-I. 39. Thus, there two distinct stages under Chapter XIX-Aand that the legislature has not contemplated the levy ofinterest between the order under Section 245-D(1) stage andSection 245-D(4) stage. Interest under Section 234-B will bechargeable till the order of the Settlement Commission underSection 245-D(1) i.e. admission of the case. 40. In the impugned order, the 2[nd ]respondent Income TaxSettlement Commission has directed the interest under Section234A to be charged for the delay in filing of the originalreturn under section 139/153 A/153C. 41. The impugned order to the extent it is contrary to thedecision of the Honourable Supreme Court in the above case inBrij Lal Vs Commissioner of Income Tax (2011) 1 SCC 1 ;[2010]328 ITR 477 is liable to be there for modified. 42. The officers under the jurisdiction of the 1[st]respondent are therefore directed to give effect to the order ofthe second respondent Income Tax Settlement Commission in termsof the order of the Hon’ble Supreme Court in Brij Lal VsCommissioner of Income Tax (2011) 1 SCC 1. 43. In fine, these writ petitions are partly allowed to theextent:- i. The impugned orders passed by the2[nd] respondent Income Tax Settlement Commission in the respective Writ Petitions to the extent itsettles the case of the 1[st] Respondent in therespective Writ Petitions for the Assessment Year2012-13 are set aside. ii. The jurisdictional officer, Income Tax Officeror Assistant Commissioner of Income, as the caseshall therefore finalize the assessment for theAssessment Year 2012-13 within a period of 3months from the date of receipt of a copy of thisorder. Orders to be passed shall be inaccordance with law and in compliance with theprocedural law as it prevailed during the periodin dispute. iii. The impugned orders passed by the 2[nd]respondent, Income Tax Settlement Commission inthe respective Writ Petitions are set aside to theextent it directs payment of interest contrary tothe decision of the Honourable Supreme Court inBrij Lal Vs Commissioner of Income Tax (2011) 1SCC 1. iv. The officers of the Income Tax Departmentshall finalise the interest strictly in accordancewith the decision of the Hon’ble Supreme Court inBrij Lal Vs Commissioner of Income Tax (2011) 1SCC 1. No costs. Consequently, connectedmiscellaneous petitions are also closed. iii. The impugned orders passed by the 2[nd]respondent, Income Tax Settlement Commission inthe respective Writ Petitions are set aside to theextent it directs payment of interest contrary tothe decision of the Honourable Supreme Court inBrij Lal Vs Commissioner of Income Tax (2011) 1SCC 1. iv. The officers of the Income Tax Departmentshall finalise the interest strictly in accordancewith the decision of the Hon’ble Supreme Court inBrij Lal Vs Commissioner of Income Tax (2011) 1SCC 1. No costs. Consequently, connectedmiscellaneous petitions are also closed. Sd/-Assistant Registrar Sub Assistant Registrar /True Copy/ To 1.The Income Tax Settlement CommissionAdditional Bench, 640, Anna Salai, Nandanam, Chennai -35.2.The Assistant Commissioner of Income Tax,Company Circle – III (3),Aayakar Bhavan – New Block, 4[th] Floor,121, Mahatma Gandhi Road,Chennai 600 034. +2cc to Mr.S.Sridhar, Advocate Sr.Nos.13497 and 13498+2cc to Mr.A.P.Srinivas, Advocate Sr.Nos.13327 and 13329akm /29.04.21/ 11P-7C/ Common Order inW.P.Nos.31351& 31352 of 2015 and M.P.Nos.1 & 1 of 201503.03.2021 https://hcservices.ecourts.gov.in/hcservices/