Karnataka High Court
The Pr. Commissioner Of Income Tax vs Smt. Umah Agarwal on 9 August, 2024
Author: S Sunil Dutt Yadav
Bench: S Sunil Dutt Yadav
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R
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 09TH DAY OF AUGUST 2024
BEFORE
THE HON'BLE MR.JUSTICE S. SUNIL DUTT YADAV
WRIT PETITION No.11153 OF 2020 (T-IT)
BETWEEN:
THE PR. COMMISSIONER OF INCOME TAX,
CENTRAL CIRCLE,
C.R. BUILDING,
QUEEN'S ROAD,
BENGALURU - 560 001.
...PETITIONER
(BY SRI. RAVI RAJ Y.V., SENIOR STANDING COUNSEL)
Digitally signed
by SWETA AND:
KULKARNI
Location: HIGH
COURT OF 1. SMT. UMAH AGARWAL
KARNATAKA
AGED YEARS,
11/3, NANDIDURGA ROAD,
BENGALURU,
KARNATAKA - 560 046.
2. THE INCOME TAX SETTLEMENT COMMISSION
ADDITIONAL BENCH-I,
MAHALAXMI CHAMBERS,
MUMBAI - 400 034.
...RESPONDENTS
(BY SRI. K.K.CHAITHANYA, SENIOR ADVOCATE FOR
SRI. TATA KRISHNA, ADVOCATE FOR R1;
SRI. SHANTI BHUSHAN, D.S.G.I., FOR R2)
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THIS WRIT PETITION IS FILED UNDER ARTICLE 226 OF
THE CONSTITUTION OF INDIA PRAYING TO QUASH THE
IMPUGNED ORDER PASSED BY THE SETTLEMENT
COMMISSION DATED 11.03.2020 BEARING NO.KA/BACC/
029/2019-20/IT AT ANNEXURE-D AND TO DECLARE THAT
THE ASSESSEE/1ST RESPONDENT IS LIABLE TO PAY TAX AS
PROVIDED UNDER SECTION 115BBE OF THE ACT AND ETC.
THIS WRIT PETITION HAVING BEEN HEARD AND
RESERVED FOR ORDERS ON 19.06.2024 AND COMING ON
FOR PRONOUNCEMENT OF ORDERS, THIS DAY, THE COURT
MADE THE FOLLOWING:
CORAM: HON'BLE MR JUSTICE S SUNIL DUTT YADAV
C.A.V. ORDER
(PER: HON'BLE MR JUSTICE S SUNIL DUTT YADAV)
The present petition is filed by the Revenue seeking
for setting aside of the order passed by the Settlement
Commission dated 11.03.2020 at Annexure-'D' whereby
application of the petitioner for settlement under Section
245C of the Income Tax Act, 1961 for the Assessment
Years 2012-2013 to 2019-2020 was accepted and it was
ordered that the additional income offered of
Rs.2,20,00,000/- was reasonable and fair, immunity
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from penalty and prosecution was also ordered, however
interest under Section 234A, 234B and 234C was to be
levied by applying provision of Section 234B (2A) of
the Act.
2. The Revenue being aggrieved by the order of
the Settlement Commission and in light of finality to the
order of the Settlement Commission in terms of
Section 245-I has approached this Court and invoked the
writ jurisdiction to assail the order of the Settlement
Commission.
3. The petitioner had filed an application under
Section 235C of the Act on 18.11.2019 seeking
settlement for the Assessment Years 2012-2013 to
2019-2020. In terms of the procedure under Section
245D(1) of the Act, the application was permitted to be
proceeded with by order dated 25.11.2019.
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4. It is made out from the facts that the
applicant is an individual assessee and source of income
was from salaries. The Department is stated to have
carried out search under Section 132 of the Act on
20.03.2018, during which records/documents and
jewellery worth Rs.3,23,02,607/- is stated to have been
seized. The statements under Section 132(4) of the Act
were also stated to have been recorded and during such
search, an undisclosed income of Rs.2,16,00,000/- was
stated to have been offered for tax, which statement was
retracted subsequently vide letter dated 16.12.2018.
5. The additional income offered before the
Settlement Commission was stated to be
Rs.2,20,00,000/-, which it is asserted to be an amount
constituting cash gifts received from the relatives and
well wishers during the Assessment Years 2012-2013 to
2016-2017.
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6. It is further asserted that the cash payment
made for purchase of jewellery from the vendors of
Neerav Modi group was Rs.2,16,00,000/-.
7. The petitioner had filed Affidavit under Rule 8
of the Income Tax Settlement Commission (Procedure)
Rules, 1997 and declared that she had not maintained
the details of cash gifts.
8. The PCIT also has filed a report under Rule 9
and raised various objections.
9. The Settlement Commission has passed the
order dealing with the objections raised by the
Department. The Settlement Commission has ruled on
the objections as follows:-
(i) The contention of PCIT that the difference of
Rs.79,40,086/- on account of valuation of jewellery
should be added to the income disclosed of the petitioner
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was rejected, while observing that no material was found
during the search or in post search proceedings to show
that the applicant had made cash payment above the
consideration shown in the invoices of purchase. It was
also observed that the Department had failed to produce
any material to demonstrate that actual consideration
passed was more than the consideration shown in the
invoices of purchase.
(ii) It was the stand of the Department that the
petitioners' claim of cash gifts cannot be accepted, as no
declaration to that effect was made in the wealth tax
returns filed for the relevant years.
10. The Settlement Commission has taken note of
the declaration made under Rule 8 of the Income Tax
Settlement Commission (Procedure) Rules and has
accepted the assertion of cash gifts. It was also
observed that if indeed the applicant had disclosed the
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cash gifts as 'cash in hand' in the wealth tax returns, the
alleged unaccounted cash would have stood explained as
noticed in the search and there would have been no
occasion for disclosure as made before the Settlement
Commission. Accordingly, the Commission deemed the
additional income offered for tax of Rs.2,20,00,000/- as
being fair and reasonable and proceeded to dispose of
the application as indicated in para-(1).
11. At the outset, the scope of interference in
orders of the Settlement Commission require to be
determined.
12. Section 245-I of the Income Tax Act reads as
follows:-
245-I. Order of settlement to be
conclusive. - 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.
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Accordingly, the order is 'conclusive as to the
matters stated therein' and hence, there is finality as
regards the conclusion on fact and law in terms of the
statutory scheme.
13. Under the scheme of the Act, once an
application is filed under Section 245-C, the Commission
calls upon the applicant to explain the maintainability of
such application and an order is passed either rejecting
or allowing it to be proceeded.
14. The report of the Principal Commissioner/
Commissioner may be called for and on the basis of
which the application may be treated as invalid or be
allowed to progress upon report being filed and it may
cause a further enquiry or investigation and direct report
to be filed. The Settlement Commission may, in
accordance with the provisions of the Act, pass such
order as it thinks fit on the matters covered by the
application.
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15. Thus, it is clear that a procedure has been
spelt out and the only limitation by way of statutory
mandate is that the Settlement Commission must act
"in accordance with the provisions of the Act." The
words "in accordance with the provisions of the Act" is to
be construed as stipulating that the order passed ought
not to be contrary to the provisions of the Act.
16. It is also necessary to note that the Settlement
Commission has been conferred with powers under
Section 245-F which are:-
(a) "... all the powers which are
vested in an income tax authority under this
Act."
(b) .... exclusive jurisdiction to
exercise the powers and perform the
functions of an income tax authority under
the Act in relation to the case."
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17. Though there is conferment of powers of the
concerned tax authority, the nature of such power
conferred are best described in the observations of the
Delhi High Court in Agson Global Pvt. Ltd., v. ITSC -
(2016) 65 Taxmann.com 5
11. ... Sub-section (1) of Section 245F
stipulates that in addition to the powers
conferred on the Settlement Commission
under Chapter XIX A, it shall have all the
powers which are vested in an income tax
authority under the said Act. But, in our
view, this has to be read in the context of
and scope of the settlement proceedings. It
does not entail that the powers of regular
assessment which are vested in an income
tax authority can be exercised by the
Settlement Commission. What we mean to
say is that the Settlement Commission does
not engage itself in the process of
assessment and cannot make an assessment
order. The order that the Settlement
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Commission makes under Section 245 D(4)
is not in the nature of an assessment, but by
way of a settlement and contains the terms
of settlement. Thus, we reiterate that the
powers which are vested in an income tax
authority and could be exercised by the
Settlement Commission are such which have
a nexus with the settlement proceedings
which does not include, in our view, the
making of an assessment under the said
Act."
(emphasis supplied)
18. The above view is in line with the view of the
Constitution Bench (Bench of 5 Judges) of the Apex
Court in the case of Brij Lal and Others v.
Commissioner of Income Tax, Jalandhar, reported
in (2011) 1 SCC 1. The relevant extract from the said
judgment reads as follows:
"39. Moreover, as stated above, under
the Act, there is a difference between
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assessment in law [regular assessment or
assessment under section 143(1)] and
assessment by settlement under Chapter
XIX-A. The order under section 245-D(4) is
not an order of regular assessment. It is
neither an order under section 143(1) or
Section 143(3) or Section 144. Under
sections 139 to 158, the process of
assessment involves the filing of the return
under section 139 or under section 142;
inquiry by the AO under Sections 142 and
143 and making of the order of assessment
by the AO under Section 143(3) or under
section 144 and issuing of notice of demand
under section 156 on the basis of the
assessment order. The making of the order
of assessment is an integral part of the
process of assessment. No such steps are
required to be followed in the case of
proceedings under Chapter XIX-A. The said
Chapter contemplates the taxability
determined with respect to undisclosed
income only by the process of settlement/
arbitration. Thus, the nature of the orders
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under sections 143(1), 143(3) and 144 is
different from the orders of the Settlement
Commission under Section 245-D(4)."
(emphasis supplied)
19. The Division Bench of this Court in the case of
N. Krishnan v. Settlement Commission reported in
(1989) 180 ITR 585 (Karnataka) has dealt with the
specific question of "scope of interference under Article
226 of the Constitution against a decision of the
Settlement Commission." It has been observed at para-
15 as follows:-
"15 ... We are of the view that a
decision of the Settlement Commission
could be interfered with only:-
(i) If grave procedural defect such as
violation of the mandatory procedural
requirements of the provisions in Chapter
XIX-A and/or in violation of Rules of natural
justice is made out;
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(ii) If it is found out that there is no
nexus between the reasons given and the
decision taken by the Settlement
Commission;
(iii) This Court cannot interfere with
an error or fact or error of law, alleged to
have been committed by the Settlement
Commission.
In light of the above discussion, the validity of the
order of the Settlement Commission requires to be
tested.
20. It must be noticed that the Settlement
Commission while dealing with the contention that
genuineness of the declaration of gifts cannot be
accepted as the assessee had not shown the cash gifts
as closing cash balance in the wealth tax return, has
recorded a finding that the question of making such
declaration did not arise as, if such declaration was made
earlier, the question of disclosure seeking settlement
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would not have arisen. In fact, the petitioner has filed
an affidavit under Rule 8 explaining the receipt of gifts
from friends and relatives. Such declaration has not
been rebutted by the revenue by placing any additional
facts to the contrary.
21. In light of the same, conclusion of the
Settlement Commission by accepting the explanation
'in the spirit of settlement' cannot be faulted calling for
interference in exercise of the limited jurisdiction.
22. Insofar as the allied contention that the
additional income disclosed is to be treated as income
under the head referred to in Section 68 or 69 of the Act,
the Settlement Commission has once again referred to
the affidavit filed under Rule 8 and observed that the
report under Rule 9 does not place any contra material.
It is observed that the PCIT has not shown how the
conditions prescribed under Section 115 BBE are met.
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23. It is to be noticed that the special slab of
higher rate as specified under Section 115 BBE would be
applicable as regards the income referred to in Sections
69, 69, 69A, 69B, 69C or Section 69D. As rightly pointed
out, the PCIT has not stated as to which particular
provision would be applicable as each provision has
distinct scope and applicability. In the facts of the
present case, the question of invoking Section 69D does
not arise. If any of the provisions of Section 69, 69A to
69C are sought to be invoked, in all such provisions the
non-acceptance of the explanation would result in such
amount "may be deemed to be the income of the
assessee for such financial year." The Apex Court in the
case Commissioner of Income Tax v.
Smt.P.K.Noorjahan reported in (1999) 237 ITR
570 (SC) has observed that discretion is conferred on
the Assessing Officer to treat the unexplained income
appropriately in the facts of the case. The observation
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made in para 3 of the said judgment would be of
relevance and reads as follows:
"3. Shri Ranbir Chandra, the
learned Counsel appearing for the
revenue, has urged that the Tribunal as
well as the High Court were in error in
their interpretation of Section 69. The
submission is that once the explanation
offered by the assessee for the sources
of the investments found to be non-
acceptable the only course open to the
ITO was to treat the value of the
investments to be the income of the
assessee. The submission is that the
word 'may' in Section 69 should be read
as 'shall'. We are unable to agree. As
pointed out by the Tribunal, in the
corresponding clause in the Bill which
was introduced in Parliament, the word
'shall' had been used but during the
course of consideration of the Bill and on
the recommendation of the Select
Committee, the said word was
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substituted by the word 'may'. This
clearly indicates that the intention of
Parliament in enacting section 69 was to
confer a discretion on the ITO in the
matter of treating the source of
investment which has not been
satisfactorily explained by the assessee
as the income of the assessee and the
ITO is not obliged to treat such source of
investment as income in every case
where the explanation offered by the
assessee is found to be not satisfactory.
The question whether the source of the
investment should be treated as income
or not under section 69 has to be
considered in the light of the facts of
each case. In other words, a discretion
has been conferred on the ITO under
section 69 to treat the source of
investment as the income of the
assessee if the explanation offered by
the assessee is not found satisfactory
and the said discretion has to be
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exercised keeping in view the facts and
circumstances of the particular case."
24. Accordingly, in the present case, the conclusion
arrived at by the Settlement Commission while accepting
the contents of the affidavit filed under Rule 8 'in the
spirit of the settlement' and refusing to accept the
contention of having recourse to Section 115BBE cannot
be permitted to be interfered with.
25. Further, as regards the declaration with respect
to cash gifts, alleged non-disclosure of the same in the
wealth tax returns of the previous years, the Settlement
Commission has dealt with the said contention by
observing as follows:
"No incriminating material was found
during search, declaration being made in the
Settlement Commission is supported by
affidavit under Rule 8 in support of an
assertion of fact that is not borne out by
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record, no contra material is produced by the
Department to conclude that the assessee has
not received gift by way of cash".
Such conclusion also is well reasoned which would
constitute plausible reason and a finding recorded on a
satisfaction of the authority in keeping with the spirit of
settlement does not warrant interference.
26. The observations of the Apex Court in the case
of Jyotendrasinhji v. S.I.Tripathi reported in (1993)
201 ITR 611 (SC) are very apt in defining the scope of
interference in orders of the Settlement Commission and
are extracted as below:
"16. ...Be that as it may, the fact
remains that it is open to the Commission to
accept an amount of tax by way of
settlement and to prescribe the manner in
which the said amount shall be paid. It may
condone the defaults and lapses on the part
of the assessee and may waive interest,
penalties or prosecution, where it thinks
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appropriate. Indeed, it would be difficult to
predicate the reasons and considerations
which induce the Commission to make a
particular order, unless of course the
Commission itself chooses to give reasons
for its order. Even if it gives reasons in a
given case, the scope of enquiry in the
appeal remains the same as indicated above
viz., whether it is contrary to any of the
provisions of the Act. In this context, it is
relevant to note that the principle of natural
justice (audi alteram partem) has been
incorporated in Section 245-D itself. The sole
overall limitation upon the Commission thus
appears to be that it should act in
accordance with the provisions of the Act.
The scope of enquiry, whether by High Court
under Article 226 or by this Court under
Article 136 is also the same -- whether the
order of the Commission is contrary to any
of the provisions of the Act and if so, has it
prejudiced the petitioner/appellant apart
from ground of bias, fraud and malice which,
of course, constitute a separate and
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independent category. Reference in this
behalf may be had to the decision of this
Court in R.B. Shreeram Durga Prasad and
Fatechand Nursing Das v. Settlement
Commission (IT and WT) [(1989) 1 SCC 628
: 1989 SCC (Tax) 124 : (1989) 176 ITR 169]
which too was an appeal against the orders
of the Settlement Commission. Sabyasachi
Mukharji, J., speaking for the Bench
comprising himself and S.R. Pandian, J.
observed that in such a case this Court is "concerned with the legality of procedure followed and not with the validity of the order". The learned Judge added "judicial review is concerned not with the decision but with the decision-making process". Reliance was placed upon the decision of the House of Lords in Chief Constable of the N.W. Police v. Evans [(1982) 1 WLR 1155 :
(1982) 3 All ER 141] . Thus, the appellate power under Article 136 was equated to power of judicial review, where the appeal is directed against the orders of the Settlement Commission. For all the above reasons, we
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27. Accordingly, keeping in mind the narrow scope of interference in light of the discussion supra, the order of the Settlement Commission with elaborate reasoning which has a nexus with the objective of settlement as regards the statutory provisions in Chapter XIX-A of the Act, the order does not call for interference and the petition is rejected.
Sd/-
(S. SUNIL DUTT YADAV) JUDGE VGR / NP