Wp(C)/2637/2014 Of The Commissioner Of Income Tax (Central) v. Settlement Commission (It & Wt)

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR. JUSTICE A.K.JAYASANKARAN NAMBIAR MONDAY, THE 10TH DAY OF NOVEMBER 2014/19TH KARTHIKA, 1936 WP(C).No. 2637 of 2014 (D) --------------------------- PETITIONER(S): -------------------------- THE COMMISSIONER OF INCOME TAX (CENTRAL), KOCHI. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): ---------------------------- 1. SETTLEMENT COMMISSION (IT & WT), ADDITIONAL BENCH, 488-489, ANNASALAI, CHENNAI-600 035. 2. M/S. JOSCO JEWELLERS PVT.LTD., XIII/1XIV, RAJEEV GANDHI MEMORIAL COMPLEX CENTRAL JUNCTION, KOTTAYAM-686001. CENTRAL JUNCTION, KOTTAYAM-686001. R1-R2 BY SRI.ABHISHEK MANU SINGVI, SR.COUNSEL R-R2 BY ADV. SRI.A.KUMAR R-R2 BY ADV. SMTG.MINI(1748) R-R2 BY ADV. SRI.P.S.SREE PRASAD R-R2 BY ADV. SRI.P.J.ANILKUMAR THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 06-11-2014 ALONG WITH WP(C). NO.2638/2014, WP(C).NO.2639/2014 & WP(C).NO.3370/2014, THE COURT ON 10-11-2014 DELIVERED THE FOLLOWING: WP(C).No. 2637 of 2014 (D) --------------------------- APPENDIX PETITIONER(S)' EXHIBITS: ------------------------------------- EXT.P1: APPLICATION FILED BEFORE THE INCOME TAX SETTLEMENTCOMMISSION. EXT.P1(A): COPY OF THE ORDER OF THE REPORT /S 245D(2B) OF THE INCOMETAX ACT. EXT.P2: REPORT UNDER RULE 9 DATED 19.6.2013. EXT.P2(A): SUBSEQUENT REPORT TO SC DATED 15.7.2013. EXT.P2(B): SUBSEQUENT REPORT TO SC DATED 23.7.2013. EXT.P3: BOARD'S CIRCULAR DATED 4.3.2013. EXT.P3(A): COPY OF THE ORDER OF SETTLEMENT COMMISSION DATED28.3.2013. EXT.P4: FINAL ORDER U/S.245D(4) OF THE I.T.ACT. RESPONDENT(S)' EXHIBITS: --------------------------------------- EXT.R2(A): COPY OF THE PAPER BOOK FILED BY THE ASSESSEE BEFORE THE SETTLEMENT COMMISSION. //TRUE COPY// P.S. TO JUDGE A.K.JAYASANKARAN NAMBIAR, J. ------------------------------- W.P.(C).NO.2637 OF 2014W.P.(C).NO.2638 OF 2014W.P.(C).NO.2639 OF 2014& W.P.(C).NO.3370 OF 2014 ----------------------------------- Dated this the 10[th] day of November, 2014 J U D G M E N T As these writ petitions involve a common issue, they are takenup together for consideration and disposed by this common judgment. 2. The Commissioner of Income Tax (Central), Cochin is thepetitioner in all the writ petitions, which impugn the common orderdated 05.08.2013 of the Income Tax Settlement Commission, Chennai(hereinafter referred to as the 'Settlement Commission'), acceptingthe settlement applications preferred by (i) Sri.P.A.Jose, (ii)Smt.P.P.Alphonsa, (iii) Josco Gold Corporation Pvt. Ltd. and (iv) JoscoJewellers (P) Limited (hereinafter referred to as the 'assessees'), andgranting the said applicants immunity from penalty and prosecutionunder the Income Tax Act. 3. The brief facts, that are necessary for a disposal of the writpetitions, are as follows; W.P.(C).NO.2637/ 2014&Connected cases 2. The Commissioner of Income Tax (Central), Cochin is thepetitioner in all the writ petitions, which impugn the common orderdated 05.08.2013 of the Income Tax Settlement Commission, Chennai(hereinafter referred to as the 'Settlement Commission'), acceptingthe settlement applications preferred by (i) Sri.P.A.Jose, (ii)Smt.P.P.Alphonsa, (iii) Josco Gold Corporation Pvt. Ltd. and (iv) JoscoJewellers (P) Limited (hereinafter referred to as the 'assessees'), andgranting the said applicants immunity from penalty and prosecutionunder the Income Tax Act. 3. The brief facts, that are necessary for a disposal of the writpetitions, are as follows; W.P.(C).NO.2637/ 2014&Connected cases Pursuant to a search conducted by the Income Tax authorities,between 21.03.2012 and 20.07.2012, in the premises of the assessees,notices under Section 153A of the Income Tax Act (hereinafterreferred to as the 'IT Act'), were issued to them on 29.11.2012. Theassessees are stated to have filed returns of income, for the periodcovered by the notices issued to them, on 15.03.2013, by declaringthe same income as was originally returned by them in the course ofregular assessment. Immediately thereafter, on 19.03.2013, theassessees preferred applications before the Settlement Commissionoffering additional income for the purposes of settlement. Theapplication was allowed to be proceeded with by the SettlementCommission, by an order dated 28.03.2013 passed under Section245D (1) of the Act. Thereafter, a report was called for from theCommissioner of Income Tax. The Settlement Commission then calledfor reports in terms of Rule 9 of the Settlement CommissionProcedure Rules on 17.05.2013. Pursuant to this, the Commissioner ofIncome Tax is stated to have filed reports on 20.06.2013, 15.07.2013and 23.07.2013. These reports, while giving details of theinvestigation carried out by the department against the assessees, andtheir prima facie findings in respect thereof, also contained the W.P.(C).NO.2637/ 2014&Connected cases objections of the department to accepting the applications preferredby the assessees for the purposes of settlement. The SettlementCommission, thereafter, heard the matter on 25.07.2013 and26.07.2013 and passed its final order, under Section 245D (4) of theAct, on 05.08.2013. 4. The grievance of the petitioner, in the writ petitions, isessentially against the manner in which the Settlement Commissionproceeded to deal with its objections against accepting theapplications preferred by the assessees for settlement. The objectionsraised before the Commission were as follows: The assessees, against whom the department hadlaunched an investigation, and unearthed material, toshow that there had been undisclosed income had, inthe applications filed before the SettlementCommission, not effected a full and true disclosure oftheir unaccounted income for the purposes ofsettlement. launched an investigation, and unearthed material, toshow that there had been undisclosed income had, inthe applications filed before the SettlementCommission, not effected a full and true disclosure oftheir unaccounted income for the purposes ofsettlement. While the department had worked out the undisclosedincome of the assessees under five different headsnamely, (i) undervaluation of closing stock, (ii)unaccountedtransactionwithgoldincome of the assessees under five different headsnamely, (i) undervaluation of closing stock, (ii)unaccountedtransactionwithgold merchants/manufacturers, (iii) suppression of salesturnover, (iv) difference in purchases and (v) amountinvolved in the purchase of old gold in violation of theprovisions of Section 40A (3) of the IT Act, theassessees had disclosed additional income only underthe head of purchase of old gold in violation of theprovisions of Section 40A (3) of the IT Act, and even inthat they had not effected a true disclosure. While the department had worked out the undisclosedincome of the assessees under five different headsnamely, (i) undervaluation of closing stock, (ii)unaccountedtransactionwithgoldincome of the assessees under five different headsnamely, (i) undervaluation of closing stock, (ii)unaccountedtransactionwithgold merchants/manufacturers, (iii) suppression of salesturnover, (iv) difference in purchases and (v) amountinvolved in the purchase of old gold in violation of theprovisions of Section 40A (3) of the IT Act, theassessees had disclosed additional income only underthe head of purchase of old gold in violation of theprovisions of Section 40A (3) of the IT Act, and even inthat they had not effected a true disclosure. In the case of the proprietary concerns of Sri.P.A.Joseand Smt.P.P.Alphonsa, the department had collectedmaterial to show that these concerns had resorted toundervaluation of closing stock of jewellery byadopting the Last-in-First-Out (LIFO) method ofvaluation. The said method of valuation was notacceptable as per accounting standards and was notin consonance with the weighted average cost methodthat was usually adopted by others engaged in thesame line of business. and Smt.P.P.Alphonsa, the department had collectedmaterial to show that these concerns had resorted toundervaluation of closing stock of jewellery byadopting the Last-in-First-Out (LIFO) method ofvaluation. The said method of valuation was notacceptable as per accounting standards and was notin consonance with the weighted average cost methodthat was usually adopted by others engaged in thesame line of business. The department had gathered evidence that showedthat the assessees were not accounting all theirtransactions with the goldsmiths/manufacturers in aproper manner and a quantification of theunaccounted income under this head would have beenpossible, if the department was given some time. Theassessees had not, however, offered any additionalthat the assessees were not accounting all theirtransactions with the goldsmiths/manufacturers in aproper manner and a quantification of theunaccounted income under this head would have beenpossible, if the department was given some time. Theassessees had not, however, offered any additional income under this head in their applications forsettlement. There was material available with the departmentto show that the assessees had suppressed theirsales turnover while returning their taxable income.The material seized included data that was indigital format and, given some time, the data couldhave been analysed to quantify the extent of salessuppression. The assessees had not offered anyadditional income under this head in theirapplications for settlement. to show that the assessees had suppressed theirsales turnover while returning their taxable income.The material seized included data that was indigital format and, given some time, the data couldhave been analysed to quantify the extent of salessuppression. The assessees had not offered anyadditional income under this head in theirapplications for settlement. An analysis of the digital data that was obtained bythe department showed that there was a significantdifference between the amounts shown in thereturns filed by the assessees, and that shown inthe digital data recovered by the department,towards purchase of old gold. It was clear,therefore, that the assessees had resorted to aninflation of the purchase price so as to showreduced gross profit for tax purposes. Theassessees had not offered any additional incomeunder this head in their applications for settlement.the department showed that there was a significantdifference between the amounts shown in thereturns filed by the assessees, and that shown inthe digital data recovered by the department,towards purchase of old gold. It was clear,therefore, that the assessees had resorted to aninflation of the purchase price so as to showreduced gross profit for tax purposes. Theassessees had not offered any additional incomeunder this head in their applications for settlement. Evidence available with the department showedthat the assessee had understated thosethat the assessee had understated those transactions where they had purchased old goldfrom customers without complying with theprovisions of Section 40A (3) of the IT Act. Theundisclosed income that was attributable to thesaid transactions was huge but the assessees hadshown only a small amount towards undisclosedincome and offered the same as additional incomefor the purposes of settlement. 5. The Settlement Commission, while dealing with theobjections of the department, and deciding to allow the applications ofthe assessees by accepting the additional amounts offered by them forsettlement, found as follows with respect to the said objections: As per the scheme of settlement under the IT Act, thedecision, as to whether or not any further investigationwas required in any particular case, was one that had tobe taken by the Settlement Commission before which anapplication for settlement had been filed by an applicant.decision, as to whether or not any further investigationwas required in any particular case, was one that had tobe taken by the Settlement Commission before which anapplication for settlement had been filed by an applicant. The search carried out by the department in the instantcase was spread over four months and, thereafter, thedepartment was seized of the matter for almost a year,before the assessees filed their application for settlementon 18.03.2013. Whatever enquiries or investigations hadto be made by the department to find against thecase was spread over four months and, thereafter, thedepartment was seized of the matter for almost a year,before the assessees filed their application for settlementon 18.03.2013. Whatever enquiries or investigations hadto be made by the department to find against the assessees on undisclosed income, could have been donewithin that period. That not having been done, thedepartment could not insist on a further enquiry orinvestigation once the Settlement Commission was seizedof the matter. Further, based on the material available onrecord, the Commission was of the view that a furtherinvestigation was not required in the matter. assessees on undisclosed income, could have been donewithin that period. That not having been done, thedepartment could not insist on a further enquiry orinvestigation once the Settlement Commission was seizedof the matter. Further, based on the material available onrecord, the Commission was of the view that a furtherinvestigation was not required in the matter. As regards the adoption of LIFO method of accounting,adopted by two of the assessees for the purposes ofvaluation of closing stock in their proprietary concerns,the said accounting method was followed consistently formany years in the past and, had been accepted by thedepartment as well. That being the case, and in view ofthe fact that the AS-2 accounting standard did notprohibit the LIFO method, and further, the AS-2accounting standard was not mandatory for the purposesof the IT Act, the assessees had not committed anyirregularity by following the LIFO method. adopted by two of the assessees for the purposes ofvaluation of closing stock in their proprietary concerns,the said accounting method was followed consistently formany years in the past and, had been accepted by thedepartment as well. That being the case, and in view ofthe fact that the AS-2 accounting standard did notprohibit the LIFO method, and further, the AS-2accounting standard was not mandatory for the purposesof the IT Act, the assessees had not committed anyirregularity by following the LIFO method. The department has not adduced cogent evidence tosubstantiate their contentions with regard to allegedunaccounted transactions of the assessees withgoldsmiths/manufacturers. During the search of theassessees’ premises, there was no instance ofunaccounted sales or purchases detected. There was alsono difference noticed in the quantitative stock in any ofsubstantiate their contentions with regard to allegedunaccounted transactions of the assessees withgoldsmiths/manufacturers. During the search of theassessees’ premises, there was no instance ofunaccounted sales or purchases detected. There was alsono difference noticed in the quantitative stock in any of the branches of the assessees. The deposition of twoemployee goldsmiths of the assessees would howeverpoint to a possibility of some transactions having beenunaccounted. To cover this, and to avoid any litigation,the assessees were required to offer an additional amountof Rs.20,00,00,000 for all the years covered by theirsettlement applications. With regard to the alleged sales suppression for theperiod from 01.04.2010 to 21.04.2010, it was seen that,on account of a software defect that persisted for the saidperiod, there was a difference in the sales value,including value addition, shown in the estimate and in thefinal bill. On account of this the rupee value of sales wasinitially entered incorrectly in the books of account. Thiswas, however, rectified subsequently by the assesseesand the income that had not been reflected in the booksof account was offered for settlement. The Commissionwas of the view that the disclosure made by the assesseesunder this head was correctly done. period from 01.04.2010 to 21.04.2010, it was seen that,on account of a software defect that persisted for the saidperiod, there was a difference in the sales value,including value addition, shown in the estimate and in thefinal bill. On account of this the rupee value of sales wasinitially entered incorrectly in the books of account. Thiswas, however, rectified subsequently by the assesseesand the income that had not been reflected in the booksof account was offered for settlement. The Commissionwas of the view that the disclosure made by the assesseesunder this head was correctly done. As regards the alleged difference in the figures showingpurchase of old gold in the returns filed by the assesseesand the data obtained from the software that was seizedby the department during the search, the discrepancypointed out by the department was a matter ofverification to be done by the Settlement Commission.purchase of old gold in the returns filed by the assesseesand the data obtained from the software that was seizedby the department during the search, the discrepancypointed out by the department was a matter ofverification to be done by the Settlement Commission. This verification was done in the office of the Commissionand the department was also asked to be present at thetime of verification. The department, however, chose notto be present at the time of verification and, further, didnot choose to submit any report on the said aspect either.Their request for some more time for recovery of relevantdata from the seized computers did not meritconsideration because the report submitted by themunder Rule 9, indicated that the recovery of the data hadalready been done using experts. Further, the verificationdone by the Commission revealed that there was nodiscrepancy and this was fortified by the fact that therewas no difference in stock or cash balance found at thetime of search of the assessees’ premises. No additionaldisclosure from the assessees under this head was,therefore, necessitated. The amounts shown by the department as representingtransactions of purchase of gold where the procedureunder Section 40A (3) of the IT Act had not been followed,were incorrect. The overstatement of these amounts wason account of the fact that the department had not takeninto account the Customer Advance Register maintainedin the Advance Soft Software maintained at the HeadOffice. The said Register contained details of receipt ofold gold ornaments for future exchange under the oldgold advance scheme, as also details of the cash advancestransactions of purchase of gold where the procedureunder Section 40A (3) of the IT Act had not been followed,were incorrect. The overstatement of these amounts wason account of the fact that the department had not takeninto account the Customer Advance Register maintainedin the Advance Soft Software maintained at the HeadOffice. The said Register contained details of receipt ofold gold ornaments for future exchange under the oldgold advance scheme, as also details of the cash advances given by the customers under the cash advance scheme.Although the department has a case that the AdvanceSoft Software was a fabricated one and did not reallyexist, the deposition of Sri.P.A.Jose did point to theexistence of the scheme. The appraisal report of thedepartment also indicates that there was such a schemein existence. There was also the possibility of thedepartment not having found the software at the time ofsearch as there were three other softwares that were notseized and it was not the case of the department that theydid not exist. An analysis of the software, however,disclosed that there was no mechanism for linking anadvance made under the old gold advance scheme to thecorresponding future sale and this was a shortcoming inthe maintenance of supporting records. However, theexplanation of the assessees with regard to the non-requirement of mentioning the name of the customer whodeposited the gold, when the transaction could be linkedwith the purchase bill number where the date and time ofadvance receipt is mentioned, was found acceptable bythe Commission. The Commission also noted that thedepartment only had material with regard to allegedviolations under this head for the assessment years 2011-12 and 2012-13 and for the assessment years 2006-07 to2010-11, the department had not detected any suchviolation and further, for the said years scrutinyassessments had taken place where the department did not find any discrepancy on this count. Having statedthat, the Commission proceeded to observe that it waspossible that the assessing officer was guided by the auditreports while conducting the scrutiny assessments andhence the possibility of there having been violations ofSection 40A (3) in the previous years could not be ruledout. The additional income that was required to beoffered by the assessees under this head, for the purposesof settlement, would be Rs.20,94,00,000 for theassessment years 2006-07 to 2010-11 and Rs.9,24,00,000for the assessment years 2011-12 and 2012-13. As regards the contentions of the department regardingthe assessees running a parallel scheme, along with thecash advance scheme, for introducing their own cash byshowing bogus customers, there was no evidence tosupport such an allegation. There was no such suggestionin the appraisal report or in the reports submitted underSection 245D (B) or under Rule 9. the assessees running a parallel scheme, along with thecash advance scheme, for introducing their own cash byshowing bogus customers, there was no evidence tosupport such an allegation. There was no such suggestionin the appraisal report or in the reports submitted underSection 245D (B) or under Rule 9. The Settlement Commission found the assessees entitledfor the benefit of immunity from penalty and prosecutionunder the IT Act, insofar as the assessees had effected afull and true disclosure and the additional amountsoffered for settlement were with a view to bring a quietusto the matter and in the spirit of settlement. The prayerfor waiver of interest, however, was rejected.for the benefit of immunity from penalty and prosecutionunder the IT Act, insofar as the assessees had effected afull and true disclosure and the additional amountsoffered for settlement were with a view to bring a quietusto the matter and in the spirit of settlement. The prayerfor waiver of interest, however, was rejected. 6. It is these findings of the Settlement Commission that areimpugned in the writ petitions preferred on behalf of the Revenue. 7. I have heard Sri.P.K.Ravindranath Menon, the learned SeniorCounsel appearing on behalf of the Income Tax department as well asSri.Abhishek Manu Singhvi, the learned Senior Counsel appearing onbehalf of the assessees in all the writ petitions. 8. The submissions of the learned Senior Counsel for theIncome Tax department, briefly put, are as follows: The settlement commission erred in not giving anopportunity to the department to complete theinvestigation, with regard to the income that wasallegedly suppressed consequent to an erroneous basis,adopted by two of the assessees, for valuation of closingstock. This amounted to a violation of the procedureunder the Act, especially when there were no validreasons to deny the department an opportunity tocomplete the investigation. opportunity to the department to complete theinvestigation, with regard to the income that wasallegedly suppressed consequent to an erroneous basis,adopted by two of the assessees, for valuation of closingstock. This amounted to a violation of the procedureunder the Act, especially when there were no validreasons to deny the department an opportunity tocomplete the investigation. The department had material with it which would showthat the system of accounting followed by two of thethat the system of accounting followed by two of the The department had material with it which would showthat the system of accounting followed by two of thethat the system of accounting followed by two of the assesses, with respect to the valuation of closing stock,was wrong and not in conformity with the provisions inthe IT Act. It had been established that the LIFO methodof valuation of closing stock adopted by the saidassessees was not in conformity with the practiceadopted by others in the same trade. The system ofaccounting followed by the assessee did not even conformto the accounting practice that was known as LIFO sincethe necessary pre-conditions, for qualifying as LIFO, didnot exist in the instant case. Further, the mere fact thatthe assessees were following the said practice ofaccounting consistently would not insulate them from ademand of tax if the accounting practice followed by theassessee was contrary to the provisions of the IT Act.Under these circumstances, the settlement commissionought to have noted that the assessees had not offeredany additional income in the applications filed before thesettlement commission and hence their applicationmerited rejection on the ground that it did not contain afull and true disclosure of undisclosed income ascontemplated under the scheme of settlement under theIT Act. Reliance is placed on the decisions in TuticorinAlkali Chemicals and Fertilizers Ltd. v.Commissioner of Income-Tax–[1997 (227) ITR 172(SC)]andMinister of National Revenue v. AnacondaAmerican Brass Ltd.–[1956 (30) ITR 84 (PC)]insupport of the said contention. In respect of the undisclosed income detected by thedepartment under the heads of Additions under Section68oftheITAct,purchasesfromgoldsmiths/manufacturers and disallowances underSection 40A (3) of the IT Act, the Settlement Commissionhad suggested the addition of various amounts underthese heads, towards undisclosed income, and this wasaccepted by the assessees who offered the said amounts,albeit stating that they were doing it to put an end tolitigation and in the spirit of settlement. Whatever, mayhave been the reasons for the offering of additionalamount by the assessees, the fact that they offeredadditional amounts showed that their initial disclosurewas not a full and true disclosure of their income andhence the settlement commission ceased to have anyjurisdiction to proceed with the matter. Reliance is placedon the decisions of the Supreme Court in AjmeraHousing Corporation and Another v. Commissionerof Income-Tax – [2010 (326) ITR 642 (SC)].department under the heads of Additions under Section68oftheITAct,purchasesfromgoldsmiths/manufacturers and disallowances underSection 40A (3) of the IT Act, the Settlement Commissionhad suggested the addition of various amounts underthese heads, towards undisclosed income, and this wasaccepted by the assessees who offered the said amounts,albeit stating that they were doing it to put an end tolitigation and in the spirit of settlement. Whatever, mayhave been the reasons for the offering of additionalamount by the assessees, the fact that they offeredadditional amounts showed that their initial disclosurewas not a full and true disclosure of their income andhence the settlement commission ceased to have anyjurisdiction to proceed with the matter. Reliance is placedon the decisions of the Supreme Court in AjmeraHousing Corporation and Another v. Commissionerof Income-Tax – [2010 (326) ITR 642 (SC)]. The Settlement Commission also erred in grantingimmunity from penalty and prosecution to the assesseeswithout even recording their satisfaction with regard tothe assessees having complied with the requirements offull and true disclosure. This was serious jurisdictionalerror committed by the Settlement Commission. immunity from penalty and prosecution to the assesseeswithout even recording their satisfaction with regard tothe assessees having complied with the requirements offull and true disclosure. This was serious jurisdictionalerror committed by the Settlement Commission. When it is found that the Settlement Commission hadacted in excess of jurisdiction while allowing theapplications preferred by the assessees to be proceededwith and passing orders thereon, this Court would beacting in accordance with its powers under Article 226 ofthe Constitution of India to quash the order of thesettlement commission as one passed in excess ofjurisdiction. The matter would accordingly have to beremanded to the settlement commission for consideringthe application afresh, after conducting an investigationwith regard to the actual amount of undisclosed incomeof the assessees.acted in excess of jurisdiction while allowing theapplications preferred by the assessees to be proceededwith and passing orders thereon, this Court would beacting in accordance with its powers under Article 226 ofthe Constitution of India to quash the order of thesettlement commission as one passed in excess ofjurisdiction. The matter would accordingly have to beremanded to the settlement commission for consideringthe application afresh, after conducting an investigationwith regard to the actual amount of undisclosed incomeof the assessees. 9. Per contra, the learned Senior Counsel appearing on behalf of the respondent assessees would contend as follows: The contention of the petitioner, based on the decision ofthe Supreme Court in Ajmera Housing Corporation'scase (supra), that whenever there is an offer of additionalamounts made by an assessee during the course of theproceedings before the commission, it would necessarilyimply that the original disclosure made by him was not fulland true, cannot be legally countenanced. Such aninterpretation of the judgment of the Supreme Courtwould render the whole scheme of settlement under the ITAct meaningless. the Supreme Court in Ajmera Housing Corporation'scase (supra), that whenever there is an offer of additionalamounts made by an assessee during the course of theproceedings before the commission, it would necessarilyimply that the original disclosure made by him was not fulland true, cannot be legally countenanced. Such aninterpretation of the judgment of the Supreme Courtwould render the whole scheme of settlement under the ITAct meaningless. ●The decision of the Supreme Court in Ajmera HousingCorporation's case (supra)has been interpreted as onethat is applicable to the facts of that case and not as layingdown a general proposition that additional amountscannot be offered by an assessee during the course ofsettlement proceedings, in order to avoid protractedlitigation and in the spirit of settlement. The decision ofthe Bombay High Court in Director of Income-Tax(International Taxation) v. Income-Tax SettlementCommission and Others – [2014 (365) ITR 108(Bom)]is cited in support of the said contention. ●The decision of the Supreme Court in Ajmera HousingCorporation's case (supra)has been interpreted as onethat is applicable to the facts of that case and not as layingdown a general proposition that additional amountscannot be offered by an assessee during the course ofsettlement proceedings, in order to avoid protractedlitigation and in the spirit of settlement. The decision ofthe Bombay High Court in Director of Income-Tax(International Taxation) v. Income-Tax SettlementCommission and Others – [2014 (365) ITR 108(Bom)]is cited in support of the said contention. As regards the objections pointed out by the petitionerwith regard to the method of accounting that was adoptedby two of the assessees namely, the LIFO method, it wasnot in dispute that the said method of accounting was onethat was in vogue and followed by others in the sametrade. The acceptance of the said method of accounting forincome tax purposes was recognised in many decisions ofthe High Courts and Income Tax Appellate Tribunals.Further, in terms of Sections 145 and 145A of the IT Act,the LIFO method adopted by the assessees could bejustified on account of it being the consistent methodfollowed by the assessees for over 30 years. Thesettlement commission was, therefore, justified in notinsisting on any additional offer from the assessees underwith regard to the method of accounting that was adoptedby two of the assessees namely, the LIFO method, it wasnot in dispute that the said method of accounting was onethat was in vogue and followed by others in the sametrade. The acceptance of the said method of accounting forincome tax purposes was recognised in many decisions ofthe High Courts and Income Tax Appellate Tribunals.Further, in terms of Sections 145 and 145A of the IT Act,the LIFO method adopted by the assessees could bejustified on account of it being the consistent methodfollowed by the assessees for over 30 years. Thesettlement commission was, therefore, justified in notinsisting on any additional offer from the assessees under this head. ●As regards the income arising from a disallowance underSection 40A (3) of the IT Act, it was relevant to note thatthe cases under Section 40A (3) covered two kinds oftransactions with regard to purchase of old gold. Firstly,there were purchases of old gold made outright from thecustomer against cash payments. In such cases, where thepayment to the customer exceeded the prescribed limit,the procedure under Section 40A (3) was complied with.In the second category of cases, the purchase of old goldfrom customers was under a scheme of exchange,whereby a customer could deposit his old gold with theassessees and purchase gold ornaments, of the sameweight as the gold deposited, on a later date, irrespectiveof any upward revision of the price of gold in theinterregnum. In such cases, the provisions of Section 40A(3) would not get attracted on account of Rule 6DD (d) ofthe IT Rules that excluded cases, where payment wasmade by way of adjustment against the amount of anyliability incurred by the payee for any goods supplied orservices rendered by the assessee to such payee, from theambit of Section 40A (3) of the IT Act. The existence of theexchange scheme was established through evidence thatwas available with the department and the settlementcommission found that the customer advance softwarethat was maintained by the assessees at their head office contained the details of all such transactions. Theadditional amounts offered by the assessees under thishead were only towards a probability that income thatmight have escaped assessment on account of ashortcoming in the software used. The additional amountsoffered were at the suggestion of the settlementcommission and not pursuant to any revision ofundisclosed income by the assessees. contained the details of all such transactions. Theadditional amounts offered by the assessees under thishead were only towards a probability that income thatmight have escaped assessment on account of ashortcoming in the software used. The additional amountsoffered were at the suggestion of the settlementcommission and not pursuant to any revision ofundisclosed income by the assessees. With regard to the allegations of the petitioners againstthe findings of the settlement commission under the headsof “Differences in purchases” and “Additions underSection 68”, there is no challenge in the writ petitionagainst the findings of the settlement commission on theissue of difference in purchases. As regards the additionsmade under Section 68 of the IT Act, although there is achallenge to the findings of the settlement commissionunder this head in the writ petition, no objections wereraised before the settlement commission at theappropriate stage of the proceedings before that forum.The settlement commission nevertheless considered theseaspects in their order and gave reasons for their decisionon these issues. the findings of the settlement commission under the headsof “Differences in purchases” and “Additions underSection 68”, there is no challenge in the writ petitionagainst the findings of the settlement commission on theissue of difference in purchases. As regards the additionsmade under Section 68 of the IT Act, although there is achallenge to the findings of the settlement commissionunder this head in the writ petition, no objections wereraised before the settlement commission at theappropriate stage of the proceedings before that forum.The settlement commission nevertheless considered theseaspects in their order and gave reasons for their decisionon these issues. As regards the jurisdiction of this Court, to interfere withthe orders passed by the settlement commission, underArticle 226 of the Constitution of India, reliance is placedthe orders passed by the settlement commission, underArticle 226 of the Constitution of India, reliance is placed on the decisions in Jyotendrasinhji v. S.I.Tripathi –[1993 (201) ITR 611 (SC)]; N.Krishnan v. SettlementCommission – [1989 (180) ITR 585 (Kar)]; R.B.Shreeram Durga Prasad and Fatehchand NursingDas v. Settlement Commission (IT & WT) andAnother – [1989 (176) ITR 169 (SC)]; ShriyansPrasad Jain (decd. by legal representative) v.Income-Tax Officer and Others – [1993 (204) ITR616 (SC)]; Union of India and Others v. Ind-SwiftLaboratories Limited – [(2011) 4 SCC 635] andCommissioner of Income-Tax v. Gopal Gupta – [2014(364) ITR 446 (Delhi)]to contend that the scheme ofsettlement contained in Chapter XIX-A of the IT Act is inthe nature of a self contained code. It is self contained inthat it contemplates a finality to issues settled, it is to bedone in a time bound manner and the orders passedthereunder are not subjected to any appellate or revisionalremedy. It follows, therefore, that in exercise of thepowers of judicial review, this Court must keep in mindthe above features of Chapter XIX-A of the Act andexercise its power of review only on limited grounds suchas violation of statutory provisions by the commission orjurisdictional errors committed by the commission [See:-Syed Yakoob v. K.S.Radhakrishnan and Others ].This Court would not, in exercise of thepower of judicial review, assume the role of an appellateor revisional authority (See: Nirmala J. Jhala v. State of -Gujarat and Another [(2013) 4 SCC 301] andKalinga Mining Corporation v. Union of India andOthers - [(2013) 5 SCC 252]). 10. On a consideration of the facts and circumstances of thecase, as also the submissions made across the bar, I am of the viewthat the following issues arise for consideration in this case, namely; -Gujarat and Another [(2013) 4 SCC 301] andKalinga Mining Corporation v. Union of India andOthers - [(2013) 5 SCC 252]). 10. On a consideration of the facts and circumstances of thecase, as also the submissions made across the bar, I am of the viewthat the following issues arise for consideration in this case, namely; (1) Whether this court, in exercise of its jurisdictionunder Article 226 of the Constitution of India, willinterfere with orders passed by the SettlementCommission under Section 245D of the Income TaxAct, 1961 and if so, to what extent? (2) Whether, on account of the offer of additionalamounts by the assessees towards undisclosedincome, at the instance of the SettlementCommission, it could be inferred that the assesseeshad not made a full and true disclosure of theirincome for the purposes of settlement and therebydenuded the Commission of its jurisdiction toproceed with the matter? (3) Whether, in the instant case, the SettlementCommission was justified in refusing to thedepartment an opportunity to conduct furtherinvestigation to ascertain the exact amount of income that had been allegedly undisclosed by theassessees? (4) Whether the findings of the SettlementCommission with regard to the allegedundervaluation of closing stock by two of theassessees is liable to be interfered with? Issue 1: The first issue to be considered is the nature of the jurisdiction that isto be exercised by this court while dealing with a writ petition filedunder Article 226 of the Constitution of India, challenging the orderspassed by the Settlement Commission under the IT Act, 1961. It istrite that this court, in exercise of its jurisdiction under Article 226 ofthe Constitution of India, does not assume the role of an appellateauthority to conduct a merit review of orders passed by theSettlement Commission. Its role is confined to one of judicial review,of the orders of the Settlement Commission, by applying the well-settled principles that inform the exercise of such a jurisdiction.Accordingly, this court would be concerned with the decision makingprocess, adopted by the Commission, and not the decision itself. Itwould be apposite to notice some of the judgments that clearly indicate that the scope of enquiry of this court, in matters involving achallenge to orders passed by the settlement commission, is only tosee whether the order of the Commission complies with the statutoryprovisions of Chapter XIX-A of the IT Act. The Supreme Court in the case ofJyotendrasinhji v. S. I. Tripathi and Others-[1993 (201) ITR 611 (SC)], observed as follows at page 623: indicate that the scope of enquiry of this court, in matters involving achallenge to orders passed by the settlement commission, is only tosee whether the order of the Commission complies with the statutoryprovisions of Chapter XIX-A of the IT Act. The Supreme Court in the case ofJyotendrasinhji v. S. I. Tripathi and Others-[1993 (201) ITR 611 (SC)], observed as follows at page 623: “.....Be that as it may, the fact remains that it is open to theCommission to accept an amount of tax by way ofsettlement and to prescribe the manner in which the saidamount shall be paid. It may condone the defaults andlapses on the part of the assessee and may waive interest,penalties or prosecution, where it thinks appropriate.Indeed, it would be difficult to predicate the reasons andconsiderations which induce the Commission to make aparticular order, unless the Commission itself chooses togive reasons for its order. Even if it gives reasons in a givencase, the scope of enquiry in the appeal remains the same asindicated above, viz., whether it is contrary to any of theprovisions of the Act. In this context, it is relevant to notethat the principle of natural justice (audi alteram partem)has been incorporated in section 245D itself. The soleoverall limitation upon the Commission, thus, appears to bethat it should act in accordance with the provisions of theAct. The scope of enquiry, whether by the High Court underarticle 226 or by this Court under article 136, is also thesame - whether the order of the Commission is contrary toany of the provisions of the Act and if so, apart from groundof bias, fraud and malice which, of course, constitute aseparate and independent category, has it prejudiced thepetitioner/appellant.....” The Karnataka High Court in N.Krishnan (Decd. By legal representative, K.Badrinarayan, and others) v. SettlementCommission and Others-[1989 (180) ITR 585]observed as follows at page 597: “The provision for settlement would show that it is in thenature of statutory arbitration to which a person maysubmit himself voluntarily. Hence, many of the grounds onwhich an arbitration award could be set aside would not beavailable in view of the nature and jurisdiction of theSettlement Commission. A decision of the SettlementCommission could be interfered with only (i) if graveprocedural defects such as violation of the mandatoryprocedural requirements of the provisions in Chapter XIX-A of the Income-tax Act, 1961, and/or violation of the rulesof natural justice are made out; or (ii) if it is found thatthere is no nexus between the reasons given and thedecision taken by the Settlement Commission. The courtc