Wp/1704/2019 Of Arunachalam Manickavel v. Income Tax Settlement Commission

THE HON’BLE SRI JUSTICE M.SEETHARAMA MURTIAndTHE HON’BLE MS JUSTICE J. UMA DEVI Writ Petition No.1704 of 2019 ORDER [Per Hon’ble Sri Justice M. Seetharama Murti] This writ petition, under Article 226 of the Constitution of India is filed seeking verbatim the following relief/s: “..to issue a writ in the nature of Mandamus or any other Writ, order or direction setting aside the impugned order dated 09.01.2019 passed by the respondent No.1 under Section 245D(2c) of the IT Act in the case of the petitioner, as arbitrary, unreasonable, irrational and unsupportable in law and consequently direct the respondent no.1 to proceed with the settlement application filed by the petitioner; and pass such other order or orders as this Honourable Court may deem fit and proper in the circumstances of the case.” direction setting aside the impugned order dated 09.01.2019 passed by the respondent No.1 under Section 245D(2c) of the IT Act in the case of the petitioner, as arbitrary, unreasonable, irrational and unsupportable in law and consequently direct the respondent no.1 to proceed with the settlement application filed by the petitioner; and pass such other order or orders as this Honourable Court may deem fit and proper in the circumstances of the case.” We have heard the submissions of Sri Y. Ratnakar, learned senior counsel appearing for the writ petitioner; and, of Ms. Kiranmayee, learned standing counsel appearing for the respondents. We have perused the material record. The introductory facts are as follows: The petitioner is the proprietor of a proprietary concern, Bharati Soap works. The petitioner is carrying on his business in manufacture of detergent cakes and washing power. The plant for manufacture is located at Gorantla, Guntur. The petitioner is also the Chairman-cum-Executive Director of M/s Bharathi Consumer Care Products Pvt.Ltd. A search was conducted on the petitioner as well as the said company, on 30.08.2016, under Section 132 of the Income Tax Act,1961 [‘the Act’, for brevity]. The search was concluded on 02.09.2016. The petitioner filed a settlement application, on 13.11.2018, before the Income Tax Settlement Commission [‘Settlement Commission’, for brevity], Chennai – 1[st] respondent, under Section 245C(1) of the Act for the assessment years 2011-12 to 2017-18 for settlement of the case. Pursuant to the search, notices under Section 153A of the Act were issued reopening the petitioner’s assessments for the assessment years 2011-12 to 2016-17 for filing the returns of income. On 26.11.2018, order under Section 245D(1) was passed allowing the settlement application to be proceeded with further under Section 245D(1) of the Act. Later, the Settlement Commission called for a report from the Principal Commissioner of Income Tax – 2[nd] respondent. The Principal Commissioner of Income Tax submitted a report, dated 24.12.2018, under Section 245D(2B) of the Act objecting to the settlement application being proceeded with by the commission. The said report was forwarded to the petitioner and was received by the petitioner’s Chartered Accountant on 28.12.2018. A reply, dated 04.01.2019, was filed responding to the points raised by the 2[nd] respondent. Later, the Settlement Commission heard the matter on 08.01.2019 and passed orders on 09.01.2019 rejecting the petitioner’s application. Aggrieved thereof, the present writ petition is filed. In this backdrop, the case of the petitioner company is this: In this backdrop, the case of the petitioner company is this: The petitioner filed a petition in respect of his undisclosed income before the Settlement Commission under Section 245C(1) of the Act for the assessment years 2011-12 to 2017-18 for settlement of his claim. Pursuant to the search, notices under section 153A of the Act were issued reopening the assessments of the petitioner for the assessment years 2011-12 to 2016-17 for filing returns of income. The said returns were filed. As regards assessment year 2017-18 initial assessment is still pending. Hence, there was no reopening for the said assessment year. During the course of search enquiry, the petitioner was subjected to intense and grueling examination for several hours and statements were recorded from him under Section 132(4) of the Act. He was examined between the dates 30.08.2016 and 28.11.2016 for 15 times as stated in the writ affidavit and his statements were recorded on those fifteen occasions. The search party repeatedly suggested that the petitioner should accept substantial additional income for assessment of the petitioner and it should be commensurate with the degree and intensity of search conducted on the petitioner. In the course of search, the petitioner was made to accept that the distributors to whom the petitioner was effecting sales, were paying additional amounts in cash which was not shown in sales, and that the petitioner should accept that cash was paid to him by the distributors at 8% of the turnover shown in the accounts. The petitioner initially declined so to do. But, when the pressure was brought upon him in the form of fear, harassment, long drawn litigation, penal proceedings, criminal proceedings and financial ruining of the petitioner as well as the family members, he signed on the dotted line, as the pressure was so great. He and his family members were not allowed to sleep for three days. He became blank and lost his faculty of reasoning during the period of search. Questions were put by search party and even answers were dictated by them. The petitioner merely signed on the dotted line being helpless. The petitioner is not sufficiently educated to read and understand what was being recorded. The investigating officers themselves calculated the cash amount at 9% of the turnover. The addition at 9% on estimate, as cash paid over and above the sales for the assessment years 2011-124 to 2016-17 was worked out by the search party at Rs.37,84,91,755/-. Search party required that the petitioner should accept the said amount as additional income under Section 132(4) of the Act and the same should be offered to tax. At that point of time, the petitioner has no choice but to accept the same with the hope and expectation that the harassment would abate. The manufacture of detergent cakes and washing power requires purchase of several raw materials. Acid slurry is one of such raw materials for manufacture of washing soap powder and it constitutes nearly 20% of the entire raw material. There are several other raw materials like soda ash, soap stone power, sodium triply phosphate powder, AOS, aluminium sulphate, perfumes etcetera that are needed for manufacture. The petitioner was purchasing acid slurry from one M/s. Mahaveer Surfactants Pvt., Ltd., Pondicherry. It appears that the said supplier deposed on 30.08.2016, that they have supplied, to the petitioner, acid slurry amounting to Rs.9,46,26,216/- in the financial years 2010-11 to 2014-15 and for these purchases the payment was made by the petitioner in cash. Even assuming it is true, it is an item of expenditure for the petitioner being the purchase of raw material. Therefore, it would constitute an expenditure in the hands of the petitioner and not income. The petitioner explained to the investigating officer that the petitioner could not have purchased acid slurry alone, which is only 20% of the raw materials and that the said allegation is not correct. By not recording purchases, the petitioner does not gain any monetary advantage. The petitioner denied payment in cash and the purchases that were said to have been made by the petitioner. Petitioner was told that the petitioner should accept the said purchase as income under Section 132(4) of the Act and that failing which severe action will be taken. The copy of the statement of the said M/s.Mahaveer Surfactants Pvt Ltd., was not supplied to the petitioner. The petitioner was not aware as to what was stated by them. The petitioner was subjected to immense pressure. It was repeatedly pointed out that unless the petitioner accepts, the search would be continued and will not be closed. In order to purchase peace and have peace of mind and being unable to bear the pressure, the petitioner accepted the sum of Rs.9,46,26,216/- as income. The cursory examination of the statement recorded, on 01.09.2016, reveals that the question and the answer was also dictated by the investigating team. The petitioner merely signed on the dotted line. The officer, who recorded the statements computed the additional income to be offered in the returns of income to be filed at Rs.47,31,17,971/-. Quantification of additional income as per statement under Section 132(4) of the Act with the break up of the said sum is as under: The further break up of the said sum is as under: The above said alleged undisclosed income forming part of declaration is not represented by an asset, cash, investment or visible in any other manner. No incriminating material was found to support the declaration under Section 132(4) as no such income was earned at all. The declaration of the said income was under circumstances explained. The petitioner retracted the disclosure made being not true and not voluntary. There was no incriminating material evidence to corroborate the allegation of under invoicing/payments from distributors. There was no such evidence found in regard to any cash payments made to the petitioner, over and above the sales. The report furnished by the authorities does not indicate the existence of any such proof of the income declared. The allegations made are wild guess work based on conjectures and surmises. In response to the notices under Section 153A of the Act for the above assessment years, the petitioner filed returns of income. Retraction from the statements was also made at the time of filing of IT returns and the petitioner did not offer the additional income aggregating to Rs.47,31,17,971/- in the returns filed pursuant to the notice under Section 153A of the Act. It was because of this omission to include the above income in returns filed pursuant to the notice issued under Section 153A of the Act, the Settlement Application filed by the petitioner was not allowed to be proceeded with and was treated as invalid under Section 245D (2C) of the Act. According to the Settlement Commission’s observations, the application filed did not constitute true and full disclosure and was rejected. In the application filed before the Settlement Commission, the petitioner admitted income from real estate business aggregating to Rs.12,95,00,000/-. The break up of the same is as follows: The additional income declared before the Settlement Commission was not included in the returns of income filed earlier. This income from real estate business was declared in the application filed before the Settlement Commission. The petitioner was acting as a mediator between the purchaser and the seller in respect of the properties, which had potential. Wherever it is feasible, the petitioner was giving token advance to the vendor with a commitment to pay the balance amount within a certain period of time. In such transactions, the petitioner was being able to find a buyer within the said period of time and the land used to be registered by the vendor directly in favour of the buyer as the nominee of the petitioner. The extra price recovered from the buyer over and above the contracted amount was the profit margin of the petitioner. And, the same was declared by the petitioner in the application filed before the Settlement Commission. The application was scrutinized by the Settlement Commission. All the facts were declared by the petitioner and were gone through and an initial order was passed by the Commission holding that on the basis of the material placed before the Commission, there is prima facie no material, which warrants the conclusion that true and full disclosure has not been made by the applicant nor he has not disclosed the manner of earning such income and that all requirements laid under Section 245C(1) have been fulfilled by the applicant and, therefore, the application is fit to be allowed to be proceeded with further. The Settlement Commission called for report from the 2[nd] respondent on 27.11.2018, as required under the Statute. In response, the 2[nd] respondent submitted a report, dated 24.12.2018, under Section 245D(2B) of the Act objecting to the Settlement Application being proceeded with by the Commission. The report was forwarded and was received on 28.12.2018 by the Chartered Accountant of the petitioner. Even within the short time of four days given, the petitioner filed a reply on 04.01.2019 responding to the points raised by the 2[nd]respondent. The Settlement Commission brushed aside the explanation given in a summary manner. The entire reasoning was given in two short paragraphs. The reasoning adopted was based on wrong facts and assumptions, which are not true, and improper appreciation of submissions of the applicant. The reasons adopted are with biased feeling that the petitioner has not made full and true disclosure of income. The Commission observed as follows: - ‘In the application filed before ITSC, as against unaccounted income disclosed before the investigation wing at Rs.47,31,17,971/-, the applicant has disclosed Rs.12,95,00,000/-. A perusal of the applicant’s submissions would show that the retraction is mainly based on the ground that the earlier declaration was not based on any material evidence if it were to be sustained.’ To the above observation of the commission, the submissions of the applicant are as follows: ‘In the returns of income, the petitioner has not included the sum of Rs. 47,31,17,971/- and retracted from the said declaration made under Section 132(4) of the Act as no such income was actually earned by the petitioner. The said sum is not reflected in the form of any investment, asset, cash or in any other form. If any such income was really earned, it would have manifested itself in the form of some asset or the other, in the intense search that was conducted on the petitioner for almost four days. Repeated statements were recorded only because no evidence was found. Questions were put by search party and even answers were dictated by them. The petitioner merely signed on the dotted line being helpless and being under immense pressure and mental stress. Apart from the statements of the petitioner, which were retracted, the statements from two employees viz., Ramaswamy Ramasankar and Subbaraju Jagan were also recorded. On 30.08.2016, Ramaswamy Ramasankar has not admitted any cash receipt from the dealers. He was again called and his second statement was recorded on 17.09.2016. In his said statement, it was recorded as if he confirmed cash receipt from the distributor/dealer. Admission was obtained by instilling fear, duress and coercion. There was no receipt of any cash from any distributor/dealer. No statements obtained from the distributors in proof of cash payments were made available to the petitioner. Settlement Commission started on the basic premise that any disclosure under Section 132(4) of the Act should be taken as a gospel truth and cannot be departed from. Where an assessee retracts the declaration under Section 132(4) of the Act, the said statement becomes non est and the correctness of the assessment of the undisclosed income will have to be substantiated by other evidence. Retraction of declaration of income in the statement recorded under Section 132(4) of the Act at any point of time destroys the evidentiary value of any such disclosure. Additional income of Rs.12,95,00,000/- disclosed before the Settlement Commission is the income from real estate business and has nothing to do with the alleged undisclosed income of Rs.47,31,17,971/-. The Settlement Commission erroneously assumed that while the income declared under Section 132(4) of the Act before the investigating officer was at Rs.47,31,17,971/- and that it was reduced to Rs.12,95,00,000/- before the Settlement Commission, though both are independent. Reference was made to an earlier search conducted on 15.10.2009 wherein cash of Rs.11,62,00,000/- was found and which was admitted as the income of the petitioner. The said earlier instance has nothing to do with the present search proceedings. The said income really did not belong to the petitioner. It belonged to several other persons. The earlier search has nothing to do with the present search. The cash was assessed as income of the petitioner because it was found in the premises of the petitioner and he could not explain at that time the factual position due to certain compelling factors. The same cannot be taken against the petitioner to infer that the petitioner received cash though as a fact no unaccounted cash was found in the present search. The Commission’s assumption that once a tax defaulter is always a tax defaulter is not a correct manner of appreciating the factual position.’ The Settlement Commission’s next observation is as follows: - ‘It is seen that several statements were recorded from Shri Arunachalam Manickavel (petitioner), who manages the business, on 02.09.2016, 07.09.2016, 30.09.2016 and 20.10.2016 even two months after the search which cannot be statements in a perturbed state of mind.’ To the above objection of the Commission, the submissions of the petitioner are as follows: - ‘Search went on for four full days and day to day statements (6) were recorded from 30.08.2016 to 02.09.2016. Thereafter, further statements were recorded in short intervals. In all 15 statements of the petitioner were recorded. The petitioner retracted from the disclosure given under Section 132(4) of the Act and has not offered the same to tax in returns of income filed. The petitioner’s education is marginal. He can hardly read, write or understand English. The mental trauma to which the petitioner was subjected is inexplicable. He lost his faculty of reasoning and simply nodded to whatever the investigating officer stated. The Settlement Commission was completely in error in assuming that the petitioner was not in any perturbed state of mind. The observation of the Commission is erroneous, imaginary and borders on absurdity.’ The further observation of the Commission is as follows: ‘Moreover, the declaration u/s.132(4) was based on valid documents seized like in Annexure A/BCCP4/01, Annexure BSW/1, both showing cash receipts.’ The objections of the applicant are as follows: - ‘The observation is based on incorrect factual position. The material numbered as A/BCCPL/01 (wrongly shown as A/BCCP4/01 by search party) comprises of 35 pages containing the details of expenditure aggregating Rs.49,16,642/- incurred by the company. The expenditure relates to Hamali payments, loading and unloading payments, pooja expenses, machinery and spare parts expenses etc., which are allowable expenditure in computing the income of the company. There is nothing wrong in incurring such legitimate expenditure. The expenditure is not supported by bills or vouchers and, therefore, the company agreed to offer it as income. It is incomprehensible as to the manner in which the Settlement Commission referred to this register as material in proof of declaration made by the petitioner under Section 132(4) of the Act. This is a complete error on the part of the Settlement Commission. The said material has no relevance at all to the declaration made by the petitioner relating to undisclosed income. No question was addressed in respect of this item in the statements recorded. This register is no way proof of cash receipts from distributors. Reference is again made to another annexure BSW/1 of 40 pages. The salesmen employed by the petitioner were deputed to various areas for effecting sales. Based on the orders booked, they were given points and at the end of the year based on the number of points earned by them, small gold coins and silver coins were given to them as incentives. The pages in the register merely contain the points earned by the employees. There is no nexus between this material and the declaration made by the petitioner under Section 132(4) of the Act. The gold coins and silver coins were also seized by the search party during the course of search. Even the Principal Commissioner of Income Tax who gave his report, is not certain of the contents of this annexure.’ The next observation of the Settlement Commission is this: - ‘BSW/5 is also a corroborative evidence in the nature of confirmation by dealers.’ To the above observation, the submissions of the petitioner are as under: ‘The said material BSW/5 is not a part of the declaration made under Section 132(4) of the Act. It was never addressed in the statement taken under the said provision of law. The petitioner employed number of distributors to whom sales are made. The company has also distributors and some of the distributors are common between the petitioner and the company. One distributor, by name, Gampa Ramesh, is such a common distributor. During the period 01.04.2014 to 31.07.2014 the said Gampa Ramesh effected the following sales: (a) Sale of the petitioner’s products: Rs.77,32,337/-; (b) sales of company products: Rs.70,07,537/-. The said Ramesh was delaying in making payments. The petitioner insisted for payment of the amounts due toward sale proceeds of materials sold to him. Ramesh sent a sum of about Rs.78.00 lakhs in cash which was reported as stolen in transit. The amount was sent by Ramesh through his sub distributor. FIR was registered in Guntur about the theft of money by the said Ramesh. Copy of the said report is sent to the petitioner explaining as to what happened. The amount was subsequently paid to the petitioner by cheque/RTGS. This transaction has nothing to do with this declaration under the provisions of the Act. It is an admitted position that sale proceeds of sales effected are all included in the books of accounts. They are all accounted sales. Hence, the material has no relevance. The description by the Settlement Commission that BSW/5 is confirmation by the dealer of payment in cash is absolutely not correct. There is no nexus between the material found and the conclusion drawn. The said G.Ramesh was not examined. Except guess work there is no proof available to substantiate that the amount represents the cash receipt outside the books of accounts.’ The next objection of the Settlement Commission is that the petitioner had also confirmed unaccounted profits @ 8% and later @ 9% of the sales. The submission of the petitioner is as under: ‘The declaration under section 132(4) of the Act was obtained when the petitioner was under duress and mental stress. The same was retracted in the return of income filed. There were no unaccounted profits as alleged and as observed by the Settlement Commission. This was explained to the assessing officer in reply to the show cause notice.’ The next objection of the commission is this: - ‘Various evidences of investments were also found. Huge cash seizure were also made further corroborating the generation of cash as above on account of under invoicing of sales and purchase manipulations.’ The submissions of the petitioner are as follows: - ‘The allegation of under invoicing of sales and purchase manipulations is denied. The evidence of investment is recorded and forms part of the books of accounts. Petitioner started construction of a house called Arunachalam palace in the financial year 2012-2013. For the said purpose, the petitioner borrowed Rs.5.60 Crores from the Indian Overseas Bank, Guntur. The loan was utilized for construction. There is no such disclosure of any unaccounted income in relation to this item in the declaration. Likewise, petitioner constructed a Kalyana Mandapam in Tuticorin. Petitioner borrowed Rs.4.00 Crores from the said Bank. A further sum of Rs.2.00 Crores was spent out of tax paid profits which are recorded in the books of accounts. This was explained in the statement recorded. There are no unaccounted investments. All investments made are recorded in the books of accounts and have been explained. The Settlement Commissioner either ignored or misunderstood facts. It was alleged that huge cash was seized. The petitioner’s books of accounts contain a balance of Rs.1,52,05,400/- on the date of search. The entire cash is official and is explained. A sum of Rs.4.00 lakhs was available on the date of search. It belonged to the company as per books of accounts of the company. The cash balance of Rs.1,56,05,400/- which is available as per books of accounts of the petitioner and the company has been seized. This does not lead to any inference that there is any declaration under the Act. The next objection of the Settlement Commission is this: ‘The applicant has also now stated that in the proprietary concern, the manner of earning income is through real estate business. The unaccounted income generated is brought out through painstaking investigation at the time of search and more over the claims now made is not supported by any evidences or details. Hence the manner of earning unaccounted income as claimed by the applicant stand disproved.’ The reply of the petitioner is this: ‘The petitioner is a partner in a firm called M/s.Bharat Business Promoters. The main business of the partnership was real estate and identical to the business carried on by the petitioner. The partnership firm filed its return of income on 06.02.2014 for the assessment year 2013-14 and on 14.01.2015 for the assessment year 2014- 15. The petitioner carried on business as partner. He has abundant experience in real estate business. He declared income from real estate business for the assessment years 2011-12, 2014-15 to 2017-18 @ 12.95 Crores. The petitioner explained in the settlement application the manner in which such income has been derived viz., real estate. The requirements of Section 245(c) for settlement of cases is as under. a) the application to be made in such form and in such manner as may be prescribed. b) the application should contain full and true disclosure of income which has not been disclosed before the Assessing Officer c) the manner in which such income has been derived; d) the additional amount of income tax payable on such income and such other particulars as may be prescribed to be stated in the application filed before the Settlement Commission. The objection of the Settlement Commission is that the petitioner has not explained the manner in which the income was earned through real estate business. The Section merely requires only the manner in which income is earned should be specified. It is nowhere stated that it must be backed up by evidence or details such as who paid, how much paid, names & addresses of the parties etcetera. It is adequate if the manner is indicated. Even the application prescribed in form no.34B does not require any proof of these c) the manner in which such income has been derived; d) the additional amount of income tax payable on such income and such other particulars as may be prescribed to be stated in the application filed before the Settlement Commission. The objection of the Settlement Commission is that the petitioner has not explained the manner in which the income was earned through real estate business. The Section merely requires only the manner in which income is earned should be specified. It is nowhere stated that it must be backed up by evidence or details such as who paid, how much paid, names & addresses of the parties etcetera. It is adequate if the manner is indicated. Even the application prescribed in form no.34B does not require any proof of these details. There is no evidence with the Settlement Commission to the contrary. No reason is shown that the manner of earning the income by way of real estate business stated by the petitioner is erroneous. The objection taken is contrary to the requirements of Section 245(c)(1) of the Act. While passing the initial order under Section 245(D)(1) of the Act all the facts & circumstances were examined and were found to have been fulfilled. Thus, the reasons namely there is no nexus between the material cited and the decision taken by the Settlement Commission; wrong facts are assumed; the reasoning adopted was based on wrong facts; there are no grave procedural defects and there is violation of natural justice as the time given is very short; mere no acceptance of claim is assumed to be synonymous with the application for settlement being bad for failure to make full and true disclosure of income; and the test applied for arriving at true and full disclosure is contrary to the provisions of statute, for rejection of the settlement application are untenable. If the statement is retracted, the assessing officer has to establish his own case independently. There must be corroborating documentary evidence and the statement recorded under section 132(4) of the Act alone should not be the basis for arriving at any adverse decision against the assessee. There must be something more than bare suspicion to support the assessment or addition and the assessing officer cannot proceed on presumptions under Section 134(2) of the Act. The undisclosed income of an assessee has to be computed on the basis of evidence and material found during search. The statement recorded under Section 132(4) of the Act may also be used for making the assessment but only to the extent it is relatable to the incriminating evidence or material unearthed or found during search. There must be nexus between the statement recorded and the evidence or material found during search in order to make the statement a basis for the assessment. It is always open to the person who made the admission to show that the admission is not correct. The statements made under Section 132(4) of the Act cannot be taken as conclusive. If it is retracted, it cannot be considered at all for making the assessment. The CBDT instructions are binding on the authorities. Some such instructions are dated 10.03.2003 and 18.12.2014. As per the decision of the Delhi High Court in CIT v. Godwin Steels P.Ltd (Delhi) [353 ITR page 353] which was rendered referring to the entire legal position and also the decision of the Supreme Court in State of UP v. zjojri Mal [(2004) 4 SCC 714, the following legal position is discernible: 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 MANU/SC/0396/2004 : (2004) 4 SCC 714. The following observations sum up the entire legal position:- 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 MANU/SC/0396/2004 : (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 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. Having regard to the fact that there was a difference of more than Rs. 25 lacs, even for the period of four months for which data was available, between the figure of net profit shown by the computer data and the figure of net profit shown in the books of accounts meant for production before the income tax authorities, it was expected of the ITSC to independently apply their mind to the assessee's explanation, whatever that was, and to the materials found and relied upon by the CIT in his report and cross verify both in an attempt to find out whether the explanation was plausible or acceptable. This important step in the decision-making process has been omitted to be done. Our jurisdiction is only to examine if the decision-making process has suffered from some fundamental errors. The judgment of the Division Bench of the Karnataka High Court in N. Krishan & Ors. vs. Settlement Commission & Ors MANU/KA/0065/1989 : (1989) 180 ITR 585, cited by the learned counsel for the respondent actually supports our decision. In para 21 of the judgment, Rama Jois, J, speaking for the court held:- In our opinion, many of the grounds on which arbitration awards could be set aside would not be available in view of the nature and jurisdiction of the Settlement Commission. We are of the view that a decision of the Settlement Commission could be interfered with only: (i) if grave procedural defects such as violation of the mandatory procedural requirements of the provisions in Chapter XIX-A and/or violation of the rules of natural justice is made out; (ii) if it is found that there is no nexus between the reasons given and the decision taken by the Settlement Commission. (iii) this court cannot interfere either with an error of fact or error of law alleged to have been committed by the Settlement Commission. In our opinion, many of the grounds on which arbitration awards could be set aside would not be available in view of the nature and jurisdiction of the Settlement Commission. We are of the view that a decision of the Settlement Commission could be interfered with only: (i) if grave procedural defects such as violation of the mandatory procedural requirements of the provisions in Chapter XIX-A and/or violation of the rules of natural justice is made out; (ii) if it is found that there is no nexus between the reasons given and the decision taken by the Settlement Commission. (iii) this court cannot interfere either with an error of fact or error of law alleged to have been committed by the Settlement Commission. Non acceptance of the claim would not ipso facto lead to making the application for settlement bad for failure to make full and true disclosure of income. As per the decision of the Bombay High Court in Shreem Engineering Industries v. ITSC reported in (2018) 95 taxmann.com 190 to establish that there was failure to make full and true disclosure of income as required under 254 C(1) of the Act it would be necessary for the Revenue to prove that there was a non disclosure of primary facts and not merely non acceptance of certain claims made before the commission. Mere non-acceptance of the claim made by the petitioner is treated as failure to make full and true disclosure of income, erroneously; and, hence the impugned order deserves to be set aside. The findings of the Settlement Commission are irrational and arbitrary. The Settlement Commission should have independently applied its mind to the explanation furnished to it but it failed to do so. The objections of the Principal Commissioner of income tax were simply taken as final and sacrosanct. There is no nexus between the material cited, reasons given and the decision taken by the Settlement Commission. Adverse decision is taken based on facts non existent or facts assumed. The Settlement Application is rejected by the first respondent on the basis of objections given by the 2[nd]respondent on the grounds irrational, unreasonable and unsupportable in law. Hence, the present writ petition is filed. The case of the respondents as stated in the counter affidavit filed by Deputy Commissioner of Income Tax, in brief, is this: The averments in the writ affidavit pertain to search conducted by the investigation wing of the department, which were concluded long back. The petitioner never challenged the proceedings of the department in conducting the search. The same have become final. The allegations made against the department are incorrect. The search record shows that the assessee voluntarily admitted the additional income, which was not disclosed to the department earlier. The assessee has admitted several times vide statements dated 2.9.16, 7.9.16, 30.9.2016 and 21.10.2016 that he is ‘under invoicing’ the sales bills to the extent of 8% to 9% of the total sale invoice and the differential amount was received by cash. The assessee has never stated that there was coercion even before the Settlement Commission. If there was coercion on the day of search, the same should have been brought to light properly. The assessee has disclosed undisclosed income of Rs.12.95 Crores before the Commission and paid taxes of Rs.6.94 Crores on the said undisclosed income. A survey under Section 133A of the Act was conducted at the business premises of M/s.Mahaveer Surfactants Pvt.Ltd., Pondicherry on 30.08.2016. There, the department impounded a diary. It reflects the transactions totaling Rs.9,46,26,216/- relating to unaccounted cash sales of Acid slurry made to the petitioner’s group by the above said company. When asked as to whether sales made by the said company were reflected in the said company’s profit & loss account, the Director of the said company has stated in his statement recorded during survey as follows: - ‘Yes, however, since the Bharati Group wanted it outside the books, the bills are generated against some other name sake parties and booked as cash sales in our books. I would like to add that since all our purchases are booked, we have to mandatorily show the corresponding sales output.’ The petitioner, on 01.09.2016, was shown the contents of the diary and the above statement. The petitioner has not asked for verification of the statement or impounded diary. The petitioner accepted the unrecorded cash purchases and admitted additional income of Rs.9,46,26,216/- on that account. The assessee even filed an affidavit affirming the admission of additional income on 19.10.2016 after lapse of 47 days from the day on which the search concluded. The filing of the affidavit much later to the conclusion of the search shows that the admission of additional income was voluntary and was without any coercion. The petitioner has stated before this Court for the first time that there is coercion. The said allegation was never made before the investigating wing, additional commissioner, assessing officer and even before Principal Commissioner. The petitioner was all along mentioning that taxes would be paid in instalments. The petitioner disputed the undisclosed income of Rs.47,31,17,971/- admitted during the course of search by stating that (I) admission is not represented by an asset, cash, investment; and (ii) no incriminating material was found to support the admission. The averment of the assessee is not correct. Cash of Rs.66,07,000/- (seized Rs.65,00,000/-) was seized in the residential premises of the petitioner and Rs.89,12,090/- (seized Rs.87,05,400/-) was seized in the premises of M/s.Bharati soap works a proprietary concern of the petitioner. Unaccounted jewelry worth Rs.1,56,74,578/- was found during search. Certain documents containing details of investment of Rs.5.20 crores in M/s.Gowtham Buddha Textile Park Pvt Ltd and unsecured loan of Rs.1.00 Crore advanced by the petitioner to M. Chinnathorai were found. The petitioner while answering question no.8 of his deposition on 22.10.2016 has stated about the above investments and a part of investment in construction of a residential building ‘Arunachalam palace’ at Guntur and Kalyanamandapam at Tuticorin and also the cash found during the course of search were out of the unaccounted money generated on account of the cash received by under invoicing at 9% of turnover from distributors. The petitioner admitted several times by his statements that he is under invoicing the sales bills to the extent of 8% to 9% of the total sale invoice and the differential amount was received by cash. These amounts by way of cash were received by the petty cashier – Subbaiah Jagan and subsequently the same were handed over to the head cashier Ramaswamy Ramshanker along with the details from whom the cash was received. These facts were confirmed by the said Subbaiah Jagan and Ramaswamy Shanker vide statements, dated 17.09.2016. In their statements they stated that the cash was received from the dealers and that at the end of the day the head cashier used to hand over the cash to his boss – the petitioner along with the details of dealers from whom such cash is received. Subsequent to the statement, the department conducted enquiries with dealers of the petitioner on random basis. Moreover during the course of search a note book was found and seized on 31.8.2016 vide annexure BSW/1 which contains date wise written transactions of cash receipts from 8.6.2016 to 28.08.2016 with the names of towns/persons. Further, some loose sheets were found and seized as annexure A/BCCPL/01 from the factory premises of the petitioner which contained hand written details of cash receipts from 03.08.2016 to 26.08.2016. The assessee failed to explain the nature of the contents of such material found at the time of search and voluntarily admitted the unaccounted income. Moreover, an amount of Rs.58.50 lacs was paid by the petitioner to M/s.JK Ads by way of cash to promote his son as film hero in the film ‘Player’ and the same is unexplained expenditure and part of application of undisclosed income earned by the petitioner. The petitioner furnished details of income of Rs.12,95,00,000/- admitted from real estate business in the application filed before the Settlement Commission. The manner of earning the income as explained from real estate business is vague and without any supporting evidence. The assessee has not furnished the details of persons from whom the money pertaining to real estate business was received and the details of the immovable properties that were purchased and sold and as to when and from whom the amounts were received. The mode of receipt of the said money whether by way of cash and evidence of the same was not admitted by the assessee anywhere before the Settlement Commission. The submission of the assessee that he has admitted the income from real estate business in previous search was not established. Though assessee admitted Rs.80.00 lakhs, Rs.80.00 lakhs and Rs.40.00 lakhs for three years in return of income filed in response to the notice under Section 153A for the assessments years 2008-09, 2009-10 and 2010-11 as part of his statement, later the same has been retracted. This itself shows that the assessee is not doing any real estate business. Inspite of number of opportunities given, the assessee could not furnish the source of income derived from real estate business. The assessing officer proceeded to assess the above amounts as unexplained business income after giving detailed reasoning in the assessment order. Though the assessee has filed an appeal before the Commissioner of Income Tax (Appeals) against the assessment order, he has not contested the assessing officer’s stand that there was no real estate business. The contention of the petitioner that he has been earning income from real estate business is incorrect. There was no income from real estate business even during previous search proceedings. The sole business of the assessee is manufacture and sale of soap and detergent since last several years, which is evident from the returns of income filed. The assessee claims some real estate income was earned only to camouflage the unaccounted business income relating to soaps. The assessee is admitting real estate income only to cover up the unaccounted assets/expenditure found by the department during the search proceedings. Instead of admitting the same as income from the soap business, the same is being camouflaged as the income from real estate business only to evade not only income tax but also sales tax/GST. On examination of the material placed before the Settlement Commission, it held that the application is fit to be allowed to be proceeded with. The said order was passed at admission stage and is not a final order. The Settlement Commission has invalidated the application filed by the assessee, since it does not constitute a full and true disclosure of income nor has revealed a true and correct picture of the manner in which unaccounted income was earned, which are the p