Wp/7641/2005 Of Sri Chaitanya Educational Committee v. Income Tax Settlement Commission

THE HON’BLE SRI JUSTICE B.SUDERSHAN REDDY AND THE HON’BLE SRI JUSTICE S.ANANDA REDDY WRIT PETITION No.7641 of 2005 ORDER:(Per Hon’ble Sri Justice S.Ananda Reddy) This writ petition is filed invoking the extraordinary jurisdiction of this Court underArticle 226 of the Constitution of India praying for the issue of Writ of Mandamusdeclaring the action of the first respondent in dismissing the application of the petitioner society at the admission stage as illegal, arbitrary, untenable andagainst the provisions of the Income Tax Act and consequently set aside the order of the first respondent dated 3-11-2004 passedin application No.500/Hyd-C/58/2003-IT and direct the first respondent to admit theapplication and decide the matter on merits as per law. The facts leading to filing of the present writ petition are that the petitioner is aregistered society, registered on 31-1-1987 under the Societies Registration Act,1860, with the avowed objects of (1) establishing educational institutions bothacademic and technical, such as Primary, Secondary, College and Professionaleducational institutions; (2) to open, run or develop Hostels, Orphanages and CareHomes for the students studying in the said institutions; (3) to diffuse usefulknowledge which would tend to improve the model, social and ethical standards ofthe children and youth coming under the jurisdiction of the petitioner society; (4) todevelop social, cultural and economic standards of the members of the petitionersociety; (5) to establish Balawadies and Libraries for the benefit of the children andthe students of the institutions; (6) to open night schools for adult education to remove illiteracy and to eradicate social evils of the society; and (7) to do all suchother acts as incidental or conducive to attainment of the above objects. In order to achieve the above objects, the petitioner society had established collegesfor girl students as well as boys in several places, including Delhi, Chennai,Vijayawada, Visakhapatnam, Tirupati and Guntur and in many other places. In mostof the aforesaid places, the petitioner society apart from imparting intermediateeducation, providing coaching as part of its charitable objects to the students whoappear for EAMCET Examination conducted by the Government of Andhra Pradeshfor the purpose of admission into Engineering and Medical Colleges in addition toI.I.T. etc. It is stated that the petitioner claiming as a charitable institution applied forregistration before the Commissioner of Income Tax (Central), Visakhapatnam,under Section 12A of the Income Tax Act, 1961 (hereafter referred to as ‘the Act’) forthe grant of registration as a Charitable Trust. The petitioner was granted registrationin pursuance of the said application by the Commissioner of Income Tax, by orderdated 14-8-1992. The said registration was in operation till 26-7-2004 when it wascancelled by the Commissioner of Income Tax in view of the subsequent events,which brought to light various commissions and omissions made by the petitionersociety. The said cancellation was assailed by the petitioner society by filing anappeal before the Income Tax Appellate Tribunal, which is not an issue in thepresent case. It is stated that the petitioner society filed its returns under the provisions of the Actfor the assessment years 1997-98 to 2001-02. The details of income are furnished inpara-9 of the affidavit claiming that the entire income was to exempt either under theprovisions of Section 10(22) or under Sections 11 to 13 of the Act. The said claimwas accepted. While so, the Income Tax Department conducted search and seizure It is stated that the petitioner society filed its returns under the provisions of the Actfor the assessment years 1997-98 to 2001-02. The details of income are furnished inpara-9 of the affidavit claiming that the entire income was to exempt either under theprovisions of Section 10(22) or under Sections 11 to 13 of the Act. The said claimwas accepted. While so, the Income Tax Department conducted search and seizure operations under Section 132 of the Act, on 2-7-2002, not only in the premises of thepetitioner society but also on several premises belonging to the persons associatedwith the petitioner society and seized cash amounting to Rs.1,07,84,505/- apart fromFixed Deposit Receipts to the tune of Rs.6.70 Crores. The Department also seizedvoluminous records from different premises of the petitioner society, apart fromrecording the statements from various persons connected with the petitioner. As aresult of the search and seizure, the second respondent-Assessing Officer issued anotice under Section 158BC of the Act on 18-12-2002 calling upon the petitioner tofile return of the undisclosed income in Form No.2B of the Act. The said notice wasserved on the petitioner on 26-12-2002. In response to the said notice, the petitioner filed return admitting a totalincome of Rs.32,54,000/- for the block period for which notice was issued from theassessment year 1997-98 till the date of search. After filing of the return by the petitioner society in pursuance of the noticeunder Section 158BC of the Act, the Assessing Officer issued a notice dated 5-8-2003 proposing to determine the undisclosed income at Rs.208.68 Crores andcalled for the objections as well as explanation by the petitioner society. Accordingto the petitioner, the said proposal was made by the Assessing Officer withoutmaking any enquiry and without any basis. Therefore, the petitioner filed a letter on13-8-2003 objecting to the proposal and agreed to furnish additional information thatwas called for by the Assessing Officer. Thereafter the petitioner thought itappropriate to approach the Settlement Commission in view of the voluminousrecord as well as the different methods of accounting that are adopted by thepersons who are holding the charge and dealing with at different Branches of thepetitioner society which resulted in complexity of the nature of transactions as wellas the investigation required for making proper and appropriate assessment. It is stated that the petitioner had accordingly filed an application in terms of Section245C of the Act declaring an additional income of Rs.6,10,83,167/-. The abovedeclaration of the petitioner’s income was made in view of the complexity of thenature of the matter and in order to get the matter settled once for all. It is also statedthat, subsequently the Assessing Officer proceeded with the assessments despitethe fact that the application made by the petitioner before the SettlementCommission was pending and accordingly framed the assessment on 30-7-2004determining the income of the assessee at Rs.85,34,35,241/-. It is further stated thatin the light of the huge disparity in the figures between the declared income by theassessee and the income that was proposed to be assessed by the AssessingOfficer and the amount finally determined for the block period and further in view ofthe fact that the Commissioner of Income Tax passed an order withdrawing theregistration under Section 12AA of the Act, it was proper and just for theCommission to entertain the application and decide the same on merit. But,however, rejected the same without noticing the complexity of facts and theinvestigation involved. Therefore, the petitioner has come up with the present writpetition assailing the said rejection of application made under Section 245C of theAct. A counter affidavit is filed by the Assessing Officer on behalf the second respondent,disputing and denying the allegations made by the petitioner society. Therespondents admitted the fact that the petitioner society was carrying on its activitiesby establishing educational institutions for providing education only for Intermediatecourse as well as to provide coaching to those students who appear for theEAMCET Entrance Examination seeking admission into Engineering and MedicalCourses in Andhra Pradesh, apart from to those seeking admission into I.I.T. andother Professional Colleges. It is stated that the petitioner was not carrying on anyother activity as was specified in the objects of the society. It is further stated that the Department conducted search operations under Section 132 of the Act on 2-7-2002,which brought to the notice of the Department number of irregularities that havebeen committed by the petitioner society. It is also admitted that during the saidsearch and seizure operations, voluminous records have been seized, apart fromrecording the statements from various persons, who were available at differentBranches of the petitioner society. It is also admitted that the Department had seizedthe cash as well as the Fixed Deposit Receipts as specified in the affidavit and alsofiling of a writ petition being W.P.No.7488 of 2003, which was disposed of on 4-11-2003, where an order was passed in favour of the petitioner for releasing theamounts seized. It is stated that merely because the petitioner deals with large sumsof money and that there are large number of students studying in different Branchesof the petitioner society, does not perse render the investigation a difficult or complextask. In fact, detailed investigations have been undertaken by the Assessing Officerwith all the material that was available both with the Department as well as thepetitioner. Insofar as the rejection of the application by the Settlement Commission, itwas stated that Chapter XIX-A of the Act deals with the settlement of cases by theSettlement Commission. On receipt of an application under Section 245C of the Act,the Commission is required to call for a report from the Commissioner havingjurisdiction over the assessee and on the basis of the material contained in suchreport and having regard to the nature and circumstances of the case or thecomplexity of investigation involved therein, the Commission is entitled to take adecision either to reject the application or to allow the application to be proceededwith. Accordingly, after considering the report submitted by the Commissioner aswell as taking into account the nature and the facts of the case, passed an order on3-1-2005 rejecting the application. The Commission, based on the report as well asthe facts and the material available on record, had come to a conclusion that thecase does not involve any complexity of investigation, therefore, it is not a case to bedealt with under Chapter XIX-A of the Act. The said decision taken by the Commission is unanimous by all the three members constituting the AdditionalBench of the Commission, which dealt with the application of the petitioner. As thesaid decision was rendered on appreciation of facts and the material on record, thesame does not call for any interference by this Court while exercising the judicialreview under Article 226 of the Constitution of India. It is also stated that thepetitioner society, claiming to be an Educational Institution as well as CharitableInstitution, has evidently flouted all the rules, but claimed the benefit of exemption,therefore, sought for dismissal of the writ petition. Commission is unanimous by all the three members constituting the AdditionalBench of the Commission, which dealt with the application of the petitioner. As thesaid decision was rendered on appreciation of facts and the material on record, thesame does not call for any interference by this Court while exercising the judicialreview under Article 226 of the Constitution of India. It is also stated that thepetitioner society, claiming to be an Educational Institution as well as CharitableInstitution, has evidently flouted all the rules, but claimed the benefit of exemption,therefore, sought for dismissal of the writ petition. Assailing the said order of the Settlement Commission, the learned senior counselSri V. Ramchandran contended that the rejection order passed by the SettlementCommission is not just and legal. According to the learned counsel, Chapter XIX-Awas enacted and brought on the statute with an intention to get the matter settledonce for all to avoid long litigation in view of the nature of the case and thecomplexity of investigation that is involved. It is the contention of the learned counselthat the petitioner-assessee has got a right to make an application to the SettlementCommission by disclosing additional income which was not declared or disclosedbefore the Assessing Officer and when such an application is made declaring theadditional income, the Commission is bound to consider the said application takinginto account the complexity of investigation required. The learned counselcontended that the Commission has got all the powers, including that of theAssessing Officer, to settle the dispute between the assessee and the Departmentand in the process without causing prejudice to the revenue. The learned counselreferred to the relevant provisions of Section 245C, 245D and other relevantprovisions of Chapter XIX-A of the Act and contended that if the application of thepetitioner is considered and an order is passed, the petitioner is also entitled notonly to the finality of the order but also entitled for immunity, therefore, it is not proper and just for the Commission to reject the application when the petitioner hadcomplied with the requirements of the provisions of the Chapter. The learnedcounsel also contended that the Commission has to consider the facts andcircumstances of the case as well as the complexity of investigation beforeaccepting or rejecting the application made under Section 245C of the Act. Thelearned counsel contended that the Commission proceeded that since the Books ofAccounts are maintained and are audited, no complexity is involved. It is contendedthat if the audited accounts of the petitioner-assessee are accepted, there is noscope for any undisclosed income to be determined by the authority for the blockperiod. But during the course of search and seizure, the Department had collectedcertain information including statements from some of the persons associated withthe petitioner society and also seized voluminous records that are being maintainedby the petitioner at its different Branches and it is very difficult either to theDepartment or to the petitioner to reconcile all the documents and the accountsmaintained in view of the innumerable transactions and different methods that areadopted. According to the learned counsel, the Settlement Commission failed totake into account all these factors before coming to the conclusion to reject theapplication, therefore, the impugned order is liable to be set aside. The learnedcounsel also referred to and relied upon the term ‘complexity’ found in Section 142(2A) of the Act, where the Assessing Officer was given the power for orderingspecial audit and referred to following decisions where the said term ‘complexity’was considered by various Courts. Joint C.I.T. v. I.T.C. Ltd. (CAL.);Living Media Ltd. v. C.I.T. (S.C.); Peerlessv. Deputy C.I.T. (CAL.); Swadeshi Cotton Mills Company Ltd. v. C.I.T. (All.); U.P.State Handloom Corporation Ltd. v. C.I.T. (All.); Sahara India Mutual Benefit Co.Ltd. v. C.I.T. (All.); Uttaranchal Welfare Society v. C.I.T. (All.); C.I.T. v. OmPrakash Mittal (SC). The learned counsel also referred to the Circular instruction No.1076, dated12-7-1977 where certain guidelines were issued for selecting cases for audit underSection 142A of the Act. Therefore, the learned counsel sought to set aside theimpugned order and to issue a consequential direction to admit the application bythe Commission for being proceeded with. The learned standing counsel for the Department Sri J.V. Prasad on the other handopposed the said contentions. He contended that the scope of judicial review underArticle 226 of the Constitution of India is very limited and confined only to theprocedural aspects and cannot be looked into as to the merits of the conclusions thathave been arrived at by the Commission. The learned counsel reiterated the standof the Department that the petitioner society maintained the Books of Accounts,which were audited, therefore, there is no complexity in conducting investigation ofthe case. In fact, the learned counsel contended that mere volume of thetransactions or the record by itself cannot infer that there is complexity forinvestigation. The learned counsel further contended that basing on the seizedmaterial, the Assessing Officer had, in fact, initiated assessment proceedings afterconducting necessary investigation and in the process served a notice on thepetitioner-assessee calling upon its objections for the proposed determination of theundisclosed income for the block period. In that process, the Assessing Officer alsocalled for other information and in fact, put to the assessee for making additionsbasing on the amounts that are available in various bank accounts. The petitioner-assessee, instead of cooperating with the Assessing Officer, delayed the matter byseeking repeated adjournments and finally approached the Settlement Commission.It is contended by the learned counsel that after the search and seizure operations,the petitioner was prepared to declare the undisclosed income of aboutRs.3,22,96,000/- for the assessment years 1999-2000 to 2003-04, but finally by the date of filing of the return in response to the notice issued under Section 158BC of the Act, thepetitioner declared the undisclosed income at Rs.32,54,000/- only for the blockperiod. The learned counsel also contended that the petitioner had approached theSettlement Commission only to take shelter under the provisions of Chapter XIX-A ofthe Act to avoid further liability for the huge undisclosed income for which materialwas available with the Assessing Officer where the Assessing Officer had noticedthe fraud played by the petitioner society and also the modus operandi adopted bythe petitioner society. Further, according to the learned counsel, the SettlementCommission, on consideration of the nature and the circumstances of the case aswell as the complexity of investigation involved, found that this is not a case wherethe Commission has to show indulgence in entertaining the application. The saidfinding recorded by the Commission is on appreciation of the material on record andsuch a finding of the Commission does not call for any interference while exercisingthe jurisdiction of judicial review. The learned counsel also referred to the followingdecisions in supports of his contention that this is not a fit case where theCommission should be directed to admit the application. C.I.T. v. Express Newspapers Ltd. (S.C.); Jyotendrasinhji v. S.I. Tripathi(S.C.); Patel Desai and Co. v. Asst.C.I.T. (A.P.); Harphool Singh v. I.T.S.C. (P. &H.); Income Tax Reports (Statutes); Shyam Glass Works v. I.T.S.C. (All.); andGanesh Bartan Bhandar v. ITSC (All.). C.I.T. v. Express Newspapers Ltd. (S.C.); Jyotendrasinhji v. S.I. Tripathi(S.C.); Patel Desai and Co. v. Asst.C.I.T. (A.P.); Harphool Singh v. I.T.S.C. (P. &H.); Income Tax Reports (Statutes); Shyam Glass Works v. I.T.S.C. (All.); andGanesh Bartan Bhandar v. ITSC (All.). From the above rival contentions, the issue that calls for consideration of this Courtis whether the order passed by the Commission rejecting the application filed by thepetitioner under Section 245C of the Act is just and proper. The admitted facts of the case are that the petitioner society is a society registeredunder the Societies Registration Act, formed with the objects of establishing educational institutions apart from some other avowed objects of charitable naturereferred to earlier. Admittedly, the petitioner was only engaged in establishing andrunning of educational institutions for providing education to the IntermediateCourse, mostly in the State of Andhra Pradesh, apart from providing coachingfacilities to those students as preparatory to appear for the Entrance Examination toget admission into Engineering and Medical Courses in Andhra Pradesh, apart fromother institutions like I.I.T. etc. It is also an admitted fact that the petitioner hadestablished number of Branches at different cities, towns, etc. In fact, according tothe petitioner, the number of students in its various Branches are about 50,000. Thepetitioner society also filed an application under Section 12A of the Act claiming thatit is a charitable institution and obtained registration with the Income TaxDepartment, which was granted on 14-8-1992. From the assessment years 1997-98 to till 2001-02 the assessee hadfiled its returns and claimed exemption either under Section 10(22) or underSections 11 to 13 of the Act, and in fact, got the benefit of exemption for all the aboveyears. However, search and seizure operations were conducted under Section 132of the Act on 2-7-2002 till 13-7-2002 which had resulted in the seizure of voluminousrecords, apart from cash of Rs.1,07,84,505/- and Fixed Deposit Receipts of Rs.6.70 Crores. As a result of the search and seizure operations, the Assessing Officer issueda notice under Section 158BC of the Act on 18-12-2002 calling upon the petitionerassessee to file its return for the block period 1997-98 to till the date of search.Though the petitioner, after the search proceedings, was prepared to declare anundisclosed income of Rs.3,22,96,000/-, but however, filed its return of undisclosedincome at Rs.32,54,000/- only. Thereafter the Assessing Officer, after consideringthe seized material, issued a noticed on 5-8-2003 proposing to determine theundisclosed income at Rs.208.68 Crores and called for the objections as well as further information from the assessee. The assessee, thereafter, took time by filingobjection letter to the proposed determination and also provided some information tothe Assessing Officer, as called for by him, and in fact, the Assessing Officer hadeven proposed to make a further addition basing on the amounts that are availablein various Bank accounts standing in the name of different individuals and in factsought for further information from the assessee. It is only thereafter the petitionerhad filed the application before the Settlement Commission on 9-1-2004 where the petitioner has declared an amount of Rs.6,10,83,167/-. Duringthe pendency of the said application and before passing the order by theCommission, the Commissioner of Income Tax passed an order dated 26-7-2004withdrawing the registration that was granted under Section 12A of the Act. Furtherthe Assessing Officer framed the assessment on 30-7-2004 determining theundisclosed income for the block period at Rs.85,34,35,241/-. After filing of theapplication under Section 245C (1) of the Act, the Commission called for a reportfrom the Commissioner having jurisdiction over the petitioner, who submitted areport, and after considering the report, the impugned order was passed by theSettlement Commission. 9-1-2004 where the petitioner has declared an amount of Rs.6,10,83,167/-. Duringthe pendency of the said application and before passing the order by theCommission, the Commissioner of Income Tax passed an order dated 26-7-2004withdrawing the registration that was granted under Section 12A of the Act. Furtherthe Assessing Officer framed the assessment on 30-7-2004 determining theundisclosed income for the block period at Rs.85,34,35,241/-. After filing of theapplication under Section 245C (1) of the Act, the Commission called for a reportfrom the Commissioner having jurisdiction over the petitioner, who submitted areport, and after considering the report, the impugned order was passed by theSettlement Commission. Before proceeding to consider the contentions that are advanced by the counsel forthe petitioner, it would be appropriate to refer to the scheme of the Act, whichprovided for settlement of cases. Chapter XIX-A of the Act was inserted by theTaxation Laws (Amendment) Act, 1975 with effect from 1-4-1976. Though Sections245A to 245L are covered by this Chapter, we are not concerned with all provisionsof this Chapter in the present case and we shall be dealing only with the relevantprovisions necessary for the purpose of the present case. The Commission isconstituted by the Central Government for the settlement of cases under ChapterXIX-A of the Act. The expression ‘case’ as appearing in Section 245A(b) of the Act refers to any proceeding under the Act for the assessment or re-assessment ofincome of any person in respect of any year or years, or by way of appeal or revisionin connection with such assessment or re-assessment, which may be pendingbefore any Income Tax authority on the date on which an application under sub-section (1) of Section 245C of the Act is made. From this, it is clear that if any of thematters, referred to earlier, are not pending before the Income Tax authorities, theassessee has no right to make any application. The scheme of Chapter XIX-A of theAct shows that filing of an application by the assessee is a unilateral act, buthowever, the application made by the assessee for settlement is not automaticallybe admitted, but the discretion is vested with the Commission, which is conditionalupon the compliance of the provisions in this Chapter. The basic feature of Chapter XIX-A of the Act is that it relates to the income whichwas not disclosed before the Income Tax authorities, which is evident from Section245C of the Act. As per this section, an assessee may, at any stage of the caserelating to him, make an application in the prescribed form containing a full and truedisclosure of his income which has not been disclosed before the Assessing Officer,the manner in which such income has been derived, the additional amount ofincome tax payable on such income and other particulars as prescribed, to theSettlement Commission to have the case settled. The said application under Section245C of the Act is to be considered as per the procedure provided under Section245D of the Act. Under sub-section (1) of the said section, the Commission afterreceipt of an application shall call for a report from the Commissioner and on thebasis of the material contained in such report and having regard to the nature andcircumstances of the case or the complexity of investigation involved therein, theSettlement Commission shall where it is possible by order reject the application orallow the application to be proceeded with and if the Commission ordered to beproceeded with the application, the said process has to be completed within a period of one year. Under this provision, the Settlement Commission is alsoempowered to grant extension of time for payment of additional amount in thecircumstances as provided under the said provision. Finally, if an order of settlementis passed by the Settlement Commission with reference to an application, theSettlement Commission is also empowered to grant certain benefits of immunityfrom prosecution as well as penalty under Section 245H of the Act. The finality to theorder passed by the Commission is also provided under Section 245-I of the Act. Buthowever, the Commission’s power of settlement has to be exercised subject to theprovisions of the Act, but not dehors the provisions of the Act. From the above scheme, it is clear that an assessee, who is approaching theSettlement Commission, has to make a full and true disclosure of his income,declaring the additional income, which was not disclosed before the Income Taxauthorities and has to pay the additional tax payable on the said additional income.Thereafter the Settlement Commission has to consider after calling for a report fromthe Commissioner having regards to the nature and circumstances of the case or thecomplexity of investigation involved therein either to reject the application or toproceed with the said application. In the present case, it is the contention of the petitioner society that it made anapplication in terms of Section 245C of the Act disclosing an additional income ofRs.6,10,83,167/- and also pleaded that in view of the huge volume of records seizedby the Department and the nature of the transactions and the method adopted bydifferent Branches of the petitioner society, complexity of investigation is involved,therefore, it is a case for admission of the application presented by the petitioner. Buthowever, the Settlement Commission erroneously rejected the application. The claim of the petitioner was that the case involves verification and In the present case, it is the contention of the petitioner society that it made anapplication in terms of Section 245C of the Act disclosing an additional income ofRs.6,10,83,167/- and also pleaded that in view of the huge volume of records seizedby the Department and the nature of the transactions and the method adopted bydifferent Branches of the petitioner society, complexity of investigation is involved,therefore, it is a case for admission of the application presented by the petitioner. Buthowever, the Settlement Commission erroneously rejected the application. The claim of the petitioner was that the case involves verification and reconciliation of voluminous records maintained by different Branches of thepetitioner society where different methods have been adopted involving hugetransactions, that there are more than 50,000 students admitted at its differentBranches which had resulted in more number of transactions, therefore, the caseinvolves complexity of investigation. But this claim was denied by the Department,which was accepted by the Settlement Commission. The case of the Departmentwas that the petitioner society has maintained its books of accounts, got themaudited basing on which returns were filed for the earlier years. Therefore, there isno complexity of investigation involved. According to the Department, the issue hasto be considered only in the light of the exemptions claimed whether the assessee isentitled to any exemptions as was claimed and accepted by the Department earlierunder Section 10(22) or Sections 11 to 13 of the Act. Admittedly, the registration,which was granted in favour of the petitioner society was withdrawn or cancelled bythe competent authority, which is the subject matter of an appeal before the IncomeTax Appellate Tribunal. Therefore, that issue cannot be made a subject matter in theapplication filed before the Commission, as the said issue was not before any of theIncome Tax authorities, which is one of the pre-condition. In addition, the seizedmaterial, as is evident, shows that huge amounts were paid to the members of thepetitioner society either by way of salaries or by way of rentals or advances etc. Ifsuch payments have been made by the petitioner society to its members, it cannotclaim the benefit of exemption as a charitable institution. Further, number ofstatements have been recorded from various persons where information has beengathered showing that the petitioner not only received the amounts outside theBooks of Accounts, but also made payments to various persons, mostly to themembers and Teaching staff, outside the Books of Accounts. Therefore, the matter isconfined for the adjudication of these aspects as to the truth or otherwise of theallegations made by the Department against the petitioner society. It is for thepetitioner society to adduce evidence and satisfy the Departmental authorities to prove its case. Therefore, according to the Department, there is no complexity ofinvestigation involved. Here, it would be appropriate to refer to the decisions relied upon by bothsides. In I.T.C. Ltd. (CAL.) (supra-1) a Division Bench of the Calcutta High Courtreferred the term ‘complexity’ used in Section 142 (2A) of the Act. Under the aboveprovision, the Assessing Officer was empowered to appoint a Special Auditor forauditing the accounts where the nature and complexity is such that it is not possiblefor the Assessing Officer to justify the correct assessment of the income and toexamine the correctness of the accounts. While exercising its power, the AssessingOfficer is required to obtain approval of the Commissioner or the ChiefCommissioner. Though no ratio was laid in the said decision, the Calcutta HighCourt, on facts, held that no objection could be raised as to the appointment ofSpecial Auditor by the Assessing Officer in view of the facts and circumstances ofthe case. In I.T.C. Ltd. (CAL.) (supra-1) a Division Bench of the Calcutta High Courtreferred the term ‘complexity’ used in Section 142 (2A) of the Act. Under the aboveprovision, the Assessing Officer was empowered to appoint a Special Auditor forauditing the accounts where the nature and complexity is such that it is not possiblefor the Assessing Officer to justify the correct assessment of the income and toexamine the correctness of the accounts. While exercising its power, the AssessingOfficer is required to obtain approval of the Commissioner or the ChiefCommissioner. Though no ratio was laid in the said decision, the Calcutta HighCourt, on facts, held that no objection could be raised as to the appointment ofSpecial Auditor by the Assessing Officer in view of the facts and circumstances ofthe case. In the case of Living Media Ltd. (supra-2)the Apex Court, while affirming the orderof the High Court dismissing the writ petition filed by the assessee assailing theappointment of Special Auditor, observed that the voluminous details and thematerial placed before the Assessing Officer, prima-facie, supported the formation ofthe opinion by the Assessing Officer for conducting special audit under Section 142(2A) of the Act. In Peerless case (supra-3)a learned single Judge of the Calcutta High Court heldthat two conditions should be fulfilled before appointing a Special Auditor by theassessing authority under Section 142 (2A) of the Act i.e., complexity of accountsand interest of the revenue. The order of the Assessing Officer was set aside in thiscase on the ground that the relevant material was not placed before the ChiefCommissioner of Income Tax and the approval granted was without any application of mind. In Swadeshi Cotton Mills Company Ltd. case (supra-4)a Division Bench of theAllahabad High Court considered the same provision of the Act and held that thesatisfaction of the authorities should be objective satisfaction, but not subjectivesatisfaction. The Bench also while considering the word ‘complexity’ observed, “allthat are difficult to understand should be regarded as complex. What is complex toone may be simple to another. Sometimes, what appears to be complex on the faceof it may not be really so if one tries to understand it carefully. Therefore, specialaudit should not be directed on a cursory look at the accounts. There should be anhonest attempt to understand the accounts of the assessee.” Observing so, theaction of the assessing authority in appointing the Special Auditor was upheld. Similar view has been expressed in U.P. State Handloom Corporation Ltd. case(supra-5) by the same High Court. In Sahara India Mutual Benefit Co. Ltd. case (supra-6) a Division Bench of thesame High Court held that the following must be fulfilled before an assessee bedirected to get his accounts audited by the Special Auditor by the Assessing Officer,viz., (i) the account books of the petitioners should be of complex nature; (ii) Special Audit should be in the interest of revenue; (iii) the Special Audit must benecessary because of the aforesaid complexity and interest of revenue; (iv) thereshould be previous approval of the Chief Commissioner or the Commissioner; (v)the Special Audit, having regard to aforesaid necessity, must be relevant for theassessment proceedings. Therefore, on facts, the order of the assessing authorityordering for Special Audit was upheld. In Uttaranchal Welfare Society case (supra-7) a Division Bench of the AllahabadHigh Court upheld the order of the Assessing Officer, on facts, as to the appointmentof a Special Auditor. In the case of Om Prakash Mittal (supra-8) the Apex Court (ii) Special Audit should be in the interest of revenue; (iii) the Special Audit must benecessary because of the aforesaid complexity and interest of revenue; (iv) thereshould be previous approval of the Chief Commissioner or the Commissioner; (v)the Special Audit, having regard to aforesaid necessity, must be relevant for theassessment proceedings. Therefore, on facts, the order of the assessing authorityordering for Special Audit was upheld. In Uttaranchal Welfare Society case (supra-7) a Division Bench of the AllahabadHigh Court upheld the order of the Assessing Officer, on facts, as to the appointmentof a Special Auditor. In the case of Om Prakash Mittal (supra-8) the Apex Court had an occasion to review the entire scheme formulated under Chapter XIX-A of theAct while considering the scope and powers of the Settlement Commission toreview its own order. The Apex Court though held that the Settlement Commissionhas no power of review, but however, the Commission has sufficient elbow room inassessing the income of the applicant, it cannot make any order with a term ofsettlement which would be in conflict with the mandatory provisions of the Act likethe quantum and payment of tax and interest. It was also held that the Commissionhas got the power to set aside or modify the order, if it has been obtained by fraud ormisrepresentation of facts and the said power cannot be equated to the power ofreview. Though the learned counsel relied upon the above decisions, but the saiddecisions may not be of any assistance to the petitioner either to claim that theinvestigation that is required involves complexity, as investigation has already beencompleted by the Assessing Officer by the time the impugned order was passed,and in fact, part of the investigation has already been made by the Assessing Officerby the time the petitioner-assessee had made its application to the SettlementCommission. Coming to the decisions relied upon by the learned counsel for the respondent-Department, in the case of Jyotendrasinhji (supra-10), the Apex Court had anoccasion to consider the scope of judicial review as well as finality of the ordersreferred to under the provisions of Chapter XIX-A of the Act. The Apex Court heldthat the scope of judicial review is restricted to consider whether the order is contraryto any of the provisions of the Act, apart from bias, fraud or malice. In Express Newspapers Ltd. case (supra-9) the Apex Court considered the objectof the provisions for settlement of the cases and on considering the facts, as theapplicant did not disclose any additional income not disclosed by the applicant before the Assessing Officer, held that the application is not maintainable. It wasalso held that the Commissioner’s report can also be based on the material obtainedeven after the date of the application for settlement. It was further held that theCommission can also look into the material obtained after the report filed by theCommissioner. In Harphool Singh case (supra-12) a Division Bench of Punjab and Haryana HighCourt upheld the order of the Commission, rejecting the application for settlement,observing that the Settlement Commission recorded that most of the controversialissues had already been settled and there was no pending investigation of such acomplex nature as to the required intervention of the Settlement Commission. Thesaid order of the High Court was even upheld in S.L.P.No.348 of 1995 reported inIncome Tax Reports (Statutes) (supra-13). In Harphool Singh case (supra-12) a Division Bench of Punjab and Haryana HighCourt upheld the order of the Commission, rejecting the application for settlement,observing that the Settlement Commission recorded that most of the controversialissues had already been settled and there was no pending investigation of such acomplex nature as to the required intervention of the Settlement Commission. Thesaid order of the High Court was even upheld in S.L.P.No.348 of 1995 reported inIncome Tax Reports (Statutes) (supra-13). In Shyam Glass Works case (supra-14) a Division Bench of Allahabad High Courtwhile upholding the order of the Settlement Commission, rejecting the application,observed that whether the application could or could not be allowed was a matter tobe decided by the Settlement Commission and the Settlement Commission rejectedthe application for settlement after considering several factors. The High Court, in awrit petition, is concerned only with the legality of the procedure followed i.e., thedecision making process and not with the merits of the order passed by theSettlement Commission. In the instant case, there was no evidence to find that theSettlement Commission had not followed the procedure required. I n Patel Desai and Co. case (supra-11), a Division Bench of this Court had anoccasion to examine the scope of interference under Article 226 of the Constitutionof India where final order of the Settlement Commission was assailed. This Courtheld that it could not be said that the Settlement Commission acted contrary to theprovisions of the Act. The Commission actively applied its mind to the mixedquestion of law and fact with which it was confronted and purported to record its conclusion in the light of the principles and tests laid down in decided cases on theinterpretation of Section 37 of the Income Tax Act, 1961. A mere error of law did notnecessarily amount to contravening or disregarding a provision of law, more sowhen such error could be established by a long drawn process of reasoning anddebate. The error, if any, was only in the course of applying law to the facts of theparticular case or interpreting the terms of the agreement and the legal error was notone which could be corrected by a writ of certiorari. Therefore, the decision of theSettlement Commission could not be interfered with under Article 226 of theConstitution of India. I n Ganesh Bartan Bhandar case (supra-15) a Division Bench of the AllahabadHigh Court while upholding the order of the Settlement Commission, rejecting theapplication, observed that the Commission had relied upon the findings recorded bythe Assessing authority and come to the conclusion that the loose paper sheets hadbeen connected with the petitioners. The report, if any, of the Commissioner ofIncome Tax did not contain any fresh material, therefore, no prejudice is caused tothe petitioners. The facts of the case are to be considered in the light of the above referred decisionsrelied upon by both sides. The petitioner claims that it had number of Branches andthe person incharge of each Branch had adopted his own method to deal with thecash transactions. There were more than 50,000 students studying in differentBranches of the petitioner society and the same had resulted in numeroustransactions. Further, during the course of search and seizure operations, theDepartment seized voluminous records, and as such, consideration or investigationinto all the material involves complexity. Therefore, this is a fit case for theSettlement Commission to consider and settle once for all, to avoid multiplicity ofproceedings as well as protracted litigation. But the claim of the petitioner was notaccepted by the Settlement Commission, as according to it no complexity of investigation is involved, as the petitioner maintained its Books of accounts and gotthem audited. Now the only issue to be considered is whether the petitioner isentitled for the benefit of exemptions under Section 10(22) or Sections 11 to 13 ofthe Act in view of the contraventions alleged against it as well as withdrawal ofregistration granted under Section 12A of the Act. Perhaps, there may be furtheradditions on account of undisclosed income, which reflected the payments made tovarious persons, found during the course of search, which was not referred in theorder of the Settlement Commission. But this Court is not exercising the jurisdictionas an appellate authority to go into the merits of the decision of the Commission andto re-appreciate the facts placed before the Settlement Commission and this Court tocome to a different conclusion. As held by the Apex Court as well as the other HighCourts as referred to earlier, this Court while exercising the jurisdiction of judicialreview under Article 226 of the Constitution of India, would look into whether theCommission had committed any procedural lapses which could prejudice the caseof the petitioner. In fact, all the contentions that are advanced on behalf of thepetitioner were only with reference to the merits of the case and the alleged non-consideration of the facts of the case by the Commission, but not as to the omissionof any procedural part. In fact, this Court held that even in respect of a legal error, thesame cannot be corrected under Article 226 of the Constitution of India. At this stage, it would be appropriate to refer the relevant observations of the Apex Court in the case of Jyotendrasinhji (supra-10). “……The scope of enquiry, whether by the High Court under Article 226 orby this Court under Article 136 is also the same—whether the order of theCommission is contrary to any of the provisions of the Act and if so, apartfrom ground of bias, fraud and malice which, of course, constitute a separateand independent category, has it prejudiced the petitioner/appellant.Reference in this behalf may be had to the decision of this Court in R.B.Shreeram Durga Prasad and Fatechand Nursing Das v. SettlementCommission (I.T. and W.T.) (1989) 176 ITR 169, which too was an appealagainst the orders of the Settlement Commission. Sabyasachi Mukharji J.,speaking for the Bench comprising himself and S.R.Pandian J., observed that, in such a case, this court is “concerned with the legality of theprocedure followed and not with the validity of the order”. The learned Judgeadded “judicial review is c