Shri Prakash Chand Dhadda v. The Income Tax Settlement Commission, Additional Bench – Ii,9[Th] Floor, Lok Nayak Bhawan, Khan Market, New Delhi Through Itssecretary, Earlier Principal Bench

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR S.B. Civil Writ Petition No. 802 / 2014 Shri Prakash Chand Dhadda, Prop. M/s. P.C. Dhadda & Co., 3815,Laxmi Atithi Grah, Moti Singh Bhomion Ka Rasta, Johari Bazar,Jaipur. ----Petitioner Versus 1. The Income Tax Settlement Commission, Additional Bench – II,9[th] Floor, Lok Nayak Bhawan, Khan Market, New Delhi through itsSecretary, earlier Principal Bench. 2. The Commissioner of Income Tax (Central) Central – RevenueBuilding, Statue Circle, Bhagwan Das Road, Jaipur. 3. The Deputy Commissioner of Income Tax, TDS, CentralRevenue Building, Statue Circle, Bhagwan Das Road, Jaipur nowjurisdiction with the Deputy Commissioner of Income-tax, CentralCircle – 2, Jaipur / The Assistant commissioner of Income-tax,Central Circle – 2, Jaipur. ----Respondent _____________________________________________________ For Petitioner(s) : Mr.NM Ranka, Sr. Adv. with Mr.NK JainFor Respondent(s) : Mr.Anil Mehta with Ms.Archana _____________________________________________________ HON'BLE MR. JUSTICE M.N. BHANDARIJudgment Date :9[th] June, 2017 By this writ petition, a challenge is made to the orderdated 30[th] September, 2013 so as the notice of demand and income tax computation dated 01[st] November, 2013. The furtherprayer is to accept the undisclosed income of Rs.10 lac oralternatively of Rs.25 lac, as earlier computed. Learned counsel submits that the petitioner is carryingbusiness of trading as well as manufacturing of emeralds on smallscale level. He is maintaining regular books of account and hadbeen assessed for income between Rs.1 lac to Rs.5 lac. TheIncome Tax Department conducted search at the place ofMr.Rajkumar Sharma on 12[th] November, 1997 wherein some loosepapers, note books, currency notes, etc. were found. TheDepartment gave notice to the petitioner under Section 158BD ofIncome Tax Act, 1961 (for short “the Act of 1961”). Thereply to the notice was given followed by submission of income taxreturn with NIL amount. The petitioner could reveal thatMr.Rajkumar Sharma has approached Income Tax SettlementCommission and his petition has been admitted. To avoid litigationand to have peace in mind, the petitioner also submitted anapplication before the Commission on 12[th] November, 1999offering undisclosed income of Rs.5 lac with intimation to theAssessing Officer. The petitioner denied investment ofRs.3,36,50,000/- by way of money lending to earn interest. TheSettlement Commission computed undisclosed income to be ofRs.17 lac after considering Rule 9 Report. The petitioner acceptedthe aforesaid, however, it was quashed by the High Court withremand of case on a writ petition filed by the Revenue. Learned counsel has explained the facts of the casealso. It is submitted that the petitioner was having business Learned counsel has explained the facts of the casealso. It is submitted that the petitioner was having business relations with Mr.Raj Kumar Sharma, who was getting cutemeralds and sending it to the petitioner on approval basis foronwards sale. The petitioner was purchasing the emeralds and, ifnot approved, then to return it. The aforesaid has been consideredto be a case of money lending and, therein also, the code of onewas considered to be one lac. The decoding of the figure is basedon presumption. The Revenue presumed money lending to SohanLal Sethi and Vimla Surana to the extent of Rs.10 crore and Rs.2crore respectively by taking “1000” as 10 crore and “200” as 2crore. No counter verification was made from those to whommoney was alleged to have landed. At the best, the Revenue couldhave taken one equals to 1000. The brokers were not examineddespite named therein. In view of the above, even the calculationof amount was made without counter verification and onhypothetical basis. The currency note of different denominationwas taken as promissory note on surmises and conjectures. Noevidence to receive interest was available. Addition in thosecircumstances can be made on “peak credit” basis and, as per theaforesaid, total comes to Rs.2,36,000/- instead ofRs.3,36,50,000/-. It is further stated that on 20[th] November, 2012, theSettlement Commission directed the Revenue to check thecalculation on “peak credit theory” but without receivingcomment, the decoding was made by treating 1 equals to 1 lac.The currency notes were containing signatures of the petitioner,which could not have been if the money is to be advanced, ratherit was a case of receiving emeralds on approval. In view of the above, the Department failed to discharge its burden as perSection 132(4A) as well as under Section 69 of the Act of 1961. Itis also stated that if the amount was advanced since 30[th]September, 1995 and onwards, there is no evidence to showrepayment of it, which cannot happen in the case of moneylending. All these aspects are relevant but were not considered bythe Settlement Commission. The “peak credit theory” was also notapplied though no objection for it was made by the Department.The order was passed with pre-determination. The Commissionmade an arbitrary, illegal and unsustainable order under Section245d(4) of the Act of 1961. It is mainly based on the orderagainst Mr.Raj Kumar Sharma. The Department has failed to produce any evidence toshow it to be a case of money lending thus burden under Section132(4A) of the Act of 1961 has not been discharged. A reference of judgments of the Apex Court in thecases of CIT Vs. SMS Investment Corpn Ltd. reported in(1994) 207-ITR-364 (Raj.),173-ITR-393 (Raj.),JayantiLal Patel Vs. ACIT reported in (1998) 233-ITR-588 (Raj.),CIT Vs. Jayanti Lal Patel and others reported in 144-CTR-305, Kishanchand Chellaram Vs. CIT reported in (1980) 125-ITR-713 and Roshan-Di-Hatti Vs. CIT reported in (1977)107-ITR-938 has been given. It is submitted that the order of the SettlementCommission is otherwise based on presumptions. It is presumedthat emeralds cannot be given on approval by recording oncurrency notes but can be on a plain paper. It has been referred in para No. 12.12 of the impugned order and later on, in paraNos.15.1, 15.9 and so on. A reference of judgments of the Apex Court in thecases of CIT Vs. SMS Investment Corpn Ltd. reported in(1994) 207-ITR-364 (Raj.),173-ITR-393 (Raj.),JayantiLal Patel Vs. ACIT reported in (1998) 233-ITR-588 (Raj.),CIT Vs. Jayanti Lal Patel and others reported in 144-CTR-305, Kishanchand Chellaram Vs. CIT reported in (1980) 125-ITR-713 and Roshan-Di-Hatti Vs. CIT reported in (1977)107-ITR-938 has been given. It is submitted that the order of the SettlementCommission is otherwise based on presumptions. It is presumedthat emeralds cannot be given on approval by recording oncurrency notes but can be on a plain paper. It has been referred in para No. 12.12 of the impugned order and later on, in paraNos.15.1, 15.9 and so on. The Commission has recorded perverse finding. TheRevenue failed to establish that it is not a case of sendingemeralds on “Jakad” i.e. on approval basis but a case of moneylending. The burden under Section 69 of the Act of 1961 has notbeen discharged by the revenue apart from the fact that noindependent verification was made from the person noted in Rule9 Report. The unexplained asset or investment was not noticedapart from the fact that no “Hundi” or any such document wasfound during the course of search. The missing links remained un-answered, thereby, not only that the factual and legal issues werenot properly considered but the decoding of the figure bysimplifying 1=1,00,000 is wholly illegal. The reference of ajudgment in the case of Uma Charan Shani & Bros. Co. Vs. CITreported in (1959) 37-ITR-270 (SC) has been given where it isheld that suspicion, however grave, would not be taken place ofproof. The code of one could not have been taken equivalentto one lac, rather, as per the explanation given by Mr.Raj KumarSharma, it could have been taken 1 = 100 or 1 = 1000 but not 1lac. The decoding of one = 1 lac is based on presumption thus theorder needs interference. Learned counsel further submits that telescoping orrecycling is made for addition. It is by applying “peak credittheory” and is the practice in the State of Rajasthan. In a case ofmoney lending, there exists convention of repayment in two months. It has been duly noticed in Rule 9 Report. The amountotherwise rotates. The investment is thus to be computed on“peak credit theory” and it is consistently followed in the State ofRajasthan and all over India. The aforesaid has not beenconsidered properly by the Commission. The calculation shouldhave been made by applying “peak credit theory”. An alternate argument in reference to Rule 9 Reporthas also been given. The total amount comes to Rs. 9,71,460/-only by applying decoding of 1 = 1000. As per the “peak credittheory”, the amount would be Rs.4,61,000/-against the totaltransaction of Rs.9,71,460/-. The “peak credit theory” was notaccepted by the Commission as writing was on the currency notesand not on the document. The “peak credit theory” was ignoreddespite the fact that Assessing Officer had no objection for itsapplication. The petitioner was even discriminated with otherassessees, who were assessed on “peak credit theory”. It is also asettled law that tax is to be calculated on real income and not onimaginary or on hypothetical basis. Accordingly, the impugnedorders deserve to be set aside. Learned counsel for the petitioner lastly contended thatthe object of Section 245C of the Act of 1961 is to give protectedproceedings before the authorities. It has not been applied, rather,the Settlement Commission has made assessment of the casethus impugned order is opposed to the object of Section 245C ofthe Act of 1961. The prayer is accordingly to set aside the order. A reference of judgments in the case of CIT Vs. RaviKumar (2007) 294-ITR-78 (P&H), CIT Vs.SC Sethi (2007) 295-ITR-351(Raj) and CIT Vs.Girish Chaudhary (2008) 296-ITR-619 (Delhi) has been given. Learned counsel for the petitioner lastly contended thatthe object of Section 245C of the Act of 1961 is to give protectedproceedings before the authorities. It has not been applied, rather,the Settlement Commission has made assessment of the casethus impugned order is opposed to the object of Section 245C ofthe Act of 1961. The prayer is accordingly to set aside the order. A reference of judgments in the case of CIT Vs. RaviKumar (2007) 294-ITR-78 (P&H), CIT Vs.SC Sethi (2007) 295-ITR-351(Raj) and CIT Vs.Girish Chaudhary (2008) 296-ITR-619 (Delhi) has been given. Learned counsel for the respondents has opposed thepetition. A preliminary objection about maintainability of the writpetition has been raised. It is in reference to Section 245–I of theAct of 1961. The order of the Settlement Commission is notsubject to challenge by way of appeal or review thus writ is notmaintainable. Coming to the facts, it is stated that a search wasconducted at the place of Mr.Rajkumar Sharma where loosepapers, note books, currency notes, etc. were seized. Onexamination of seized documents, the Department found varioustransactions with the petitioner. The currency notes were usedwith coded figure. On the currency notes, name of the petitionerwas existing apart from other parties with a date on it. A noticeunder Section 158BD of the Act of 1961 was accordingly issued forthe block period 01[st] April, 1987 to 12[th] November, 1997. Thepetitioner filed return on 11[th] November, 1999 disclosing hisincome to be NIL. An application before the SettlementCommission was submitted with undisclosed income of Rs.5 lacwhich was later on revised to Rs.10 lac. The petitioner was givenseveral opportunities but he did not comply the summons issuedunder Section 131 of the Act of 1961. The Settlement Commissionthereupon heard the matter and passed the order on 01[st] March,2000. It was challenged before this Court by the Revenue. Thewrit petition was allowed with remand of the case. The case washeard afresh by the Settlement Commission. Rule-9 Report explained modus operandi of theassessee. The examination of the currency notes and accountsslips attached with the currency notes disclosed the name of theperson to whom money was advanced, date of advance and theperiod. The amount of advance was recorded in code. Theadvances were renewed bi-monthly. It is stated that if Mr.Rajkumar Sharma used to sendemeralds on approval basis i.e. “Jakad” to the assessee thentransactions should have been recorded in his regular books ofaccount. The assessee failed to show a single transaction whereemeralds has been purchased. If emeralds are send on Jakad, it isrecorded on papers and not on currency notes and is to be forshort period, whereas, slips attached on the currency notes wereshowing by monthly date of renewal and it was for longer period. The assessee has admitted that figure mentioned onthe seized paper and documents is 1=100. This clearly shows ill-intention of the assessee otherwise in case of fair transaction,figures would not have been mentioned in code. The SettlementCommission has taken note of all the issues. The issue of “peak credit theory” and the issue ofdecoding has been dealt with extensively in the impugned order.The issue of decoding was considered in the case of ParshvanathSharebrokers Pvt. Ltd. also where search under Section 132 of theAct of 1961 was carried out. While answering the question No.20,a statement was recorded on 12[th] January, 2006 and it wasaccepted that code 1=1,00,00. The aforesaid strengthens thebasis of decoding. The assessee has admitted that figure mentioned onthe seized paper and documents is 1=100. This clearly shows ill-intention of the assessee otherwise in case of fair transaction,figures would not have been mentioned in code. The SettlementCommission has taken note of all the issues. The issue of “peak credit theory” and the issue ofdecoding has been dealt with extensively in the impugned order.The issue of decoding was considered in the case of ParshvanathSharebrokers Pvt. Ltd. also where search under Section 132 of theAct of 1961 was carried out. While answering the question No.20,a statement was recorded on 12[th] January, 2006 and it wasaccepted that code 1=1,00,00. The aforesaid strengthens thebasis of decoding. On a re-analysis of the seized materials in the form ofexhibits, it was noticed that no date of repayment was availablefor many advances. The calculation of “peak credit theory” isapplied for those entries for which dates of advance andrepayment are available. The advances for which no dates areavailable are held to be not paid back till date of search. Thecalculation was made accordingly. The total of the same stands atRs. 66,23,21,229. Learned counsel further submitted that Mr.Raj Kumar Sharma and Mr.PC Dhadda were having close business dealings.Both of them adopted very rigid attitude. The grounds raised inthe writ petition are otherwise factual in nature and interference inthe order of Settlement Commission should not be made in viewof the judgment of the Apex Court in the case of Union of India & Ors. Vs. IND. Swift Laboratories Ltd. reported in 2011(4)SCC 635. The prayer is accordingly made to dismiss the writpetition. I have considered rival submissions made by learnedcounsel for the parties and scanned the matter carefully. The facts of the case have been given in detail thusneed not to be reiterated other than which are relevant forconsideration of the issues raised by learned counsel for theparties. On a search conducted at the place of Mr.Raj KumarSharma, loose papers, note books and currency notes, etc. wereseized. The material was containing name of the petitioner apartfrom others thus notice under Section 158BD of the Act of 1961 was given. Mr.Rajkumar sharma approached the SettlementCommission. The petitioner also approached the SettlementCommission after offering undisclosed income of Rs.5 lac whichwas then raised to Rs.10 lac. The Settlement Commission passedthe order on 01[st] March, 2000 but it was challenged by theRevenue followed by remand of case by this Court vide its orderdated 13[th] August, 2009 and finally it has been decided by theimpugned order. The petitioner has raised many issues and areconsidered separately. The first issue is as to whether Mr.Rajkumar Sharmawas giving emeralds to the petitioner on approval basis or it is acase of money lending. The issue aforesaid is factual in nature and has beendealt with by the Settlement Commission with a detailed finding.The petitioner has contested the issue aforesaid by stating thatemeralds were given on “Jakad”. It is also stated that moneylending could not be proved by the Revenue in Rule 9 Report thusburden under Section 132(4A) of the Act of 1961 has not beendischarged. Reference of many judgments has been given. It isalso alleged that burden under Section 69 of the Act of 1961 wasnot discharged by the respondents. I find that the Settlement Commission has consideredall the material produced before it and based on the aforesaid,finding has been recorded. It is not only after considering the factthat the material seized from Mr.Rajkumar Sharma were not onlyloose papers and note books but currency notes. It was showing I find that the Settlement Commission has consideredall the material produced before it and based on the aforesaid,finding has been recorded. It is not only after considering the factthat the material seized from Mr.Rajkumar Sharma were not onlyloose papers and note books but currency notes. It was showing calculation of interest on bi-monthly basis and, for that, writing ondifferent papers was showing calculation of interest. It was alsofound that if emeralds were given on “Jakad” basis, it cannot befor a long period because if emeralds are not approved, it wouldbe returned. The seized documents were showing transaction forlong duration. The books of account of the parties do not show asingle entry of purchase of emeralds said to have been given onapproval. It cannot be that after sending emeralds on approvalbasis, it would not be purchased at any point of time. Thepetitioner has admitted business relation with Mr.RajkumarSharma thus material collected during the course of search cannotbe discarded. The Settlement Commissioner had meticulouslyconsidered the issue to find out as to whether it is a case ofmoney lending or sending emeralds on approval. When the seizedmaterial itself is sufficient to establish the case apart from Rule 9Report, no further evidence was required thus burden underSection 132(4A) as well as Section 69 of the Act of 1961 standssatisfied. It is also a fact that while denying money lendingbusiness, the petitioner had decoded the figure on the documentswith help of Chartered Accountant and submitted that totalamount involved in the money lending is Rs.9,71,400/- with peakamount of Rs.4,61,000/-. This itself proves that it is a case ofmoney lending. Taking into consideration the fact aforesaid,finding of the Settlement Commission needs no interference onthe issue aforesaid. It has been recorded after minute examinationof material where the Revenue could prove its case and, thereby,discharged the burden. The finding of Settlement Commission that seized material proves money lending needs no interference. It ismoreso when the finding of fact recorded by the SettlementCommission cannot be interfered by this Court. The view aforesaid is supported by the judgment of theApex Court in the case of Union of India & Ors. Vs. IND. SwiftLaboratories Ltd. (supra). Relevant part of the said judgment isquoted hereunder for ready reference : “An order passed by the SettlementCommission could be interfered with only ifthe said order is found to be contrary toany provisions of the Act. So far as thefindings of fact recorded by theCommission or question of facts areconcerned, the same is not open forexamination either by the High Court or bythe Supreme Court. In the present casethe order of the Settlement Commissionclearly indicates that the said order,particularly, with regard to the impositionof simple interest @ 10% per annum waspassed in accordance with the provisions ofRule 14 but the High Court wronglyinterpreted the same Rule and therebyarrived at an erroneous finding. So far asthe second issue with respect to interest onRs. 50 lakhs is concerned, the same beinga factual issue should not have been goneinto by the High Court exercising the writjurisdiction and the High Court should nothave substituted its own opinion againstthe opinion of the Settlement Commissionwhen the same was not challenged onmerits.” Para Nos.11.7 to 11.9 of the impugned order arequoted hereunder to show how the issue has been considered andreflects that finding has not been recorded based on presumptionbut is in reference to the material available on the record : Para Nos.11.7 to 11.9 of the impugned order arequoted hereunder to show how the issue has been considered andreflects that finding has not been recorded based on presumptionbut is in reference to the material available on the record : “11.7 The Scrutiny of these seizedmaterialsdisclosesthatthesepapers/currency notes are having record ofmoney lending transactions pertaining toSh. P.C. Dhadda as P.C. Dhadda’s name isappearing on several places on thesepapers particularly on all the currencynotes. An examination of the currencynotes and account slips attached withthese currency notes discloses name of theperson to whom advance of money hasbeen made, date of advance, period forwhich advance has been renewed. Theamount of advance has been recorded incode. The advances have been renewed ina bimonthly manner which is a commonfeature in the field of money leadingbusiness. The fact that these papers relateto money lending is established from pageno. 43 of exhibit A-4 where the account ofBela Bansal is noted. On this paper‘interest to be seen’ is noted. Similarly onpage 1 of exhibit 3 which contains accountof Rati Bansal “Interest receive back” iswritten. 11.8It is found that all the figures ofmoney lending business have been writtenin code. For example, on page no 43 exhibit A-4, account of Bela Bansal showsfigure of 15 written in code. Two currencynotes of Rs. 10 and Rs 5= Rs. 15 areattached and on both these currency notesand account paper, the date of lending iswritten as 12-10-96. Further there is aminus entry of 2.50 out of 15 leaving abalance of 12.50. On this page, bi monthlydates have been written as under:- 12-02-1996, 10-12-1996, 08-02-1997, 08-04-1997, 06-06-1997, 04-08-1997, 02-10-1997 11.9It has been also written on this pagethat from 4-8 to 28-8=24 days, “Interestto be seen”. This noting shows working ofinterest for the month of August 97. Allthese facts mentioned above indicate thatthe figure of 15 represent Rs. 15 Lakhs,which was initially lent on 12-10-96 andperiodical interest has been charged bi-monthly. Thus, the currency notes of Rs.10 stands for Rs. 10 lakhs and currencynote of Rs. 5 stands for Rs. 5 lakhs. Thisfact is further confirmed from the notingmentioned regarding repayment of Rs.2.50 lakhs leaving a balance of Rs. 12.50lakhs.” The second issue is as to whether code of one shouldhave been taken equal to 1000 or it is correctly taken equal to1,00,000. It is stated by learned counsel for the petitioner thatMr.Rajkumar Sharma explained code of 1=100 and 1=1000 butthe Revenue as well as the Settlement Commission has taken it tobe 1=1,00,000. It is alleged that decoding of figure is based onpresumption. To appreciate the issue aforesaid, I have gone throughthe order and material placed on record. The Settlement Commission has drawn inference atmany places to justify code of 1=1,00,000. It was in reference toadvance to S.Kumar, Rajesh Maheshwari, Gendi Devi and BelaBansal. It was presumed that they would not avail petty loan ofRs.1000/- or even less than it. The finding aforesaid is based onpresumption. It is also admitted that evidence was not led by theRevenue by producing persons concerned to the transaction. It is,however, a fact that Mr.Rajkumar Sharma has used two codes byindicating 1=100 and other 1=1000. It could not be explained asto how two codes were used but merely for that reason,presumption cannot be drawn for using code 1 = 1,00,000. Therevenue is required to discharge its burden. The perusal of the order of the Settlement Commissionshows decoding based on presumption than material on record.The decoding of 1=1,00,000 cannot be made on hypothetical basisthus while holding that the documents seized from Mr.RajkumarSharma are related to money lending, finding regarding decodingcannot be accepted, rather, matter needs to be remanded forpassing fresh order limited to the issue of decoding. The perusal of the order of the Settlement Commissionshows decoding based on presumption than material on record.The decoding of 1=1,00,000 cannot be made on hypothetical basisthus while holding that the documents seized from Mr.RajkumarSharma are related to money lending, finding regarding decodingcannot be accepted, rather, matter needs to be remanded forpassing fresh order limited to the issue of decoding. The third issue is as to whether “peak credit theory”should have been applied. It is alleged by learned counsel for the petitioner thatthere is custom and convention of repayment of amount on bi-monthly basis and has been noticed in Rule 9 Report thus “peakcredit theory” should have been applied. The “theory of peakcredit” has not been applied by the Settlement Commission bygiving detailed reasons. Under what circumstances, “peak credittheory” can be applied has also been explained. It has beennoticed that apart from loose papers, currency notes were alsorecovered having writing and co-related to the transaction. Thetheory can be applied in the case of credit and debits unaccountedto avoid overlapping amount. In the instant case, currency noteswere recovered having writing and is not a case of unaccounteddebit and credit simplicitor, thus “peak credit theory” was notapplied. The reasons given by the Settlement Commission to denyapplication of “peak credit theory” are well reasoned thus need notto be interfered. The Settlement Commission has referred thatAssessing Officer is not against application of “peak credit theory”,however, the order has to be read in totality and, otherwise, theSettlement Commission has to record its reason if “peak credittheory” is to be applied or not be applied, which exists in the case.Thus, the argument related to the application of “peak credittheory” cannot be accepted in the light of the detailed findingrecorded by the Settlement Commission. Learned counsel for the respondent/s has raised issueof maintainability of the writ petition against the order of settlement commission but I do not find any substance therein.What has been barred is the appeal or review but not the remedybefore this Court under Article 226 of the Constitution of India.The preliminary objection raised by learned counsel for therespondent/s cannot thus be accepted, rather, they had earlierchallenge the order of the Settlement Commission before thisCourt by maintaining a writ. In view of the discussion made above, matter isremanded back to the Settlement Commission to decide the issueof decoding afresh. It is while maintaining the finding regardinginvolvement of the petitioner in money lending and other issues,thus interference in the order is made limited to the issue ofdecoding. Both the parties are directed to appear before theSettlement Commission on 03[rd] July, 2017. The SettlementCommission would be expected to decide the issue at the earliestand, if possible, then within a period of three months from thedate given above. Till the fresh order is passed, the impugnedorder would not be given effect, rather, it will remain subject tofinal outcome of the order to be passed by the SettlementCommission on the limited issue on which case has beenremanded. The writ petition stands disposed of with the aforesaid. (M.N. BHANDARI)J.