Wp/65/2015 Of The Commissioner Of Income Tax,Central -Ii v. Income Tax Settlement Commission And Anr

IN THE HIGH COURT OF JUDICATURE AT BOMBAYDigitallysigned byPURTIORDINARY ORIGINAL CIVIL JURISDICTIONPURTIPRASADPRASADPARABPARABDate:2024.04.1614:18:51+0530WRIT PETITION NO. 65 OF 2015 WRIT PETITION NO. 65 OF 2015 The Commissioner of Income Tax,Central – IIhaving his office at R. No. 415, Aayakar Bhavan, M.K. Road,Mumbai – 400 020.….Petitioner V/s.1. Income Tax Settlement CommissionAdditional Bench, S.K. Rathod Marg,Mahalaxmi Chambers, Mumbai – 400 034. 2. M/s. Kanakia Spaces Pvt. Ltd.10[th] Floor, 215, Atrium, CTS No. 215,Andheri Kurla Road, Andheri (E),Mumbai – 400 059. …Respondents ---- Mr. Suresh Kumar for Petitioner. Mr. J.D. Mistri, Senior Advocate a/w Mr. Nitesh Joshi i/b Mr. Atul K. Jasani for Respondent No.2. ---- CORAM : K.R. SHRIRAM & DR. NEELA GOKHALE, JJ. DATED : 4[th] APRIL 2024 ORAL JUDGMENT : (PER : K.R. SHRIRAM, J.) 1.Petitioner, who is the Commissioner of Income Tax, Central – II,Mumbai, is impugning an order dated 31[st] July 2013 passed by RespondentNo.1 - the Income Tax Settlement Commission (ITSC) under Section245D(4) of the Income Tax Act, 1961 (the Act). Petitioner has jurisdictionover Respondent No.2 who is the assessee. Rule was granted on 27[th] February 2015. 2.Assessee is engaged in the business of development and sale ofresidential and commercial properties in the Western Suburbs of Mumbai.Assessee was subjected to search and seizure action on 29[th] March 2011under Section 132 of the Act. During the course of search and seizureaction, cash of Rs.45 Lakhs was seized. Besides, cash, various papers, booksof accounts and other documents were also found and seized. Scrutiny ofthe documents allegedly revealed that assessee along with other groupentities has shown purchase in its books of account from certain entitieswithout receipt of any material from any such party and these entities hadonly issued accommodation bills without supplying any materials. This wasthe allegation of Revenue. The documents revealed total of such purchasesto be Rs.11,95,41,448/- for the Financial Years 2006-07 to 2010-11. Thesearch also revealed that cash amounting to Rs.21,31,812/- on sale of scrapwas also not recorded in the books of account. As a result, a Director ofassessee, in the statement recorded under Section 132(4) of the Act duringthe search proceedings, offered to tax additional income ofRs.12,16,83,252/- (Rs.1,19,55,140/- + Rs.21,31,812/-). 3.To put an end to all issues, assessee had filed an applicationunder Section 245C of the Act before the ITSC for settlement of its case forAssessment Years (A.Y.) 2005-06 to 2011-12. 4.By an order dated 12[th] October 2012 passed under Section 245D(1) of the Act, the ITSC allowed the settlement application of assesseeto be proceeded with. Revenue submitted a report dated 23[rd] November2012 under Section 245D(2B) of the Act. Various grounds were taken bythe Revenue to oppose the settlement application. The ITSC by an orderdated 26[th] November 2012 passed under Section 245D(2C) of the Act,admittedly after considering the submissions of both sides, held that theapplication is not invalid and allowed it to be proceeded with further. TheITSC thereafter gave directions to the Revenue to furnish report under Rule9 of the Income Tax Settlement Commission (Procedures) Rules 1997 (theRule). Revenue accordingly submitted a report dated 20[th] December 2012.Further report was called for by the ITSC and in response thereto Revenuesubmitted another report dated 1[st] July 2013. After hearing parties on 24[th]July 2013, the ITSC passed an order dated 31[st] July 2013 under Section245D(4) of the Act which is impugned in this petition. The ITSC allowedassessee’s settlement application and also granted immunity from penaltyand prosecution. 5.Admittedly, in the statement recorded of assessee’s Directorunder Section 132(4) of the Act, assessee offered additional income ofRs.12,16,83,252/- which included Rs.11,95,51,448/- on account of allegedbogus purchases. The ITSC, in the impugned order, allowed capitalizationto the extent of Rs.8,33,53,000/- and consequently held depreciation maybe allowed. The relevant portion of the impugned order with which Revenue has a problem, which is Paragraph No. 34, reads as under : 34. Capitalization : On account of total bogus purchases of Rs.11,95,51,440/- net cashreceived by the applicant was Rs.11,04,32,745/- after commission@ 3.25%. The said amount has been applied for the followingpurposes : Capitalisation to the extent of Rs.8,33,53,000/- is being allowed.Depreciation may be allowed. 6.It is Revenue’s case in this petition that in the report dated 20[th] December 2012 furnished under Rule 9 of the Rule, Revenue had soughtdirection from the ITSC to direct Revenue to make or cause to make furtherenquiry or investigation under Section 245D(3) of the Act. It was Revenue’scase that seized material does not indicate what figures written therepertain to though, on perusal, the figures appeared to be flow of money.Revenue also submitted, in the alternative, that investigation be permittedto also ascertain within which assessment year the materials mentioned inthe seized documents were purchased. 7.On the claim of deduction made by assessee under Section80IB(10) of the Act it was Revenue’s case that a sum of Rs.2,07,51,048/-should be treated as income from other sources. 8.Though these submissions were made before the ITSC, the onlygrounds on which the impugned order of the ITSC is challenged are asunder : (a)Adjustment under Section 80IB(10) of the Act : According to Revenue the ITSC should have directed theCommissioner under Section 245D(3) of the Act to examine the claim bymaking further enquiry. By not so directing, prima facie, errors have creptinto the order. According to Revenue, the error is, for A.Y. 2009-10 thededuction claimed by assessee and accepted by the ITSC is Rs.87,60,556/-whereas the amount disclosed on account of bogus purchases for A.Y. 2009-10 as per the settlement application is Rs.66,92,869/-. Thus the claim ofdeduction was more than the amount surrendered on this account and theimpugned order does not explain the difference. (b)Capitalization : The ITSC has erred in allowing capitalization of Rs.8,33,53,000/-.Assessee had submitted before the ITSC that these amounts generated out ofthe bogus cash purchases has been invested in renovation of its office andpurchase of air conditioners and furniture. The claim of capitalization andconsequent depreciation has been allowed on the basis of few entries of aseized document. The case of Revenue is that the ITSC has simply acceptedthe claim of assessee without directing enquiry or investigation and therewas virtually no evidence for allowing depreciation in the case at hand. Theacceptance of petitioner’s case that the amount of Rs.8,33,53,000/- was used for renovation, air conditioners and furniture was without anyevidence and hence perverse. 9.Mr. Suresh Kumar submitted as under : (a)As regards the deduction under Section 80IB(10) of the Act, inpage no. 4 of the impugned order the deduction claimed by assessee asaccepted by the ITSC for A.Y. 2009-10 is shown as Rs.87,60,556/- whereasthe break up of the amount of additional income disclosed in the applicationbefore the ITSC for A.Y 2009-10 is shown as Rs.66,92,869/-. Therefore,there was error in the impugned order. (b)The ITSC accepted the case of assessee that an amount ofRs.8,33,53,000/- generated by bogus cash purchases has been invested inrenovation of the office and purchase of air conditioners and furniturewithout directing an enquiry/investigation as to whether the amount was infact spent or invested in renovation of the office and purchase of airconditioners and furniture. (a)As regards the deduction under Section 80IB(10) of the Act, inpage no. 4 of the impugned order the deduction claimed by assessee asaccepted by the ITSC for A.Y. 2009-10 is shown as Rs.87,60,556/- whereasthe break up of the amount of additional income disclosed in the applicationbefore the ITSC for A.Y 2009-10 is shown as Rs.66,92,869/-. Therefore,there was error in the impugned order. (b)The ITSC accepted the case of assessee that an amount ofRs.8,33,53,000/- generated by bogus cash purchases has been invested inrenovation of the office and purchase of air conditioners and furniturewithout directing an enquiry/investigation as to whether the amount was infact spent or invested in renovation of the office and purchase of airconditioners and furniture. (c)The procedure followed by the ITSC is in the nature of apresumption and therefore the ITSC should have directed the Commissionerto investigate/enquire as to whether the expenditure as claimed by assesseewas correct. (d)The impugned order has given no reasons as to why it acceptedthe claim of assessee that an amount of Rs.8,33,53,000/- has been spent onrenovation and purchase of air conditioners and furniture. (e)The order was without reasons and hence, bad in law. (f)Therefore, the impugned order should be quashed and set aside and the matter be remanded to the Interim Board as now constituted. 10.Mr. Mistri submitted as under : (a)The deduction under Section 80IB(10) of the Act has beencorrectly allowed as the difference of Rs.20,67,687/- (Rs.87,60,556/- lessRs.66,92,869/-) represents adhoc disallowances made by the A.O. in theAssessment Orders for A.Y. 2005-06 to A.Y. 2008-09. The said disallowanceresulted in decrease of work in progress in respect of Vasundhara andSamarpan project for the respective years and correspondingly increase inincome for A.Y. 2009-10 as the income from the said projects standsreflected during the said year. The computation of income filed before theITSC for A.Y. 2009-10 reflects those figures. (b)In the impugned order dated 31[st] July 2013 the issue relating toadjustment to work in progress in view of disallowances has been made,discussed and correspondingly deduction under Section 80IB(10) of the Acthas been allowed. (c)On the claim of Revenue for capital expenditure incurred out ofcash generated from alleged bogus purchases and consequential grant ofdepreciation thereon, the said claim has been thoroughly scrutinized by theITSC on the issues raised by the Revenue before them and the report dated23[rd] November 2012 makes no reference to this claim. (d)Even in the report dated 20[th] December 2012 filed under Rule 9of the Rule, nexus between cash generated on account of bogus purchasesand use of such cash for incurring capital expenditure is not established.The submissions made by Mr. Suresh Kumar and raised in the petition gobeyond the case as made out before the ITSC. (e)The Hon’ble Apex Court in Jyotendrasinhji vs. S.I.Tripathi[1] hasdiscussed the scope of challenge to orders passed by the ITSC. According tothe Hon’ble Apex Court, after examining such further evidence as may beplaced before it or obtained by it, the ITSC may, “in accordance with theprovisions of this Act, pass such order as it thinks fit” or the matters coveredby the application and any other matter relating to the case not covered bythe application, but referred to in the report of the Commissioner under SubSection (1) or Sub Section (3) of Section 245C of the Act. (e)The Hon’ble Apex Court in Jyotendrasinhji vs. S.I.Tripathi[1] hasdiscussed the scope of challenge to orders passed by the ITSC. According tothe Hon’ble Apex Court, after examining such further evidence as may beplaced before it or obtained by it, the ITSC may, “in accordance with theprovisions of this Act, pass such order as it thinks fit” or the matters coveredby the application and any other matter relating to the case not covered bythe application, but referred to in the report of the Commissioner under SubSection (1) or Sub Section (3) of Section 245C of the Act. (f)Section 245-I declares that every order of ITSC passed underSub Section (4) of Section 245D of the Act shall be conclusive as to thematters stated therein and no matter covered by such order shall, save asotherwise provided in Chapter XIX-A, be reopened in any proceeding underthe Act or under any other law for the time being in force. Though thefinality clause contained in Section 245-I of the Act does not and cannot barthe jurisdiction of the High Court under Article 226 of the Constitution thatdoes not mean that in every case the court should interfere. The scopeof enquiry as held in Jyotendrasinhji (supra) is restricted to whether the order passed by the ITSC is contrary to any of the provisions of the Act andif so, apart from ground of bias, fraud and malice which, of course,constitute a separate and independent category, has it prejudiced theassessee. (g)The ITSC, as held in Jyotendrasinhji (supra), need not evengive reasons. The Hon’ble Apex Court held that even if the interpretationplaced by the ITSC on documents is not correct, it would not be a groundfor interference since a wrong interpretation of documents cannot be said tobe a violation of the provisions of the Act. In other words, the scope ofinterference is very very narrow. (h)Section 292C(1)(ii) provides for presumption as to assets,books of accounts etc. Under Section 292C(1)(ii) it is provided that whereany books of account, other documents, money, bullion, jewellery or othervaluable article or thing are or is found in the possession or control of anyperson in the course of a search under Section 132 of the Act it may, in anyproceeding under this Act, be presumed that the contents of such books ofaccount and other documents are true. There is similar provision underSection 132(4A) of the Act. A presumption is an inference of fact drawnfrom other known or proved facts. It is a rule of law under which courts areauthorized to draw a particular inference from a particular fact. TheSection says “may presume” which leaves it to the discretion of the Court tomake the presumption according to the circumstances of the case. In thiscase, the ITSC has presumed the contents of the documents seized to be true/correct. That cannot be held against the ITSC. The ITSC acceptedundisclosed income of assessee to the tune of Rs.11,95,51,448/- and thesame was brought to tax. The ITSC also accepted the expenditure revealedin the same books of accounts which have been incurred for the purposementioned therein. That was for the ITSC to exercise its discretion topresume that the contents of those documents were correct. The judgmentof the Hon’ble Apex Court in P. R. Metrani vs. Commissioner of Income Tax[2]which was followed in Commissioner of Income Tax vs. Indeo Airways (P)Ltd.[3] supports the case of assessee. true/correct. That cannot be held against the ITSC. The ITSC acceptedundisclosed income of assessee to the tune of Rs.11,95,51,448/- and thesame was brought to tax. The ITSC also accepted the expenditure revealedin the same books of accounts which have been incurred for the purposementioned therein. That was for the ITSC to exercise its discretion topresume that the contents of those documents were correct. The judgmentof the Hon’ble Apex Court in P. R. Metrani vs. Commissioner of Income Tax[2]which was followed in Commissioner of Income Tax vs. Indeo Airways (P)Ltd.[3] supports the case of assessee. (i)The ITSC, as held in N. Krishnan vs. Settlement CommissionAnd Others[4], is the forum for self surrender and seeking relief and not aforum for challenging the legality of assessment order or orders passed inany other proceedings. This is evident from the provisions of the Actbecause it even prevents the application made from being withdrawn. Thepower conferred on the settlement commission is so wide that it can takeany view on any questions of law, which it considers appropriate havingregard to the facts and circumstances of a case including giving immunityagainst prosecution or imposition of penalty. Therefore, the scope ofinterference against a decision of the Settlement Commission is very narrowand it is in the nature of statutory arbitration to which a person may submithimself voluntarily. The scope of interference is much more restricted thanthe power of the court to interfere with an arbitration award. 2 (2006) 157 Taxman 325 3 (2012) 26 taxmann.com 244 (Delhi) 4 (1989) 180 ITR 585 (j)The Hon’ble Apex Court in Brij Lal And Others vs.Commissioner of Income Tax[5] has held that there is a difference betweenassessment in law (regular assessment or assessment under Section 143(1)of the Act) and assessment by settlement under Chapter XIX-A. The orderunder Section 245D(4) is not an order of regular assessment. It is neitheran order under Section 143(1) or 143(3) or 144 of the Act. No steps offiling of return or enquiry by the A.O. under Section 142 and 143 of the Actor issuing a notice of demand under Section 156 of the Act on the basis theAssessment Order etc. are required to be followed in the case of proceedingsunder Chapter XIX-A. The nature of the orders under Sections 143(1),143(3) and 144 is different from the orders of the ITSC because ChapterXIX-A only contemplates the taxability determined with respect toundisclosed income only by the process of settlement/arbitration. 11.Findings : At the outset let us examine the scope of intervention by acourt, in its jurisdiction under Article 226 of the Constitution of India, withan order passed by the ITSC. It came up for consideration inJyotendrasinhji (supra). The Hon’ble Apex Court held that the High Courtunder Article 226 can interfere with an order of the ITSC only when theorder is contrary to provisions of the Act and that such contravention hasprejudiced assessee. Paragraph Nos. 14 and 15 of Jyotendrasinhji (supra)read as under : 5 (2010) 328 ITR 477 (SC) 11.Findings : At the outset let us examine the scope of intervention by acourt, in its jurisdiction under Article 226 of the Constitution of India, withan order passed by the ITSC. It came up for consideration inJyotendrasinhji (supra). The Hon’ble Apex Court held that the High Courtunder Article 226 can interfere with an order of the ITSC only when theorder is contrary to provisions of the Act and that such contravention hasprejudiced assessee. Paragraph Nos. 14 and 15 of Jyotendrasinhji (supra)read as under : 5 (2010) 328 ITR 477 (SC) 14.The first question we have to answer is the scope ofthese appeals preferred under Article 136 against the orders of theSettlement Commission. The question is whether all the questionsof fact and law as may have been decided by the Commission areopen to review in this appeal. For answering this question one hasto have regard to the scheme of Chapter XIX-A. The said chapterwas inserted by the Taxation Laws (Amendment) Act, 1975 witheffect from 1-4-1976. A somewhat similar provision was containedsub-sections (1A) to (1D) of Section 34 of the Income Tax Act,1922 introduced in the year 1954. The provisions of Chapter XIX-Aare, however, qualitatively different and more elaborate than thesaid provisions in the 1922 Act. The proceedings under this chaptercommence by an application made by the assessee as contemplatedby Section 245C. Section 245D prescribes the procedure to befollowed by the commission on receipt of an application underSection 245C. Sub-section (4) says: 'after examination of therecords and the report of the commissioner received under sub-section (1), and the report, if any, of the commissioner receivedunder sub-section (3), and after giving an opportunity to theapplicant and to the commissioner to be heard, either in person orthrough a representative duly authorised in this behalf, and afterexamining such further evidence as may be placed before it orobtained by it, the settlement commission may, in accordance withthe provisions of this Act, pass such order as it thinks fit on thematters covered by the application and any other matter relating tothe case not covered by the application, but referred to in thereport of the commissioner undersub-section (1) or sub-section(3)." Section 245E empowers the Commission to reopen thecompleted proceedings in appropriate cases, while Section 245Fconfers all the powers of an Income Tax authority upon theCommission. Section 245H empowers the Commission to grantimmunity from penalty and prosecution, with or withoutconditions, in cases where it is satisfied that the assessee has madea full disclosure of his income and its sources. Under Section245HA the Commission can send back, the matter to assessing.officer, where it finds that the applicant is not cooperating with it.Section 245-I declares that every order of settlement passed underSub Section (4) of Section 245D shall be conclusive as to thematters stated thereinand no matter covered by such order shall,save as otherwise provided in, Chapter XIX-A, be re- opened in anyproceeding under the Act or under any other law for the time beingin force. Section 245L declares that any proceedings under chapterXIX-A before the settlement commission shall be deemed to be ajudicial proceeding within the meaning of Section 193 and 228 andfor the purposes of Section 196 of the Indian Penal Code. 15.It is true that the finality clause contained in Section245I does not and cannot bar the jurisdiction of the High Courtunder Article 226or the jurisdiction of this court under Article 32or under Article 136, as the case may be. But that does not meanthat the jurisdiction of this Court in the appeal preferred directly inthis court is any different than what it would be if the assessee hadfirst approached the High Court under Article 226 and then comeup in appeal to this court under Article 136. A party does not and 15.It is true that the finality clause contained in Section245I does not and cannot bar the jurisdiction of the High Courtunder Article 226or the jurisdiction of this court under Article 32or under Article 136, as the case may be. But that does not meanthat the jurisdiction of this Court in the appeal preferred directly inthis court is any different than what it would be if the assessee hadfirst approached the High Court under Article 226 and then comeup in appeal to this court under Article 136. A party does not and cannot gain any advantage by approaching this Court directlyunder Article 136, instead of approaching the High Court underArticle 226. This is not a limitation inherent in Article 136; it is alimitation which this court imposes on itself having regard to thenature of the function performed by the Commission and keepingin view the principles of judicial review. May be, there is also someforce in what Dr. Gauri Shankar says viz., that the order ofcommission is in the nature of a package deal and that it may notbe possible, ordinarily speaking, to dissect its order and that theassessee should not be permitted to accept what is favourable tohim and reject what is not. According to learned counsel, theCommission is not even required or obligated to pass a reasonedorder. Be that as it may, the fact remains that it is open to theCommission to accept an amount of tax by way of settlement andto prescribe the manner in which the said amount shall be paid. Itmay condone the defaults and lapses on the part of the assesseeand may waive interest, penalties or prosecution, where it thinksappropriate. Indeed, it would be difficult to predicate the reasonsand considerations which induce the commission to make aparticular order, unless of course the commission itself chooses to,give reasons for its order. Even if it gives reasons in a given case,the scope of enquiry in the appeal remains the same as indicatedabove viz., whether it is,contrary to any of the provisions of theAct.In this context, it is relevant to note that the principle ofnatural justice (and alteram partem) has been incorporated inSection 245D itself. The sole overall limitation upon theCommission, thus, appears, to be that it should act in accordancewith the provisions of the Act. The scope of enquiry, whether byHigh Court under Article 226 or by this Court under Article 136 isalso the same whether the order of the Commission is contrary toany of the provisions of the Act and if so, has it prejudiced thepetitioner/appellant apart from ground of bias, fraud & malicewhich, of course, constitute a separate and independent category.Reference in this behalf may be had to the decision of this Court inSri Ram Durga Prasad v. Settlement Commission 176 I.T.R. 169,which too was an appeal against the orders of the SettlementCommission. Sabyasachi Mukharji J., speaking for the Benchcomprising himself and S.R. Pandian, J. observed that in such acase this Court is "concerned with the legality of procedurefollowed and not with the validity of the order.' The learned Judgeadded 'judicial review is concerned not with the decision but withthe decision-making process."Reliance was placed upon thedecision of the House of Lords in Chief Constable of the N.W. Policev. Evans, [1982] 1 W.L.R.1155. Thus, the appellate power underArticle 136 was equated to power of judicial review, where theappeal is directed against the orders' of the SettlementCommission.For all the above reasons, we are of the opinion thatthe only ground upon which this Court can interfere in theseappeals is that order of the Commission is contrary to theprovisions of the Act and that such contravention has prejudicedthe appellant.The main controversy in these appeals relates to theinterpretation of the settlement deeds though it is true, somecontentions of law are also raised. The commission has interpretedthe trust deeds in a particular manner. Even if the interpretation placed by the commission the said deeds is not correct, it wouldnot be a ground for interference in these appeals, since a wronginterpretation of a deed of trust cannot be said to be a violation ofthe provisions of the Income Tax Act. It is equally clear that theinterpretation placed upon the said deeds by the Commission doesnot bind the authorities under the Act in proceedings relating toother assessment years. In view of the above, though it is notnecessary, strictly speaking, to go into the correctness of theinterpretation placed upon the said deeds by the commission, andit is enough if we confine ourselves to the question whether theorder of the Commission is contrary to the provisions of the Act,wepropose to, for the sake of completeness, examine also whether theorder of Commission is vitiated by any such wrong interpretation? (emphasis supplied) Therefore, the ITSC is empowered to pass, after hearing theapplicant and the Commissioner, and after examining such further evidenceas may be placed before it or obtained by it, such order as it thinks fit on thematters covered by the application and any other matter relating to the casenot covered by the application, but referred to in the report of theCommissioner under Sub Section (1) or (3) of Section 245C of the Act. TheITSC also has power to grant immunity from penalty and prosecution, withor without conditions. The ITSC need not give any reasons and even if itgives any reason the scope of enquiry cannot go beyond - whether, it iscontrary to any of the provisions of the Act and whether such contraventionhas prejudiced the appellant. Further the court should be concerned withthe legality of procedure followed and not with the validity of the order.The judicial review is concerned not with the decision but with the decisionmaking process. Further, even if the interpretation placed by the ITSCon documents is not correct, it would not be a ground for interference sincea wrong interpretation of documents cannot be said to be a violation of the provisions of the Act. There are no allegation of bias or fraud or malicealleged in the petition against the Commission. 12.The Hon’ble Apex Court in Kotak Mahindra Bank Ltd. vs.Commissioner of Income Tax & Anr.[6] held that the High Court cannot sit inappeal as to the sufficiency of the material and particulars placed before theCommission, based on which the Commission proceeded to pass its orders.The court also held, relying on Jyotendrasinhji (supra), that while exercisingpowers under Article 226 of the Constitution of India the High Court maynot interfere with an order of the Commission passed in exercise of itsdiscretionary powers and the scope for judicial review is very narrow. Thecourt held that sufficiency of the material and particulars placed before theCommission, based on which the Commission proceeded to pass its ordersare particularly beyond the scope of judicial review, except under thecircumstances set out in Jyotendrasinhji (supra). While discussing the legislative intent on the provisions ofChapter XIX-A, the Hon’ble Apex Court in Kotak Mahindra Bank Ltd. (supra)held that frequent interference with the orders or proceedings of the ITSCshould be avoided and the High Court should not scrutinize an order orproceeding of the ITSC as an appellate court. The court further held thatunsettling reasoned orders of the Settlement Commission may erode theconfidence of the bonafide assessees, thereby leading to multiplicity of 6 (2023) 7 NYPCTR 1353 (SC) litigation where settlement is possible and this larger picture has to be borne in mind. Paragraph Nos.9, 10, 12 and 13 of the judgment read as under : While discussing the legislative intent on the provisions ofChapter XIX-A, the Hon’ble Apex Court in Kotak Mahindra Bank Ltd. (supra)held that frequent interference with the orders or proceedings of the ITSCshould be avoided and the High Court should not scrutinize an order orproceeding of the ITSC as an appellate court. The court further held thatunsettling reasoned orders of the Settlement Commission may erode theconfidence of the bonafide assessees, thereby leading to multiplicity of 6 (2023) 7 NYPCTR 1353 (SC) litigation where settlement is possible and this larger picture has to be borne in mind. Paragraph Nos.9, 10, 12 and 13 of the judgment read as under : 9. In the present case, as noted above, we find that the appellantplaced material and particulars before the Commission as to themanner in which income pertaining to certain activities wasderived and has sought to offer such additional income to tax.-Based on such disclosures and on noting that the appellant cooperated with the Commission in the process of settlement, theCommission proceeded to grant immunity from prosecution andpenaltyas contemplated under Section 245H of the Act. The HighCourt ought not to have sat in appeal as to the sufficiency of thematerial and particulars placed before the Commission, based onwhich the Commission proceeded to grant immunityfromprosecution and penalty as contemplated under Section 245H ofthe Act. 10. We are fortified in our view by the judgment of this Court inJyotendrasinhji vs. S.I. Tripathi, 1993 Supp (3) SCC 389, whereinit was observed that a Court, while exercising powers underArticles 32, 226 or 136 of the Constitution of India, as the case maybe, may not interfere with an order of the Commission, passed inexercise of its discretionary powers, except on the ground that theorder contravenes provisions of the Act or has caused prejudice tothe opposite party. Interference may also be open on the groundsof fraud, bias or malice.Therefore, this Court has carved out a verynarrow scope for judicial review of the Commission’s orders, passedin the exercise of its discretionary powers. Hence, we hold thatsufficiency of the material and particulars placed before theCommission, based on which the Commission proceeded to grantimmunityfrom prosecution and penalty as contemplated underSection 245H of the Act, are beyond the scope of judicial review,except under the circumstances set out in Jyotendrasinhji vs. S.I.Tripathi (supra). xxxxxxxxxx 12. While we are mindful of the fact that the provisions of ChapterXIX-A of the Act are not to be employed so as to provide a shelterfor tax dodgers to obtain immunity from facing the consequencesof tax evasion by simply approaching the Settlement Commission,vide B.N. Bhattacharjee (supra), we are however of the view that inthe present case, the Commission rightly exercised its discretionunder Section 245H having regard to the bona fide conduct of theassessee of offering additional income for tax, apart from theincome disclosed in the return of income. 13. Before parting with the record, we may add that having regardto the legislative intent, frequent interference with the orders orproceedings of the Settlement Commission should be avoided. Wehave already indicated the limited grounds on which an order orproceeding of the Settlement Commission can be judiciallyreviewed. The High Court should not scrutinize an order orproceeding of a Settlement Commission as an appellate court. Unsettling reasoned orders of the Settlement Commission mayerode the confidence of the bonafide assessees, thereby leading tomultiplicity of litigation where settlement is possible. This largerpicture has to be borne in mind. (emphasis supplied) 13. Before parting with the record, we may add that having regardto the legislative intent, frequent interference with the orders orproceedings of the Settlement Commission should be avoided. Wehave already indicated the limited grounds on which an order orproceeding of the Settlement Commission can be judiciallyreviewed. The High Court should not scrutinize an order orproceeding of a Settlement Commission as an appellate court. Unsettling reasoned orders of the Settlement Commission mayerode the confidence of the bonafide assessees, thereby leading tomultiplicity of litigation where settlement is possible. This largerpicture has to be borne in mind. (emphasis supplied) 13.In N. Krishnan (supra) the Karnataka High Court held that theSettlement Commission is a forum for self surrender and seeking relief andnot a forum for challenging the legality of assessment order or orders passedin any other proceedings. The court further held that the power conferredon the Settlement Commission is so wide that it can take any view on anyquestions of law, which it considers appropriate, having regard to the factsand circumstances of the case, which would be applicable only to that caseand the Settlement Commission has power to give immunity againstprosecution or imposition of penalty. The court further held that theprovisions of settlement would show that it is in the nature of statutoryarbitration to which a person may submit himself voluntarily and thereforethe scope is much more restricted than the power of the court to interferewith an arbitration award. The relevant portion reads as under : xxxxxxxxxx With reference to the second question arising for ourconsideration, as we have pointed out earlier, the provision forconstitution of the Settlement Commission was not in existenceearlier. This legislative step was taken on the recommendation ofthe Wanchoo Committee. As observed by us earlier, the SettlementCommission was to be constituted for settling the complicatedclaims of chronic tax evaders as an extraordinary measure, forgiving an opportunity to such persons to make true confession andto have the matters settled once for all, and earn peace of mind. Itis a Forum for self surrender and seeking relief and not a Forum forchallenging the legality of assessment order or orders passed in anyother proceedings. This is not only evident from the provision ofthe Act which prevents the application made, from beingwithdrawn as also the provision which makes the decision of the Settlement Commission final and conclusive both on question oflaw and fact. The power conferred on the Settlement Commissionis so wide that it can take any view on any questions of law, whichit considers appropriate, having regard to the facts andcircumstances of a case, which would be applicable only to thatcase and it has also the power to give immunity againstprosecution or imposition of penalty.It is in this background weshould find out the answer to the second question, namely, thescope for interference against a decision of Settlement Commissionin a petition under Article 226 of the Constitution of India. Theprovision for settlement would show that it is in the nature orstatutory arbitration, to which a person may submit himselfvoluntarily. Therefore, it appears to us that the scope is much morerestricted than the power of the Court to interfere with anarbitration award.Regarding the jurisdiction of the Civil Court todeal with an arbitration award, the Supreme Court in the case ofCoimbatore District Podu Thozillar Samgam v. Bala SubramaniaFoundry, AIR 1987 SC 2045 has stated thus: “The Court was also entrusted with the power to modify orcorrect the award on the ground of imperfect form or clericalerrors, or decision on questions not referred, which were severablefrom those referred. The Court had also power to remit, the awardwhen it had left some matters referred undetermined or when theaward was indefinite, where the objection to the legality of theaward was apparent on the face of the award. The Court might alsoset aside the award on the ground of corruption or misconduct ofthe arbitrator, or that a party had been guilty of fraudulentconcealment or willful deception. But the Court could not interferewith the award if otherwise proper on the ground that the decisionappeared to it to be erroneous. The award of the arbitrator wasordinarily final and conclusive, unless a contrary intention wasdisclosed by the agreement. The award was the decision of adomestic Tribunal chosen by the parties, and the Civil Courts whichwere entrusted with the power to facilitate arbitration and toeffectuate the awards, could not exercise appellate powers over thedecision. Wrong or right the decision was binding, if it be reachedfairly after giving adequate opportunity to the parties to place theirgrievances in the manner provided by the arbitration agreement.This Court reiterated in the said decision that it was now firmlyestablished that an award was bad on the ground of error of law onthe face of it, when in the award itself or in a document actuallyincorporated in it, there was found some legal proposition whichwas the basis of the award and which was erroneous.” In our opinion, many of the grounds on which arbitration awardcould be set aside, would not be available in view of the nature andjurisdiction of the Settlement Commission. We are of the view thata decision of Settlement Commission could be interfered withonly: (i) if grave procedural defect such as violation of the mandatoryprocedural requirements of the provisions in the Chapter XIX-Aand/or violation of Rules of natural justice is made out; (ii) if it is found that there is no nexus between the reasonsgiven and the decision taken by the Settlement Commission. (iii) this Court cannot interfere either with an error of fact orerror of law, alleged to have been committed by the SettlementCommission. We answer the second question accordingly. As far as the present case is concerned, there is neither violationof any mandatory procedure prescribed under any of the Sections ofChapter XIXA of the Act nor any violation of any of the Rules ofnatural justice. Further, it cannot be said that the reasons assignedby the Settlement Commission for rejecting the relief sought for, bythe petitioner, have no nexus to the decision taken. xxxxxxxxxx (emphasis supplied) 14.In Brij Lal And Others (supra) the Hon’ble Apex Court held that Chapter XIX-A contemplates taxability determined with respect toundisclosed income only by the process of settlement/arbitration and thenature of orders under Sections 143(1), 143(3) and 144 of the Act relatingto process of assessment is different from the orders of the SettlementCommission under Section 245D(4) of the Act. Paragraph No.13 of the said judgment reads as under : 13.xxxxxxxxxx xxxxxxxxxx (emphasis supplied) 14.In Brij Lal And Others (supra) the Hon’ble Apex Court held that Chapter XIX-A contemplates taxability determined with respect toundisclosed income only by the process of settlement/arbitration and thenature of orders under Sections 143(1), 143(3) and 144 of the Act relatingto process of assessment is different from the orders of the SettlementCommission under Section 245D(4) of the Act. Paragraph No.13 of the said judgment reads as under : 13.xxxxxxxxxx Moreover, as stated above, under the Act, there is adifference between assessment in law (regular assessment orassessment under Section 143(1)) and assessment by settlementunder Chapter XIX-A. The order under Section 245D(4) is not anorder of regular assessment. It is neither an order under Section143(1) or 143(3) or 144. Under Sections 139 to 158, the processof assessment involves the filing of the return under Section 139 orunder Section 142; inquiry by the Assessing Officer under Sections142 and 143 and making of the order of assessment by theAssessing Officer under Section 143(3) or under Section 144 andissuing of notice of demand under Section 156 on the basis of theassessment order.The making of the order of assessment is anintegral part of the process of assessment. No such steps arerequired to be followed in the case of proceedings under ChapterXIX-A. The said Chapter contemplates the taxability determined with respect to undisclosed income only by the process ofsettlement/arbitration. Thus, the nature of the orders underSections 143(1), 143(3) and 144 is different from the orders of theSettlement Commission under Section 245D(4).xxxxxxxxxx (emphasis supplied) Therefore, Mr. Suresh Kumar’s submission that order of the ITSC is like an assessment order is not correct. 15.In Jyotendrasinhji (supra) reliance was placed in R.B Shreeram Durga Prasad & Fatechand Nursing Das vs. Settlement Commission[7] inwhich the Hon’ble Apex Court held that any challenge to the orders of theSettlement Commission, the court should be concerned with the legality ofthe procedure followed and not with the validity of the order. The judicialreview is concerned not with the decision but with the decision makingprocess. 16.The conspectus of the law therefore would be that the court couldnot interfere with the order if otherwise proper on the ground that thedecision appeared erroneous. Wrong or right decision was binding, if it bereached fairly after giving adequate opportunity to the parties to place theircase in the manner provided by the Act. The court should be concerned notwith the decision but the decision making process. If grave proceduraldefect such as violation of the mandatory procedural requirements of theprovisions of Chapter XIX-A and/or violation of rules of natural justice is made out or if it is found that there is no nexus between the reasons givenand the decision taken only then the court may interfere. The court mayalso interfere if the order of the Commission is contrary to any of theprovisions of the Act and that has prejudiced petitioner/appellant. Ofcourse ground of bias, fraud and malice constitute a separate andindependent category. The power conferred on the ITSC is so wide that itcan take any view on any questions of law, which it considers appropriate,having regard to the facts and circumstances of the case. High Court alsoought not to sit in appeal as to the sufficiency of the material and particularplaced before the Commission. 17.In view of the law as noted above, let us examine whether theorder of the ITSC is contrary to the provisions of the Act on the groundsraised by Revenue on two issues. 18.Claim of deduction under Section 80IB(10):- 17.In view of the law as noted above, let us examine whether theorder of the ITSC is contrary to the provisions of the Act on the groundsraised by Revenue on two issues. 18.Claim of deduction under Section 80IB(10):- It is Revenue’s case that the claim of deduction under Section80IB(10) of the Act was not examined as per Section 245D(3) of the Act.According to Revenue additional deduction for A.Y. 2009-10 on account ofbogus purchases ought to have been Rs.66,92,869/- while such additionaldeduction is allowed at Rs.87,60,556/-. In our view, the said deduction hasbeen correctly allowed as the difference of Rs.20,67,687/-, (Rs.87,60,556/-(-) Rs.66,92,869/-) represents adhoc disallowances made by the A.O. in the Assessment Orders for A.Y. 2005-06 to 2008-09. The said disallownaceresulted in decrease of work in progress in respect of Vasundhara andSamarpan project for the respective years and corresponding increase inincome for A.Y. 2009-10 as the income from the said projects standsreflected during the said year. Revenue has only challenged computation ofprofit for such deduction which has increased on account of disallowance ofexpenses by way of bogus purchases and other expenses on Adhoc basis.From the representations filed by Revenue on 23[rd] November 2002 or underRule 9 of the Rule on 20[th] December 2012 or in the submissions dated 1[st]July 2013 Revenue does not seem to have even asked for