Bombay High Court
C.I.T. Mumbai City Xiv, Mumbai vs The Income Tax Settlement Commission, ... on 28 July, 2000
Equivalent citations: 2001(1)BOMCR167, [2000]246ITR63(BOM)
Author: Vijay Daga
Bench: S.H. Kapadia, Vijay Daga
JUDGMENT Vijay Daga, J.
1. This petition is preferred by Revenue against the order of the Settlement Commissioner in the case of M/s. Ajmera Housing Corporation, Bombay, relating to Assessment Years 1989-90 to 1993-94.
In order to appreciate the grievance of the Revenue against the said order relevant Introductory facts needs to be noticed at the outset.
BACKGROUND FACTS
2. M/s. Ajmera Housing Corporation. Bombay (hereinafter referred to as the "Assessee" for short) along with 19 individuals and 7 Hindu Undivided Families belonging to Ajmera family, had filed 31 settlement applications under section 245-C of the Income Tax Act, (hereinafter referred to as the 'Act') in the month of October, 1993 for the Assessment Years 1989-90 to 1993-94. The applications in the case of 4 firms including the present assessee were admitted by the orders of the Commissioner passed under section 245-D(l) of the Act dated 17.11.1997. M/s. Ajmera Housing Corporation along with its other group establishments are engaged in the business as land developers, builders and contractors. The assessee had undertaken construction of major project in Shastri Nagar at Andheri and four bungalows In Lokhandwala Complex, at Versova in the year 1986. The assessee had also engaged in the business of export of goods and had also dealings in export and import licence activities.
3. In exercise of powers under section 132(1) of the Act searches were conducted in the case of the present assessee and in other cases of Ajmera Group on two occasions and during the course of searches, department seized voluminous documents such as account books, general ledgers, loose papers and other important documents. The seized material reflected financial transactions not only of the assessee firms but also of Ajmera Group which did not tally with the books of accounts maintained by them.
4. In the month of January, 1989, first search and seizure operation had taken place at the premises of the assessee. Series of documents, account books and loose papers, depicting transactions not recorded in the books of accounts and payments and receipts of'on money' were found and seized. On the basis of the seized material, assessments for the Assessment Years 1989-90 and 1990-91 were finalised, but the said assessment orders were set aside in appeals by directing de novo order of assessment after affording opportunity to the assessee was directed.
5. On 19.11.1992, the second search and seizure operation had taken place in the month of November/December, 1992 including the premises of one Mr. Bipin Vora, a confident and Accountant of Ajmera Group business establishments. Mr. Blpin Vora, in order to avoid search and seizure tried to abscond with bag (brief case) containing books of account, loose papers and other important documents. He was apprehended. He threw the bag In the drainage which was retrieved by the search party. The books of accounts and some important papers and documents seized from Shri Bipin Vora were found to be secret documents concealing various financial transactions carried out by the assessee in collusion with other sister concern establishments.
6. The documents seized and material retrieved were in coded figures and it was admitted by Shri Bipin Vora that under instructions and information of the assessee secret books of accounts were prepared and maintained by him. The Income Tax Department, on the basis of the seized material and documents found during the course of search and seizure operations, determined the concealed income of Rs. 200.60 crores in its order passed under section 132(5) dated 12.3.1992.
7. The assessee faced with the aforesaid unexpected event, finding it difficult to explain their financial transactions in its true letter and spirit, moved an application made in Form No. 34(B), prescribed under Income Tax Rules, 1987 (hereinafter referred to as 'Rules' for short) requesting the Settlement Commission to determine the tax payable for the 5 assessment years, exempt them from levy of penalty and prosecution and prayed for waiver of interest chargeable under the provisions of the Act. The assessee in the said application made before Commission stated that income from the activity of development of housing complex, sale of flats, office premises has been accounted for on the basis of 'project completion method'. It was further stated that the developers and construction contractors are required to incur substantial expenses in cash for carrying out their business and pleaded impossibility to maintain truthful record of such expenses. It was further pleaded that to meet such expenses, construction contractors are required to obtain part of consideration in cash which in common parlance is known as "on money". In the account books maintained by the developers and construction contractors the amounts received as 'on money' and the expenses are not recorded In the books of accounts. Sometimes, the entire money received as 'on money' is not spent and part thereof remains with the developers or construction contractors which, are utilized for developing housing complexes.
8. The assessee further stated that in the assessment order from 1989, the Assessing Officer has made addition of Rs. 11,34,61,345/- as "undisclosed sale consideration received on sale of flats" and he has further added Rs. 6,99,11,813/- on account of "inflation of expenses" with regard to expenses by firm maintained in the books of accounts. Consequently, additions made by the Assessing Officer were to the tune of more than Rs. 18 crores. The said assessment order was set aside by the C.I.T. (Appeals) on the ground that the additions were made without affording opportunity of being heard to the assessee. It was further stated that during the search and seizure operations voluminous cash, jewellery, silver utensils, share certificates: etc., have been seized by the department and orders were passed under section 132(D) of the Act. The said seized material exhibited charging of 'on money' with regard to various projects during the period 1985 to November, 1992, with unaccounted investments in shares of some Companies of this group, unaccounted bogus loans introduced in benami names investment in immovable properties and profits earned from some other transactions etc.
9. The assessment for the assessment year 1990-91 were completed on 31.3.1993 after an order dated 12.3.1993 passed under section 123(5) of the Act. In the said assessment order the Assessing Officer inter alia added sum of Rs. 3,95,64,625/- in the case of respondent No. 2 - M/s. Ajmera Housing Corporation. The Assessing Officer while passing the order had observed that he has estimated the income for the assessment year 1993-94 at Rs. 200.60 crores as he was of the view that it is not possible to ascertain to whtch particular previous year or years concealed income relates to. He therefore, treated entire concealed income of Rs. 200.60 crores as income for assessment year 1993-94. The estimation of income of Rs. 200.60 crores was principally based on a scrutiny of the seized documents. Taking advantage of these observations of the Assessing Officer, assessee invoked the jurisdiction of the Settlement Commission under section 245-C of the Act and accordingly moved an application in Form No. 34-B of the Rules on 19lh September. 1994.
BACKGROUND LEGISLATION
10. The relevant legislative background provisions of law in order to appreciate the controversy are enumerated hereinbelow :-
The Chapter XIX-A providing for settlement of cases was introduced in the Income Tax Act, 1961, pursuant to the recommendations of the Direct Taxes Enquiry Committee headed by Justice Wanchoo.
It is also necessary to notice a few provisions relevant herein.
Section 245-A defines certain expressions occurring in the Chapter.
Section 245-B provides for constitution of Income Tax Settlement Commission. The relevant provisions read as under :
"245-B. (1) The Central Government shall constitute a Commission to be called the Income Tax Settlement Commission for settlement of cases under this Chapter.
(2) .....
(3) ....."
Section 245-C provides for filing of an application by an assessee for settlement of his case, the relevant provisions thereof thus reads :
"245-C. (1) An assessee may, at any stage of a case relating to him. make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income tax on such income and such other particulars may be prescribed to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided :
Provided that, no such application shall be made unless -
(a) an asaessee has furnished the return of income which he is or was required to furnish under any provisions of this Act, and
(b) the additional amount of income tax on the Income disclosed in the application exceeds one thousand rupees.
(1A) .....
(IB) ....."
Section 245-D provides procedure to be followed by the Commission on receipt of an application under section 245-C. the provisions relevant for our purpose as enacted read as follows :
"245-D. (1) On receipt of an application under section 245-C, the Settlement Commission shall call for a report from the Commissioner and on the basis of the materials contained in such report and having regard to the nature and circumstances of the case or the complexity of the investigation Involved therein, the Settlement Commission may, by order, allow the application to be proceeded with or reject the application :
Provided that, an application shall not be rejected under this subsection unless an opportunity has been given to the applicant of being heard.
Provided further that, the Commissioner shall furnish the report within a period of forty five days of the receipt of communication from the Settlement Commission in case of all applications made under section 245-C on or after the 1st day of July, 1995 and if the Commissioner fails to furnish the report within the said period, the Settlement Commission may make the order without such report.
(2) A copy of order under sub-section (1) shall be sent to the applicant and to the Commissioner.
(3) Where the application is allowed to be proceeded with under subsection (1). the Settlement Commissioner may call for the relevant records from the Commissioner and after examination of such records, if the Settlement Commission is of the opinion that any further enquiry or investigations in the matter is necessary it may direct the Commissioner to make or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating to the case.
(4) After examination of the records and the report of the Commissioner, received under sub-section (1) and the report if any, of the Commissioner, received under sub-section (3) and after giving an opportunity to the applicant and to the Commissioner to be heard, either in person or through the representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of the Act, pass such order as he thinks fit on the matter covered by the application and any other matter relating to the case not covered by the application but referred to in the report of the Commission under sub-section (1) or sub-section (3)."
Section 245-H provides for power of Settlement Commission to grant immunity from prosecution and penalty. The relevant section thus reads:
"245. H-(1) The Settlement Commission may. if it is satisfied that any person who made application for settlement under section 245-C has co-operated with the Settlement Commission in the proceeding before it and has made a full and true disclosure of his income and the manner in which s.uch income has been derived, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act or under the Indian Penal Code, 1860 or under any other Central Act for the time being in force and also (either wholly or in part) from the imposition of any penalty under this Act, in respect to the case covered by the settlement ;
Provided that, no such immunity shall be granted by the Settlement Commission in cases where the proceedings for the prosecution for any such offence have been instituted before the date if receipt of the application under section 245-C."
Section 245-I provides finality to the orders, which reads as under :
"245-I. Every order of settlement passed under sub-section (4) of section 245-D shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in this Chapter, be reopened in any proceeding under this Act or under any other law for the time being in force."
11. The Section 245-C(1) provides that an assessee may at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income tax payable on such amount and such other particulars as may be prescribed, to the Settlement Commission, to have the case settled and any such application shall be disposed of in the manner provided in the said section.
12. Section 245-D provides that on receipt of such application under section 245-C, the Settlement Commissioner shall call for a report from the Commissioner and on the basis of the material contained in such report and having regard to the nature and circumstances of the case or complexity of the investigation involved therein, may allow the application to be proceeded with or reject the application. The 2nd proviso to the said section 245-C provides that the Commissioner shall furnish the report within a period of 45 days on the receipt of the communication from the Settlement Commission in case all applications made under section 245-C on after 1st day of July, 1995 and if the Commissioner fails to furnish the report within the said period, the Settlement Commission may make the order without such report.
Section 245-D(3) lays down that where an application is allowed to be proceeded with under sub-section (1), the Settlement Commission may call for the relevant records from the Commissioner and after examination of such records if the Settlement Commission is of the opinion that any further enquiry or investigation in the matter is necessary, it may direct the Commissioner to take or cause to be made such further enquiry or investigation and furnish a report on the matters covered by the application and any other matter relating thereto. Sub-section (4) provides that after examination of the records and the report of the Commissioner, received under sub-section (1) and the report if any, of the Commission, received under sub-section (3) and after giving an opportunity to the applicant and to the Commissioner to be heard, either in person or through the representative duly authorised in this behalf, and after examining such further evidence as may be placed before it or obtained by it, the Settlement Commission may, in accordance with the provisions of the Act, pass such order as he thinks fit on the matter covered by the application and any other matter relating to the case not covered by the application but referred to in the report of the Commissioner under sub-section (1) or sub-section (3).
The Commission is also empowered to direct waiver of penalty as well as Interest or part thereof as prescribed in this section. It Is further empowered to provide immunity from prosecution for any offence under the Income Tax Act or under the Indian Penal Code or any other Central Act for the time being in force with respect to the case covered by the settlement under orders of the Commission, subject to of course constitutional remedies.
BACKGROUND RELATING TO CONDUCT OF SETTLEMENT PROCEEDINGS
13. Now turning to the background relating to the conduct and progress of the settlement proceeding the Settlement Commission after receipt of the application under section 245-C(1) in Form No. 34-B on 19th September, 1994, forwarded the same to the Commissioner for his report. In the report dated 27.1.1994, the Commissioner reported the following fact :
"On the basis of the seized material and documents found in the course of search under section 132 carried out in November, 1992, the order dated 12.3.1993 under section 132(5) of the Act has now been passed determining the concealed income at Rs. 200.60 crores."
At this juncture, it will not be out of place to mention that in the application moved under section 245-C(1) of the Act the assessee had disclosed income of Rs. 1.94 crores only and after around 11 months of the said application i.e. on 11.9.1994 made additional disclosure of Rs. 11.41 crores.
14. The Commission heard the parties and allowed the application of the assessee to be proceeded with under Chapter X1X-A of the Act by its reasoned order dated 8.12.1994. The reasons incorporated in the said order for allowing the application to be proceeded with under Chapter XIX-A, as required by section 245-D(l) are as under :
"Having given our careful consideration to the arguments of the learned counsel for the applicant as well as the C.l.T. (D.R), we are of the opinion that the case does Involve complexities of investigation in that voluminous seized material will have to be gone into, the entries examined and their effect on the income for various years ascertained. The applicant's contention that the trial balance as found during the course of search should be made the basis for assessment would also need to be examined in depth before the same can be finally accepted. This is because while the date on which trial balance was prepared is available the period to which it relates is not shown and will have to be examined while examining all other seized material and gathering other relevant evidence. It will have to be seen if this trial balance records the transactions completely and correctly and can be made the starring point for computation of income not disclosed to the income tax authorities. Besides, the applicants have claimed certain expenses as deduction from the on-moneys in respect of the completed project, and the claim would need to be examined to see if the same is justified and if so to what extent."
The Commission also found that there were several other complexities requiring investigation and also noticed noting made on various vouchers and documents under the signature of Shri Bipin Vora and observed after going through number of entries that examination thereof would be necessary to find out if the claim of the applicant for on-money are genuine. Accordingly, passed an order under section 245-D(l) and directed remittance of the copy of the order to the Commissioner with further direction to him to furnish further report as required under Rule 8 of the Rules.
15. The Commissioner in compliance with the requirement of section 245-D(13) submitted his report on 30.8.1995 reporting and objecting to the application of the assessee inter alia: on the following amongst other grounds :
(A) The project completion method as suggested by the assessee should not be accepted as the same was never accepted by the department.
(B) The assessee has neither established that the expenses claimed in the sum of Rs. 11.30 crores have been made towards business nor any details thereof have been given to show that they were made for business purposes. Thus the expenses are not justifiable.
(C) The trial balance seized from the office of Mr. Bipln Vora cannot be a basis for computation of petitioners income for the various reasons mentioned in the report such as :
(i) Seized trial balance shows total credit of Rs. 51.51 crores and gives debit balance of Rs. 51.70 crores: whereas the trial balance submitted to the Commission the total of credit and debit comes to Rs. 54.18 crores. Thus there is no explanation as to how there is an increase of Rs. 2.67 crores.
(ii) Rs. 11.45 crores recorded on account of booking charges for Shastri Nagar Phase 11 are not to be found in the seized books of account. The explanation given by the assessee In this behalf was that the transactions are recorded in the hard disc seized by the department during the search and seizure but the same was ultimately found to be corrupt with the result no data could be retrieved. Therefore, the explanation of the assessee that all the data and every transaction leading to seized trial balance was recorded and available must be rejected.
(iii) The amount of Rs. 19.89 crores on account of "advance booking receipt" provides no details or explanation as to how it pertains to the projects yet to be commenced.
(iv) The amount specified as "other liabilities" in the sum of Rs. 119.49 lakhs and "other credits" of Rs. 372.45 lakhs carry no reason or explanation as to why the same should be considered as liabilities. According to the report, since the money has been received and not recorded in the regular books of account they should be brought to tax in the year of receipt.
(D) Seized trial balance cannot be taken as a starting point as it omits several entries as mentioned in the Annexures D, E & L annexed to the report. The assessee has not produced any material to substantiate his claim in this behalf, hence income disclosed should not be treated as true and correct.
(E) The examination of account books and documents seized from the office and residence of Mr. Bipin Vora reveals overwhelming evidence of huge unaccounted income generated by the assessee in their construction business, total calculated in the sum of Rs. 187.09 crores, as such income disclosed in the application should not be treated as true and correct, (F) The 'on-money' received on account of Shastri Nagar Project as per the entries reflected in the trial balance appears to be in the sum of Rs. 21.29 crores which does not include entire receipt of on-money on Shastri Nagar Project Phase II. Therefore, the figures of seized trial balance cannot be considered as correct and should not be relied upon.
(G) The 'on-money' seized on project completed and yet to be completed should be in the region of Rs. 55.02 crores which also covers the period prior to Assessment Year 1989-90 for which no application has been moved by the assessee warranting full and complete disclosure of his income with manner in which such income has been derived, (H) The assessee has neither furnished any particular details or any evidence in support of his claim to substantiate the refund of Rs. 30.68 crores to the depositors on account of cancellation of bookings nor established that he has incurred any allowable expenditure.
(I) The assessee has been charging the "on-money" on their project at the rate of about 50% or more of the agreed price relying on the numerous instances quoted in the report.
(J) The seized documents reveal total receipt of sale proceeds in the sum of Rs. 41.97 crores (excluding on-money received in the year 1993-94) whereas "on-money" received as per seized Books comes to Rs. 42.56 crores.
(K) The "on-money" received while accepting booking of flats and delivering possession thereof in cash have not been recorded in the books of account. This amount by virtue of its nature has to be treated as income of the builder, calculation of which could be in the sum of Rs. 19.89 crores.
(L) The assessee has not disclosed anything about their activities outside India. The said trial balance sought to be relied upon by the assessee is incomplete and incorrect. It exhibited some N.R.I, transactions. The trial balance depicted Rs. 6.10.54.918/- on credit side whereas debit side was In dollar terms total $ 29,71,784/-. The debit side after converting it in terms of rupee, at the foreign exchange rate @ 20% prevailing at the relevant time, was arrived at Rs. 5,95,35,680/-. No explanation was furnished by assessee In this behalf.
16. The Commissioner in his report also submitted yearwise summary of unaccounted receipts and investments made by the assessee as per seized books of accounts and documents after taking into account the errors and duplication printed by the assessee, calculated in the sum of Rs. 187.19 lakhs.
In addition to the above report, one more report dated 20.10.1997,. containing notes on reconciliation was filed by the Commissioner. The same was replied by the assessee on 11.8.1998 reserving right to submit explanations in respect of N.R.I. transactions.
17. The Settlement Commission with the above material on record proceeded to consider the application under section 245-D(4) and commenced hearing on 6.10.1999 and during the course of hearing the assessee made further disclosures of Rs. 2.76 crores and Rs. 7 crores on 25.1.1999. The relevant particulars thereof can be summarised as under:
Date of Disclosure Amount Rs. [in crore)
(a) On 1.10.1993 in petition under section 245-C(U) 1.94
(b) On 19.9.1994 after receipt of report under section 245-D(l) 11.41
(c) Exact date not available on record of this Court (*) 2.76
(d) On 25.1. 1999 (*) (*) (Rs. 9.76 crores were disclosed after commencement of hearing as required under section 245-D(4) of the Act.
7.00 Rs.
23. 11 Crores.
The Settlement Commission inspite of the serious objections of the Commissioner passed an order on 29.1.1999 accepting the disclosure in the sum of Rs. 23.11 crores and consequent settlement with immunity from prosecution, followed by reduction of the penalty from Rs. 562.87 lakhs to Rs. 55 Lakhs however directed interest under section 234-C to be charged in accordance with law.
RIVAL CONTENTIONS
18. The learned Counsel for the petitioners urged following contentions:
(i) The application before the Commission could not have been allowed to be proceeded with, as Respondent No. 2 did not make true and full disclosure of his income with full particulars of the manner in which such income has been derived as required under section 245-C(1) of the Act.
(ii) The Commission could not have allowed the application to be proceeded with especially when respondent No. 2 made additional disclosure of Rs. 11.41 crores on 19.1.1994 which alone was sufficient to establish that application made on 1.10.1993 under section 245-C(1) of the Act did not contain true and full disclosure of the income and the manner in which such income had been derived with particulars thereof.
(iii) The impugned order dated 17.11.1994 passed by the Commission in exercise of powers under section 245-D(1) was ab tnitio void, illegal and suffers from breach of principles of natural justice and non-application of mind.
(iv) The Respondent No. 2 not only failed to disclose full and true income in its application made under rule 44-C but even failed to disclose as required under section 245-C(1) full particulars thereof and the manner in which, it was derived, consequently, the said application could not have been allowed to be proceeded with under section 245-D(1) of the Act.
(v) It was not permissible for Respondent No. 2 to go on disclosing income in one after another installments. Section 245-C(1) contemplates, true and full disclosure of the income with other material particulates and the manner in which same was derived in the application under rule 44-C without playing any game of hide and seek. Reliance was placed on the Judgment of the Supreme Court in the matter of Commissioner of Income Tax v. Express News Papers Ltd.,' and subsequent Judgment of the Madras High Court in the matter of V. M. Shaik Mohammed Rowther v. Settlement Commission (I.T. & W.T.).
(vi) No report of the Commissioner as contemplated under sub-sections (1) and (4) of section 245-D of the Act was called when additional disclosures of Rs. 11.41 crores, Rs. 2.76 crores and Rs. 7 crores were made by the respondent No. 2, with the result the Commissioner was not given an opportunity to object and submit his report so far as additional disclosures were concerned. All subsequent proceedings after 19.1.1994 (after four additional disclosures) are ab Initio void being in breach of principles of natural Justice.
(vii) The disclosures contained in the last 2 instalments constituting disclosure of Rs. 2.76 crores and Rs. 7 crores were made during the course of final hearing, last being just on the previous day of the impugned order, as such, the procedure followed by Respondent No. 2 and allowed by the Commission was contrary to the mandate of the very settlement scheme and in breach of section 245-D(3) and (4) of the Act as no reports were called for with regard to the last two disclosures made by the assessee-respondent No. 2. As such decision making process itself stood vitiated warranting interference under Article 226 of the Constitution.
(viii) The impugned order suffers from self-contradiction exhibiting non-application of mind and perverse approach so far as the reasons recorded in paras 7 and 20 of the impugned order are concerned. As such, it cannot stand to the scrutiny of law.
(ix) Section 245-H contemplates honest, true and full disclosure of income and the manner in which it was derived as envisaged under section 245-C(1) of the Act, coupled with co-operation extended by assessee to the Settlement Commission in the proceedings. As against this, what was taken into account by the Commission was only alleged co-operation by assessee for explaining various entries disclosed by it. However, the Commission did not take into account complete failure on the part of Respondent No. 2 to disclose full and true income and the manner in which such income has been derived. As such, power under section 245-H has not been properly exercised by the Commission. Thus, the illegal decision making process has vitiated the impugned order.
On the other hand, the learned Counsel for Respondent No. 2 made following submissions :
(a) The Respondent No. 2 made further disclosure prior to the hearing of his application under section 245-C. As such, disclosures were in the nature of amendment to the application moved under section 245-C(1) of the Act.
(b) The order under section 245-D(l) dated 17.11.1994 is final and has been accepted both by the respondent No. 2 and the Income Tax Department. Therefore, the contention that the application did not contain true and full disclosures, should not be entertained in this writ petition at this belated stage.
(c) The petitioners have submitted to the jurisdiction of the Commission even after an order dated 17.11.1994 passed under section 245-D(1) of the Act. The said order has been passed after considering the Commissioner's report. The order under section 245-D(l) has been accepted even by the Respondent No. 2 and full payment of tax found due has been made.
(d) It was open to the Settlement Commission to find higher income in that event there is no bar in law if assessee accepts higher income in the course of proceedings. The scheme of the legislation indicates that it is the duty of the assessee to co-operate, if that be so, the order of the Commission cannot be held to be bad, if higher income is found by Commissioner and accepted by the assessee exhibiting his co-operation with Commission. Consequently, additional disclosures of the revised Income in the sum of Rs. 11.41. crores with second revision of Rs. 2.36 crores, followed by third revision of Rs. 7 crores even during the course of hearing cannot be faulted with.
(e) The writ Court should examine the legality of the procedure followed and not the validity of the order, it not being a Court of appeal. The submission is that the writ Court should be concerned not with decision but with decision making process. Reliance was placed on the judgment of the Apex Court in the matter of R. B. Shriram Durga Prasad and Fatechand Nursing Das v. Settlement Commission, (I.T. & W.T.). followed by another judgment of the Apex Court in the case of Jyotendrasingh v. S. I. Tripathi & Ors.
(e) Lastly, it was contended that correctness of the conclusion reached by the Settlement Commission in adopting one reasonable view as against another while appreciating facts and circumstances of the case should not be interfered with in exercise of the powers under Article 226 of the Constitution. A writ Court should not sit in appeal over the decision of the Income Tax authorities and the correctness of conclusions reached by those authorities. Therefore, the Impugned orders are not matters which fall within the writ jurisdiction of the High Court. In support of this submission, reliance was placed on the judgment of the Supreme Court in the case of V. V. Iyer v. Jasjit Singh.
FINDINGS ON THE RIVAL SUBMISSIONS
19. The first question we have to consider is what is the scope of the writ jurisdiction under Article 226 of the Constitution of India while examining the order of the Settlement Commission? Broadly speaking an essential feature of writ of certforari is that the control which Is exercised through it over judicial or quasi judicial bodies is not in an appellate but supervisory capacity. One of the consequences of this is that the Court will not review findings of fact reached by the inferior Court or Tribunal, even if they be erroneous. Writ of certiorari can be Issued to correct an error of law. But it is essential that it should be some thing more than a mere error; it must be one which must be manifest on the fact of the record. The principles are well settled when the writ Jurisdiction should be exercised. It should be Issued in grave cases where the subordinate Tribunals, bodies or officers act wholly without jurisdiction or in excess of it, or in violation of principles of natural justice or refuse to exercise jurisdiction vested in it. There is an error apparent on the face of the record. Whether there is an excess exercise of jurisdiction may depend upon the existence of some facts of each case. There are cases where jurisdiction of the inferior Tribunal depend upon fulfilment of some conditions precedent upon existence of some particular fact. Such a fact is collateral to the actual matter, which the inferior Tribunal has to try and determin. Whether it exists or not is logically and in sequence prior to the determination of actual question which the inferior Tribunal, has to try. In such a case, in certiorari proceedings the Court can enquire into the correctness of the decision of the inferior Tribunal as to the collateral fact and may reverse that decision if it appears to it on material before it to be erroneous. The certiorari jurisdiction can also be exercised if conclusions are perverse and. therefore, suffers from patent error on the face of the record.
20. With the aforesaid principles in mind, if we turn to the scheme of Chapter XIX-A of the Act then it would be clear that the said Chapter was inserted by Taxation Laws (Amendment) Act, 1975 with effect from April 1. 1976. The provisions more or less similar to it contained in sub-sections (1A) to (ID) of section 34 of the Indian Income Tax Act. 1922, introduced in 1954. The provisions of Chapter XIX-A were however, qualitatively different and more elaborate than the said provisions in the 1922 Act. The said Chapter thereafter went through a number of changes from the date of its insertion in the Income Tax by virtue of amendments from time to time. The provisions as it stands today, the proceedings under this Chapter commence by an application made by the assessee as contemplated by section 245-C. Section 245-D prescribes the procedure to be followed by the Commission on receipt of application under section 245-C and. thereafter the Commission is obliged to follow the procedure as provided in subsections details of which are already enumerated while taking stock of the legislative provisions in this behalf. Section 245-L of the Act declares that any proceeding under this Chapter before the Settlement Commission shall be deemed to be judicial proceeding within the meaning of section 193 and 228 and for the purposes of section 196 of the Indian Penal Code. When it is declared to be judicial proceeding, prescribed procedure has to be followed.
21. In the instant case, if we look at the facts in the light of the legal canvass, in our opinion, the Commission at the very inception ought to have addressed itself on the question as to whether the application was in compliance with the first and foremost requirement of section 245-C(1). The Commission ought to have noticed that in the application under section 245-C(1) disclosure was to the extent of Rs. 1.94 crores. The report of the Commissioner as envisaged under section 245-D(l) was called for and submitted and thereafter just before the order could be passed under section 245-D(1) the assessee-respondent No. 2 declared additional income of Rs. 11.41 crores. At this stage itself, it was obligatory on the part of the Settlement Commission to apply his mind to the issue as to whether full and true disclosure of the income and the manner in which it was derived, has been made or not. We find no material in the order dated 17.11.1994 in this behalf. Had the Settlement Commission applied its mind to the said facts and had addressed itself on this aspect of the matter regarding subsequent disclosure of Rs. 11.41 crores and had it dealt with the question of maintainability of application under section 245-C(1). then it would not have been open for this Court to sit in appeal over the finding recorded by the Settlement Commission in this behalf. We also do not find in the order any reference much less appreciation of the conduct of Shri Bipin Vora noticed during the search and seizure operation while considering the trial balance as a basis for calculation of income and to find out whether true and full disclosure of the income and the manner in which it was derived. if the Settlement Commission fails to address itself to these vital questions then, this Court can certainly find fault with the order in exercise of powers of judicial review after taking into account vital aspect of the matter which affects the very maintainability of the application under section 245-C of the Act. Section 245-B provides for constitution of the Commission. Section 245-D confers power on Commission to determine officially the preliminary facts on which further exercise of their jurisdiction depends, but subject to that the Commission cannot by wrong decision with regard to collateral fact give itself a jurisdiction which it would not otherwise possess. On the face of the record, we find fault with decision taken by the Settlement Commission to allow the application to be proceeded with without determining the basic facts on which further Jurisdiction of the Tribunal depended. We, therefore, find that the said order of the Settlement Commission suffers from non-application of mind to the facts available on record.
22. The order passed by the Settlement Commission in exercise of the powers under section 245-D(1) dated 17.11.1994, was an order allowing application to be proceeded with. No finality has been attached to the said order. The order may be final and conclusive in between two stages of the same proceedings initiated under Chapter XIX-A of the Act as observed by the Apex Court in Satyadhyan Chosal v. Smt. Deorajin Devi,' but it cannot be said to be conclusive and final so as to place it beyond the jurisdiction of this Court. Legality of the said order under Section 245-D(l) can always be examined in the writ jurisdiction while examining ultimate final order passed by the Settlement Commission under sub-section (4) of section 245-D of the'Act.
23. The scheme of the Act will further reveal, that after receipt of the application under section 245-C(1) of the Act, the Settlement Commission is required to call for report from the Commissioner and the Commissioner is obliged to furnish such report within a period of 45 days from the date of communication by the Settlement Commission and, thereafter the Settlement Commission on the basis of the material contained in the said report and having regard to the facts and circumstances of the case and/ or complexity of the investigation involved therein may by an order, allow the application to be proceeded with or reject the application. In the instant case, after second disclosure of amount of Rs. 11.41 crores. the Settlement Commission ought to have called for the report from the Commissioner and ought to have given him an opportunity to file his objection. Had such opportunity been given to the Commissioner, the Commissioner could have pointed out to the Settlement Commission that the application under section 245-C(1) itself was not maintainable for want of true and full disclosure of the income by the assessee and could have further pointed out that even though the assessee has disclosed the additional income of Rs. 11.41 crores but failed to disclose the manner In which such Income has been derived by him. Thus, the Settlement Commission by omitting to call for the report from the Commissioner after disclosure of Rs. 11.41 crores. has not given an opportunity to the Commissioner to object to the maintainability of the very application under section 245-C(1) of the Act. Consequently, the said order dated 17.11.1994 is thus clearly In breach of principles of natural justice and also in breach of the mandate of section 245-D(l) of the Act.
24. The Settlement Commission also failed to apply its mind to the very Important aspect of the second disclosure to the tune of Rs. 11.41 crores wherein respondent No. 2 did not give full and true particulars of his income of Rs. 11.41 crores and the manner in which such amount has been derived. Therefore, in our opinion it was obligatory on the part of the Settlement Commission to have considered whether additional or supplementary report from the Commissioner immediately after second disclosure as contemplated under section 245-D(1) of the Act was necessary and ought, to have further considered whether an opportunity to the Commissioner to file his objection and advance his submissions in support of his report through departmental representative was necessary or not. We. therefore, find fault with the decision making process adopted by Commission, in exercise of our powers of judicial review. As pointed out in Jyotendrasinhji v. S. T. Tripathi (supra) this Court can interfere with the order if it is found to be contrary to the provisions of the Act. As already recorded herein, we have pointed out as to how the order is in breach of principles of natural justice and also contrary to the provisions of Section 245-C(1) and section 245-D(1) of the Act. Consequently, the order dated 17.11.1994 is liable to be set aside as bad. illegal and ab inttio void being in breach of principles of natural justice.
25. Once having recorded our findings that the order dated 17.11.1994 was a nullity because it was in violation of principles of natural justice, the principles enunciated by the Apex Court in the case of State of Orissa v. Dr. (Miss) Banaparti Deui, is that order in violation of principles of natural justice, is void or of no value. Breach of principles of natural justice nullifies the order made in breach. It has no value. If that be so. then order dated 17.11.1994 made in violation of principles of natural justice will have to be treated as ab initlo void and therefore, all subsequent proceedings and orders passed therein will be of no consequence and they will have to be set aside because subsequent order under section 245-D(4) can only survive subject to validity of the order required to be passed under section 245-D(1). As we have pointed out, order under section 245-D(1) dated 17.11.1994 Is ab tnitto void and therefore, subsequent order will be of no consequence. If that be so. then application made under section 245-C(1) shall have to be treated as still pending before the Commission and direction would be necessary to the Commission to try the said application afresh on Its own merits in accordance with law.
26. Alternatively, assuming that the order passed under section 245-D(1) dated 17.11.1994 is legal and valid, even then, the same shall stand merged in the impugned order dated 29th January. 1999. The said order also cannot be said to be legal and valid for the reasons enumerated hereinafter :-
(a) The Settlement Commission after an order under section 245-D(l) Is required to call for report from the Commissioner with his opinion and thereafter is required to make further enquiry and investigation after examining material and report and after such further evidence that may be led before it. or obtained by it. The Settlement Commission is required to pass an order as It thinks fit on the matters covered by the application and any other matter relating to the case not covered by the application and referred to in the report of the Commissioner under sub-section (1) or sub-section (3). Thus, conjoint reading of sub-sections (1) to (4) of section 245-D would reveal that while passing the final order under section 245-D(4), the Settlement Commission is obliged to take into account the report submitted by the Commissioner under sub-sections (1) and (3). In other words, report submitted under sub-section (1) of section 245-D deserves consideration at two stages of the proceedings: firstly, at the time of consideration of application under section 245-D(1) to decide whether assessee should be allowed to be proceeded with or not, secondly, at the time of passing final order under section 245-D(4). Thus, in the instanl case, after receipt of the record and report from the Commissioner, the Settlement Commission commenced hearing, of the application on 6.10.1999. During the course of hearing of the said application under section 245-D(4), the Respondent No. 2 - assessee disclosed further Income to the tune of Rs. 2.76 crores without disclosing details as to how said amount was computed. No particulars and the manner in which said income has been derived were disclosed and again as the hearing proceeded on 25.1.1999 respondent No. 2 - assessee disclosed any further income of Rs. 7 crores without disclosing details thereof or the manner in which such income has been derived. Thus, apart from first disclosure of Rs. 11.41 crores prior to the order under section 245-D(1), respondent No. 2 assessee disclosed further income in two Instalments one being of Rs. 2.76 crores and second containing income of Rs. 7 crores. Further, 1n respect of both these figures no manner as to how income has been derived has been disclosed. The Settlement Commission did not call for any additional report from the Commissioner as contemplated under section 245-D(l) of the Act. Even enquiry as conlcin plated under section 245-D(3) has not been made as contemplated under section 245-D(4) in respect of disclosure of the last two instalments during the course of hearing of the proceeding under section 245-D(4). Under these circumstances, this is a patent case wherein procedure prescribed by the Act has not at all been followed and order has been passed contrary to the provisions of the Act.
(b) The reading of the order shows that the Commission failed to address itself on the basic requirement of section 245-C(1) and did not record any finding as to whether application moved by the assessee contained full and _ true disclosure of his income and the manner in which such income has been derived. Omission to consider the very basic requirement goes to the very root of the maintainability of the application. The impugned order suffers from patent non-application of mind. Therefore, In our opinion, the Impugned order cannot stand to the scrutiny of law and is liable to be set aside on this count also.
(c) The impugned order if further perused, records contradictory findings which can very well be seen from the two paragraphs extracted hcreinbelow :
Para 17 (page 24) "The account shows an excess expenditure of Rs. 488.97 lakhs. When asked to explain, the applicant stated that the applicant was in this business since the 1960's and had constructed and sold properties worth thousands of crores.
They could have easily had opening cash of the order of Rs. 488 lakhs as on 1.4.1981, We find it difficult to accept the explanation particularly. In view of the fact that [fie two searches in 1989 and 1992 did not reveal any significant cash balance."
Para 20 (page 25) "We have considered the offer and are inclined to accept the same after noting that the evidence against the applicant is not conclusive. As the applicant and its partners have been in the business of construction and development for nearly four decades the possibility of some opening cash on 1.4.1981 cannot altogether be ruled out. Similarly, the document A-8-42 denied by the applicant.
has not been corroborated by any other seized account or document. In the circumstances we are of the view that the disclosure of Rs. 7 crores made by the applicant would fairly cover the discrepancies."
The aforesaid findings in our opinion, cannot stand together. The order in this behalf is clearly perverse and cannot stand in the scrutiny of law.
(d) The Commission also failed to record its findings or opinion as required under section 69A of .the Act- This section clearly contemplates that where in any financial year the assessee is found to be the owner of any money not recorded in the books of account, if any, maintained by him for any source of income and explanation offered by the assessee is not in the opinion of the Assessing Officer satisfactory. Such money may be deemed to be the income of the assessee for such financial year. The Settlement Commission has all the powers of the Assessing Officer as such it was also obligatory on the part of the Commission to consider and record its categorical findings In this behalf. Omission or failure to consider this aspect of the matter leads to conclude that decision making process has not been validly followed. We, therefore, find fault even with the decision making process followed by the Commission.
(dd) In the present case the Settlement Commission has essentially relied upon the second trial balance prepared by the assessee on 17th November, 1992, which trial balance was prepared by the assessee after the first search was carried out. This second trial balance was allegedly made on the basis of the seized trial balance dated 31st August. 1992 and cash book A/6. The Settlement Commission ought to have considered a further factor viz. (hat the Accountant of the assessee fled with the bag containing the account books. The said Accountant tried to avoid the search and seizure. He absconded with the bag. He threw the bag in the drainage. Moreover, no enquiry has been made by the Settlement Commission as to whether any back-up was maintained by the assessee particularly when it was found that the hard-disk got corrupted. The conduct of the assessee was also important fact which the Settlement Commission ought to have kept in mind while deciding the applicability of section 69A of the Income Tax Act. Further if as stated hereinafter the expenses were over-estimated and if there was no data regarding the dates when the projects were completed, one fails to understand application of project completion method.
(e) The Settlement Commission also went to the extent of reducing the penalty from Rs. 562.87 lakhs to a token penalty of Rs. 50 lakhs, finding that the assessee extended utmost co-operation in the proceeding and also helped in reading the seized records otherwise in the opinion of the Commission It would have been impossible to arrive at conclusion about seized record. In this behalf if we turn to provisions of section 245-H(l) it would be clear that Settlement Commission can give immunity from prosecution and penalty provided the assessee making an application under section 245-C(1) co-operates with the Settlement Commission in the proceeding before it and makes full and true disclosure of his income and the manner in which such income has been derived. In other words, mere co-operation alone cannot be a criteria for granting Immunity from prosecution and penalty. What is required to be seen is not only co-operation extended to the Settlement Commission but also full and true disclosure of his income and the mode and manner in which such income has been, derived. So far as first aspect regarding co-operation to the Settlement! Commission for explaining various entries is concerned, the said finding of fact cannot be interfered with. But at the same time It was obligatory on the part of the Settlement Commission to address itself on the question as to whether full and true disclosure of the income and the mode and manner in which such income has been derived has been done by the applicant or not. The impugned order is completely silent so far as this vital and important aspect is concerned. On the contrary, the findings of the Commission in para 17 of the impugned order show that even according to the Commission, the assessee had made a claim of an excess expenditure of Rs. 488.97 lakhs which in the words of the Commission was an explanation which was difficult to accept. In view of the said findings in para 17. it cannot be said that the application of the assessee was based on full and true disclosure of the income. Consequently, in our opinion, waiver of penalty and consideration therefor also suffers from vital omissions keeping in view the mandate of section 245-H(1) of the Act. The Settlement Commission has not considered the issue as to whether assessee has made full and true disclosure of his income and the manner in which the same has been derived. On the contrary, disclosure of income in various instalments in various stages of the proceeding ought to have been taken into account by the Settlement Commission while granting immunity from prosecution and penalty. On this count also, in our opinion, the order suffers from patent error apparent on the face of the record and non-application of mind on the part of the Settlement Commission.
(f) The Commission also failed to appreciate the conduct and role played by Shri Bipin Vora in preparing false accounts and concealment thereof in spite of specific material brought on record in this behalf.
(g) The Commission also failed to consider the effect of omission to include income earned during the assessment year'1989-90 in the application under section 245-C(1) of the Act in spite of the specific objection by the Commissioner in this behalf. The Commission was expected to address itself on the vital question as to whether in absence of an application under section 245-C(1) of the Act for the assessment year 1989-90 the disclosure made by the assessee was full and true.
27. The submission made on behalf of the asses see-respondent No. 2 that the order under section 245-D(1) dated 17.11.1994 is final and challenge to the said order cannot be entertained since the said order under section 245-D(1) has already been accepted by the assessee and the department. As observed finality is during the course of pendency that too in between two stages of the same proceedings and not otherwise. So far as submission made by the assessee-respondent No. 2 that it was open to the Settlement Commission to find higher income during the course of hearing and hence there is no bar in law, if assessee accepts higher income in the course of proceeding, cannot be accepted. No assessee is allowed to approach the Commission without disclosing full and true income and as such true, full and honest disclosure is a precondition for invoking the Commission's jurisdiction under section 245-C. An application to the Commission is not intended to enable the dishonest assessee to continue his dishonest conduct and still claim benefit which can be conferred by the Commission if the Commission were to ultimately make an order for settlement. The Madras High Court in the case of V. M. Shatk Mohammed v. Settlement Commission (cited supra) thus observed :
"The Settlement Commission is not an optional forum chosen at the option of the assessee for settlement of the tax liability of the assessee as also his liability for further proceedings or prosecution under this Act or other Acts, even while the assessee continues to be honest and deliberately fails to make a true and full disclosure of the extent of the income which he had not disclosed before the Assessing Officer. The machinery of the Settlement Commission is available to the assessee who, after exhibiting his dishonest conduct by filing a return in which true income has not been disclosed has availed of the chance to correct himself by making a true and full disclosure before the Commission. There is no right in the assessee to invoke the Commission's jurisdiction even while he continues with his dishonest conduct."
28. The Settlement Commission did not apply its mind to the above aspect of the matter either while passing order under sub-section (4) of section 245-D or while passing order under sub-section (4) thereof. As already pointed out by us, order dated 17.11.1994 being in breach of principles of natural justice has no value. With the result, in our opinion, application made for settlement under section 245-C of the Act shall have to be treated as still pending before the Commission and it would be appropriate to direct the Commission to hear and decide the application afresh after following mandate of the Act and after affording full opportunity to both the parties.
The learned Counsel for the petitioners contended that in the event of remand the matter be ordered to be heard by any other Bench other than the one who have passed the impugned order. We are unable to accept this contention for want of any material on record in support of this contention.
In the result, we declare that the order passed under section 245-D(1) of the Act dated 17.11.1994 is ab initio void and an order dated 29.1.1999 is quashed and set aside and the proceedings are remitted to the Settlement Commission keeping all questions open with direction to decide the application within a period of six months from the date of receipt of the writ from this Court in accordance with law after giving an opportunity to all the parties. The amount of payment of tax made pursuant to the order under section 245-D(1)(4) shall be subject to the result of the proceedings to be decided by the Settlement Commission. . Rule is made absolute in terms of above order with no order as to costs.
Mr. Dada applies for stay of the above order for a period of six (6) weeks. Learned counsel for the department opposes the application. We enquired from the department as to whether the further process gets time-barred. We were told that it is not so. Hence the above order is stayed for a period of four (4) weeks.