Wp(C)/30797/2008 Of The Commissioner Of Income Tax, Kannur 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. 30797 of 2008 (N) ---------------------------- PETITIONER:------------------- THE COMMISSIONER OF INCOME TAX, KANNUR. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): -------------------------- * 1. SETTLEMENT COMMISSION (IT & WT), ADDITIONAL BENCH, 488 489, ANNASALAI, CHENNAI 600 035.(DELETED) 2. SHRI K.T.P. MOHAMMED, MAZHAR, JOHN MILL ROAD, KANNUR. *R1 DELETED FROM THE PARTY ARRAY AS PER ORDER DATED 17/02/2012 IN IA. 2449/2011. R2 BY SRI.T.N.SEETHARAMAN (SENIOR ADVOCATE) ADV. SRI.S.ARUN RAJ THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 10-11-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: mbr/ WP(C).No. 30797 of 2008 (N) --------------------------------------- APPENDIX PETITIONER'S EXHIBITS: ------------------------------------ EXHIBIT P1 :COPY OF THE RETURN (BLOCK YEAR) FILED ON 18.5.07. EXHIBIT P2 :COPYOF BLOCK ASSESSMENT ORDER DATED 21.3.02. EXT.P2(A) :COPY OF THE SETTLEMENT COMMISSION DATED 20.9.2002. EXHIBIT P3 :COPY OF THE ORDER SETTLEMENT COMMISSION DATED 23.11.2007. EXHIBIT P4 :COPY OF THE WRITTEN SUBMISSION BY THE COMMISSION DATED 18.1.2008.DATED 18.1.2008. EXHIBIT P5 :COPY OF MISCELLANCIOUS PETITION DATED 1.4.08. RESPONDENT'S EXHIBITS: -------------------------------------- EXT. R2(A) :TRUE COPY OF THE SETTLEMENT COMMISSION ORDER DATED 30.1.2009. DATED 30.1.2009. EXT. R2(B) :TRUE COPY OF THE LETTER DATED 19.11.2008 FILED BY THE 2ND RESPONDENT.2ND RESPONDENT. EXT. R2(C) :TRUE COPY OF THE SETTLEMENT APPLICATION ALONG WITH THE ENCLOSURES FILED BY THE ASSESSEE BEFORE THE SETTLEMENT COMMISSION.ENCLOSURES FILED BY THE ASSESSEE BEFORE THE SETTLEMENT COMMISSION. EXT.R2(D) :TRUE COPY OF THE STATEMENT RECONCILING INCOME OFFERED IN THE SETTLEMENT APPLICATION AND TOTAL UNDISCLOSED INCOME AS PER SETTLEMENT COMMISSION'S ORDER U/S 245 D(4) DATED 14.3.2008 WITH REMARKS/NOTES.THE SETTLEMENT APPLICATION AND TOTAL UNDISCLOSED INCOME AS PER SETTLEMENT COMMISSION'S ORDER U/S 245 D(4) DATED 14.3.2008 WITH REMARKS/NOTES. /TRUE COPY/ P.S. TO JUDGE A.K.JAYASANKARAN NAMBIAR, J.------------------------------- W.P.(C).NO.30797 OF 2008 (N) -----------------------------------Dated this the 10[th] day of November, 2014 J U D G M E N T This is a writ petition preferred by the Commissioner of IncomeTax, challenging Ext.P3 order dated 14.3.2008 of the Income TaxSettlement Commission, passed under Section 245D (4) of the IncomeTax Act, 1961. 2. The brief facts necessary for disposal of this writ petition areas follows: Pursuant to a search initiated under Section 132 of the IncomeTax Act, 1961, hereinafter referred to as the 'IT Act', in the premisesof the respondent on 29.3.2000, notices were issued to the respondentunder Section 158BC of the IT Act. In response to the said notice, therespondent filed a return of income on 12.7.2000 showing a totalincome of Rs.78,210/- for the block period. After considering the cashflow statement furnished by the respondent, the assessment wascompleted against the respondent, by an assessment order dated21.3.2002, by working out the tax and interest payable at W.P.(C).NO.30797/2008 2. The brief facts necessary for disposal of this writ petition areas follows: Pursuant to a search initiated under Section 132 of the IncomeTax Act, 1961, hereinafter referred to as the 'IT Act', in the premisesof the respondent on 29.3.2000, notices were issued to the respondentunder Section 158BC of the IT Act. In response to the said notice, therespondent filed a return of income on 12.7.2000 showing a totalincome of Rs.78,210/- for the block period. After considering the cashflow statement furnished by the respondent, the assessment wascompleted against the respondent, by an assessment order dated21.3.2002, by working out the tax and interest payable at W.P.(C).NO.30797/2008 Rs.99,84,516/-. A demand notice was also issued to the respondentpursuant to the said assessment. During the pendency of the blockassessment proceedings, however, the respondent assessee had filedan application before the Settlement Commission, Chennai. TheSettlement Commission proceeded with the application in terms of theChapter XIX-A of the IT Act and finally passed its order, under Section245D (4) of the Act. While passing final orders in the matter, theSettlement Commission took into account additional amounts thatwere offered by the assessee at the instance of the SettlementCommission and added this amount to the total amount that had to bepaid by the assessee for the purposes of settlement. The SettlementCommission also took into account the cooperation by the assesseeduring the proceedings before the Settlement Commission andgranted immunity from penalty and prosecution in terms of Section245H of the IT Act. It is this order of the Settlement Commission thatis impugned by the Department in the instant writ petition. 3. A counter affidavit has been filed by the respondent whereinit is pointed out that the additional amount, over and in addition to theamounts of undisclosed income declared by the assessee along withthe settlement application filed before the Commission, were all W.P.(C).NO.30797/2008 amounts that were offered pursuant to the suggestion of theSettlement Commission and with a view to put a finality to thelitigation. It is explained that the said amounts were amounts inrespect of which the Department did not have any material to proceedagainst the assessee and these were offered by way of effecting minoradjustments to the declaration already made before the SettlementCommission, but without conceding that there were further amountsthat remained to be offered towards undisclosed income by theassessee. It is also pointed out that the final order passed by theSettlement Commission is conclusive as to the matters stated thereinin terms of Section 245I of the IT Act, and that the Legislaturecontemplated a finality in the scheme of settlement which could notbe ignored by this Court while exercising its powers under Article 226of the Constitution of India. 4. I have heard Sri.P.K.Ravindranath Menon, the learned SeniorStanding counsel appearing on behalf of the petitioner as alsoSri.T.N.Seetha Raman, the learned Senior counsel appearing onbehalf of the respondent. 5. The learned senior counsel for the petitioner would 4. I have heard Sri.P.K.Ravindranath Menon, the learned SeniorStanding counsel appearing on behalf of the petitioner as alsoSri.T.N.Seetha Raman, the learned Senior counsel appearing onbehalf of the respondent. 5. The learned senior counsel for the petitioner would vehemently contend that, by accepting additional amounts, over andabove the amounts declared by the respondent assessee towardsundisclosed income in its settlement application, the respondentassessee had demonstrated that the original application submitted byit, did not contain a full and true disclosure of the undisclosed incomefor the purposes of settlement. It is the specific case of counsel forthe petitioner that by offering additional amounts and therebyrendering the original declaration as one that was not full and true forthe purposes of proceedings under Chapter XIX-A of the IT Act, theSettlement commission was virtually denuded of its jurisdiction toproceed with the matter. Reliance is placed by the learned Seniorcounsel on the decision of the Supreme Court in Ajmera Housing-Corporation and Another v. Commissioner of Income Tax[2010 (326) ITR 642 (SC)]. It is further contended by seniorcounsel for the petitioner that the Settlement Commission did notenter a finding with regard to the existence of a declarationcontaining a true and full disclosure of undisclosed income of theassessee, as also the manner in which such income was derived andthe additional amount of income tax payable on such income, for thepurposes of settlement. It is also pointed out that, as regards thegrant of immunity from penalty and prosecution under the IT Act, W.P.(C).NO.30797/2008 there was no finding entered into by the Settlement Commissionregarding the compliance by the assessee of the requisitepreconditions namely, the 'full and true disclosure' of income and themanner of deriving such income and the cooperation by the assesseeduring the proceedings before the Settlement Commission, for thepurposes of grant of immunity from penalty and prosecution. 6. Per contra, the learned senior counsel appearing for therespondent would point out that order of the Settlement Commissionhad been conferred with a statutory finality under the IT Act and thisCourt would not normally interfere with the final orders passed by theSettlement Commission in exercise of its powers under Article 226 ofthe Constitution of India. As regards the contention of the learnedSenior counsel for the petitioner, with reference to the Ajmera'Housing Corporations case [supra], it is pointed out that the saiddecision of the Supreme Court applied on the peculiar facts of thatcase and it would not apply across the board to all cases where therewere additional offers of undisclosed income effected by the applicantbefore the Settlement Commission. It is his specific case that theassessee has cooperated through out the proceedings before theSettlement commission and hence the decision of the Settlement Commission to grant immunity from penalty and prosecution couldnot be found fault with. 7. I have considered the submissions made by the learnedsenior counsel appearing on both sides. On a consideration of thefacts and circumstances of the case as also the submissions madeacross the Bar, I find that this is a case where a final order of theSettlement Commission has been impugned in proceeding underArticle 226 of the Constitution of India. While dealing with the natureof the jurisdiction exercised by this Court while entertaining writpetitions against the orders passed by the Settlement Commissionunder the IT Act, 1961, I have in a judgment rendered in W.P.(C).No.2637/2014 and connected cases held as follows: Commission to grant immunity from penalty and prosecution couldnot be found fault with. 7. I have considered the submissions made by the learnedsenior counsel appearing on both sides. On a consideration of thefacts and circumstances of the case as also the submissions madeacross the Bar, I find that this is a case where a final order of theSettlement Commission has been impugned in proceeding underArticle 226 of the Constitution of India. While dealing with the natureof the jurisdiction exercised by this Court while entertaining writpetitions against the orders passed by the Settlement Commissionunder the IT Act, 1961, I have in a judgment rendered in W.P.(C).No.2637/2014 and connected cases held as follows: “It is trite that this court, in exercise of its jurisdictionunder Article 226 of the Constitution of India, does notassume the role of an appellate authority to conduct amerit review of orders passed by the SettlementCommission. Its role is confined to one of judicial review, ofthe orders of the Settlement Commission, by applying thewell-settled principles that inform the exercise of such ajurisdiction. Accordingly, this court would be concernedwith the decision making process, adopted by theCommission, and not the decision itself. It would beapposite to notice some of the judgments that clearlyindicate that the scope of enquiry of this court, in mattersinvolving a challenge to orders passed by the settlementcommission, is only to see whether the order of the Commission complies with the statutory provisions ofChapter XIX-A of the IT Act. The Supreme Court in thecase of Jyotendrasinhji v. S. I. Tripathi and Others-[1993 (201) ITR 611 (SC)], observed as follows at page623: “.....Be that as it may, the fact remains that it isopen to the Commission to accept an amount oftax by way of settlement and to prescribe themanner in which the said amount shall be paid. Itmay condone the defaults and lapses on the partof the assessee and may waive interest, penaltiesor prosecution, where it thinks appropriate.Indeed, it would be difficult to predicate thereasons and considerations which induce theCommission to make a particular order, unlessthe Commission itself chooses to give reasons forits order. Even if it gives reasons in a given case,the scope of enquiry in the appeal remains thesame as indicated above, viz., whether it iscontrary to any of the provisions of the Act. Inthis context, it is relevant to note that the principleof natural justice (audi alteram partem) has beenincorporated in section 245D itself. The soleoverall limitation upon the Commission, thus,appears to be that it should act in accordance withthe provisions of the Act. The scope of enquiry,whether by the High Court under article 226 or bythis Court under article 136, is also the same -whether the order of the Commission is contraryto any of the provisions of the Act and if so, apartfrom ground of bias, fraud and malice which, ofcourse, constitute a separate and independentcategory,hasitprejudicedthepetitioner/appellant.....” The Karnataka High Court in N.Krishnan (Decd. By legalrepresentative, K.Badrinarayan, and others) v.Settlement Commission and Others-[1989 (180) ITR585]observed as follows at page 597: “The provision for settlement would show that itis in the nature of statutory arbitration to which a The Karnataka High Court in N.Krishnan (Decd. By legalrepresentative, K.Badrinarayan, and others) v.Settlement Commission and Others-[1989 (180) ITR585]observed as follows at page 597: “The provision for settlement would show that itis in the nature of statutory arbitration to which a person may submit himself voluntarily. Hence,many of the grounds on which an arbitrationaward could be set aside would not be available inview of the nature and jurisdiction of theSettlement Commission. A decision of theSettlement Commission could be interfered withonly (i) if grave procedural defects such asviolation of the mandatory proceduralrequirements of the provisions in Chapter XIX-Aof the Income-tax Act, 1961, and/or violation ofthe rules of natural justice are made out; or (ii) ifit is found that there is no nexus between thereasons given and the decision taken by theSettlement Commission. The court cannotinterfere either with an error of fact or error oflaw alleged to have been committed by theSettlement Commission.” More recently, the Supreme Court in Union of India andOthers v. Ind-Swift Laboratories Limited-[(2011) 4SCC 635]observed as follows at page 643: “An order passed by the Settlement Commissioncould be interfered with only if the said order isfound to be contrary to any provisions of the Act.So far as the findings of fact recorded by theCommission or question of facts are concerned,the same is not open for examination either by theHigh Court or by the Supreme Court. In thepresent case the order of the SettlementCommission clearly indicates that the said order,particularly, with regard to imposition of simpleinterest @ 10% per annum was passed inaccordance with the provisions of Rule 14 but theHigh Court wrongly interpreted the said Rule andthereby arrived at an erroneous finding. So far asthe second issue with respect to interest on Rs.50lakhs is concerned, the same being a factual issueshould not have been gone into by the High Courtexercising the writ jurisdiction and the High Courtshould not have substituted its own opinionagainst the opinion of the Settlement Commissionwhen the same was not challenged on merits.” Hence, it is well settled that the power of judicial review isnot to be exercised to decide the issue on facts or on aninterpretation of the documents available before theCourt.” It would follow therefore, that in the instant case, the enquiry by thisCourt will only be with regard to whether or not the SettlementCommission exercised a jurisdiction that it did not have or,alternatively, if it did have the jurisdiction, whether it erred in theexercise of that jurisdiction. In the latter event, this Court would alsohave to bear in mind the nature of the jurisdiction exercised by theSettlement Commission, which is akin to a statutory arbitration. 8. The primary contention of the learned senior counsel for thepetitioner is that the very fact, that additional amounts were offeredby the respondent assessee before the Settlement Commission, wouldindicate that the original declaration made by the respondentassessee, along with the application filed before the SettlementCommission, did not contain a full and true disclosure of theundisclosed income or the manner in which such income was derived.While considering a similar contention, raised in the other batch ofcases that I had decided namely, in W.P.(C).No.2637/2014 and connected cases, I had examined the scheme of the Chapter XIX-A ofthe IT Act and found as follows: 8. The primary contention of the learned senior counsel for thepetitioner is that the very fact, that additional amounts were offeredby the respondent assessee before the Settlement Commission, wouldindicate that the original declaration made by the respondentassessee, along with the application filed before the SettlementCommission, did not contain a full and true disclosure of theundisclosed income or the manner in which such income was derived.While considering a similar contention, raised in the other batch ofcases that I had decided namely, in W.P.(C).No.2637/2014 and connected cases, I had examined the scheme of the Chapter XIX-A ofthe IT Act and found as follows: “It is apparent from a perusal of the scheme of ChapterXIX-A of the IT Act that the jurisdictional fact that confersthe settlement commission with the jurisdiction to proceedwith an application is the filing by an applicant, of anapplication that that contains a full and true disclosure ofhis income which has not been disclosed before theassessing officer, the manner in which such income hasbeen derived and the additional amount of income taxpayable on such income. If, at any stage of the proceedingsbefore the settlement commission, it finds that thedisclosure made by the applicant is not a full and truedisclosure, then the said authority cannot proceed furtherwith the application. It gets denuded of its jurisdiction toproceed with the matter. It is in the backdrop of this factthat I must analyse the decision of the Supreme Court inthe case of Ajmera Housing Corporation (Supra)thathas been relied upon by the petitioner. It must, at once benoted that the provisions of Chapter XIX-A that wereanalysed by the Supreme Court in that case were slightlydifferent from those under consideration in the instant casein that, it was the provisions, as they stood prior to theamendments introduced by the Finance Act, 2007, thatwere considered by the Supreme Court. Moreover, theSupreme Court was considering the case of an assesseewho had suo motu revised his declaration, by making offersof additional amounts by way of disclosure of income atvarious stages of the proceedings before the SettlementCommission. Under those circumstances, the Court foundthat, judging by the assessee’s own conduct, his originalapplication could not be seen as containing a full and truedisclosure of his income for the purposes of settlementunder the Act. The relevant observations in the judgmentof the Supreme Court are to be found in paragraphs 27, 31,36 and 39 and are extracted hereunder: “27. It is clear that disclosure of “full and true”particulars of undisclosed income and “themanner” in which such income had been derivedare the pre-requisites for a valid application undersection 245C(1) of the Act. Additionally, the amount of income-tax payable on such undisclosedincome is to be computed and mentioned in theapplication. It needs little emphasis that section245C(1) of the Act mandates “full and true”disclosure of the particulars of undisclosed incomeand “the manner” in which such income wasderived and, therefore, unless the SettlementCommission records its satisfaction on this aspect,it will not have the jurisdiction to pass any orderon the matter covered by the application.” “27. It is clear that disclosure of “full and true”particulars of undisclosed income and “themanner” in which such income had been derivedare the pre-requisites for a valid application undersection 245C(1) of the Act. Additionally, the amount of income-tax payable on such undisclosedincome is to be computed and mentioned in theapplication. It needs little emphasis that section245C(1) of the Act mandates “full and true”disclosure of the particulars of undisclosed incomeand “the manner” in which such income wasderived and, therefore, unless the SettlementCommission records its satisfaction on this aspect,it will not have the jurisdiction to pass any orderon the matter covered by the application.” 31. .................. It is plain from the language of sub-section (4) of section 245D of the Act that thejurisdiction of the Settlement Commission to passsuch orders as it may think fit is confined to thematters covered by the application and it canextend only to such matters which are referred toin the report of the Commissioner under sub-section (1) or sub-section (3) of the said section. A“full and true” disclosure of income, which had notbeen previously disclosed by the assessee, being apre-condition for a valid application under section245(1) of the Act, the scheme of Chapter XIX -Adoes not contemplate revision of the income sodisclosed in the application against item no.11 ofthe Form. Moreover, if an assessee is permitted torevise his disclosure, in essence, he would bemaking a fresh application in relation to the samecase by withdrawing the earlier application. Inthis regard, section 245(3) of the Act whichprohibits the withdrawal of an application oncemade under sub-section (1) of the said section isinstructive inasmuch as it manifests that anassessee cannot be permitted to resile from hisstand at any stage during the proceedings.Therefore, by revising the application, theapplicant would be achieving something indirectlywhat he cannot otherwise achieve directly and inthe process rendering the provision of sub-section(3) of section 245C of the Act otiose andmeaningless. In our opinion, the scheme of thesaid Chapter is clear and admits of no ambiguity. 36. We are convinced that, in the instant case, thedisclosure of Rs.11.41 crores as additionalundisclosed income in the revised annexure, filedon September 19, 1994 alone was sufficient toestablish that the application made by the assesseeon September 30, 1993 under Section 245C(1) of theAct could not be entertained as it did not contain a“true and full” disclosure of their undisclosedincome and “the manner” in which such incomehad been derived. However, we say nothing moreon this aspect of the matter as the Commissioner,for reasons best known to him, has chosen not tochallenge this part of the impugned order.” 39. .................. Apart from the fact, as explainedabove, not contemplated in the scheme,withholding of the information regarding filing ofthe revised annexure, disclosing undisclosedincome of Rs.11.41 crores as against the income ofRs.1.94 crores, disclosed in the annexure formingpart of the application, deprived the commissionerof his right to object to the maintainability of theassessee's application on the ground that theassessee had not made true and full disclosure oftheir income in the previous application, thefoundational requirement of a valid applicationunder section 245C(1) of the Act. Accordingly, wehave no hesitation in rejecting the argument.” 39. .................. Apart from the fact, as explainedabove, not contemplated in the scheme,withholding of the information regarding filing ofthe revised annexure, disclosing undisclosedincome of Rs.11.41 crores as against the income ofRs.1.94 crores, disclosed in the annexure formingpart of the application, deprived the commissionerof his right to object to the maintainability of theassessee's application on the ground that theassessee had not made true and full disclosure oftheir income in the previous application, thefoundational requirement of a valid applicationunder section 245C(1) of the Act. Accordingly, wehave no hesitation in rejecting the argument.” 13. The issue to be considered here is whether, theobservations of the Supreme Court in the aforementionedjudgment are to be taken to mean that in every case wherean applicant makes an offer of additional amounts, even atthe instance or suggestion of the settlement commission, itwould follow that the original declaration made by theapplicant did not contain a full and true disclosure of hisincome and thereby rendering it invalid and, consequently,denuding the settlement commission of its jurisdiction toproceed further in the matter? In my view, such aninterpretation would render meaningless the scheme ofsettlement that is envisaged under the IT Act. One cannot discount the possibility of the Settlement Commissionfinding the disclosure of income made by an assessee asbeing full and true and yet requiring minor adjustments toinclude even those amounts, which though disputed by theassessee, would nevertheless be offered by the assessee inthe interests of putting an end to litigation and in the spiritof settlement. These could be amounts, in respect of which,neither the department nor the assessee have sufficientmaterial to substantiate their contentions, but the assesseeis nevertheless willing to give up his claim in the interestsof finality to litigation. The consent by an assessee to forgosuch amounts, at the suggestion of the SettlementCommission, cannot have the effect of rendering hisoriginal disclosure dubious for the purposes of settlementunder the Act. In my opinion, it is only in those cases wherean assessee resiles from his original declaration ofundisclosed income, by suo motu effecting revisionsthereto, that he renders his application invalid for thepurposes of settlement. In cases where additional amountsare offered by an assessee, pursuant to a relinquishment ofhis claims with regard to the non-taxability of such income,it would not be a case where the assessee is resiling fromhis original stand as regards undisclosed income. In thelatter type of cases, the Settlement Commission would bewell within its jurisdiction to include such amounts in thefinal amount for which the case before it is settled with theassessee. In taking the said view, I am fortified by thedecision of the Bombay High Court in Director ofIncome-Tax (International Taxation) v. Income-TaxSettlement Commission and Others – [2014 (365) ITR108 (Bom)].” In the instant case, I find on a perusal of the order of theSettlement Commission that the Commission found that there was nomaterial with the Department to justify a demand of further amountfrom the assessee. Notwithstanding this, additional amounts were In the instant case, I find on a perusal of the order of theSettlement Commission that the Commission found that there was nomaterial with the Department to justify a demand of further amountfrom the assessee. Notwithstanding this, additional amounts were offered by the assessee to put a quietus to the matter. In that view ofthe matter, I am unable to accept the contention of the departmentthat merely by offering additional amounts, the original declaration bythe assessee became one that was not full and true for the purposes ofsettlement. For the same reasons, I also do not find any force in thecontention of the department that the Settlement commission erred ingranting immunity from penalty and prosecution to the respondentassessee who was found to have co-operated with the Settlementcommission during the proceedings before it. Thus, in any view of thematter, I do not see any reason to interfere with the order passed bythe Settlement commission under Section 245D(4) of the IT Act.Resultantly, the writ petition fails, and is accordingly dismissed. A.K.JAYASANKARAN NAMBIAR JUDGE prp