* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 28th January, 2014
% Date of Decision:10th February, 2014
+ W.P. (C) 5262/2013
COMMISSIONER OF INCOME TAX (CENTRAL)-II
..... Petitioner
Through: Mr. Rohit Madan, sr. standing
counsel with Mr Akash Vajpai,
Advocate.
versus
INCOME TAX SETTLEMENT COMMISSION & ANR.
..... Respondents
Through: Mr. C.S. Aggarwal, Sr. Advocate
with Mr Prakash Kumar and Mr
Sheel Vardhan, Advocates.
CORAM:
MR. JUSTICE S. RAVINDRA BHAT
MR. JUSTICE R.V. EASWAR
R.V. EASWAR, J.
1. In the present proceedings under Article 226 of the Constitution of
India, the revenue calls in question the majority view taken in the
impugned order dated 8.2.2013 passed by the Income Tax Settlement
Commission, Principal Bench, New Delhi, ("ITSC") granting immunity
to the respondent No.2 from imposition of penalty and prosecution.
2. Chapter XIX-A of the Income Tax Act, 1961 consisting of
sections 245A to 245M was inserted by the Taxation Laws
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(Amendment) Act, 1975, w.e.f. 1.4.1976. It provided for settlement of
cases. Vast powers were conferred upon the Settlement Commission
including the power to grant immunity to the assessee from prosecution
and penalty. Once the Settlement Commission is seized of the
settlement application, the exclusive jurisdiction to exercise the powers
and perform the functions of an income tax authority under the Act in
relation to the case of the applicant became vested in the Settlement
Commission until a final order of settlement is passed in terms of section
245D(4). In settling the case of the applicant, the Settlement
Commission shall, after granting an opportunity to the applicant and to
the Commissioner of Income Tax concerned to be heard, and after
examining such further evidence as may be placed before it or obtained
by it, pass such order as it thinks fit on the matters covered by the
applicant and any other matter relating to the case not covered by the
applicant, but referred to in the report of the Commissioner of Income
Tax. Under sub-section (5) of section 245D, the materials brought on
record before the Settlement Commission shall be considered by the
members of the concerned Bench before passing any order of settlement.
Under section 245(1), the assessee may, at any stage of a case relating to
him, make an application in such form and in such a manner as may be
W.P. (C) No.5262/2013 Page 2 of 18
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 payable on such income and such other particulars as may be
prescribed, to the Settlement Commission ............" and such an
application shall be disposed of by the Settlement Commission in the
manner provided in the Chapter. Section 245B(3) provides for
appointment of members of the ITSC from among "persons of integrity
and outstanding ability, having special knowledge of, and experience in,
problems relating to direct taxes and business accounts". The power to
grant immunity from prosecution and penalty is granted by section
245H(1) and is circumscribed by two conditions as will be evident by
the sub-section which is as under :
"Power of Settlement Commission to grant immunity
from prosecution and penalty.
245H. (1) The Settlement Commission may, if it is satisfied
that any person who made the application for settlement
under section 245C has co-operated with the Settlement
Commission in the proceedings before it and has made a
full and true disclosure of his income and the manner in
which such 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 (45 of 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
W.P. (C) No.5262/2013 Page 3 of 18
penalty under this Act, with respect to the case covered by
the settlement :"
xxxx xxxx xxxx
It is important to note that the twin conditions for the grant of immunity
are that (1) the applicant has cooperated with the Settlement
Commission in the proceedings before it and (2) has made a full and true
disclosure of his income and the manner in which such income was
derived. There are other provisions in the section providing for
withdrawal of the immunity in case it is later found that the same was
obtained by concealing any particulars material to the settlement or by
giving false evidence or if the applicant fails to comply with the payment
schedule prescribed by the Settlement Commission or with any other
condition subject to which the immunity from penalty and a prosecution
was granted. Section 245-I provides that the order of settlement shall be
conclusive as to the matters stated therein and in respect of such matters,
the assessee cannot be subjected to reassessment proceedings.
3. On 10.2.2010, a search was conducted under Section 132 of the
Act in the business premises of the assessee herein (R-2) as part of the
search of the group companies, including the residential premises of its
directors. Several incriminating documents, cash and other materials
were seized. The incriminating documents are alleged to have contained
W.P. (C) No.5262/2013 Page 4 of 18
evidence to show that the purchase of cement and steel aggregating to
Rs.117.98 crores from 5 parties in Gurgaon and Delhi were bogus or
false. The assessee filed an application before the Settlement
Commission under section 245C(1) on 16.12.2011 in which it admitted
that the purchase of cement and steel amounting to Rs.39.53 crores were
not genuine and has to be taken as the income of the assessee which was
not disclosed before the assessing officer in the block assessment
relating to the assessment years 2004-05 to 2010-11.
4. In the course of the proceedings before the ITSC, a report was
submitted by the CIT under Rule 9 of the Income Tax Settlement
Commission (Procedure) Rules, 1999 on 24.9.2012. In this report the
CIT sought a direction from the ITSC to conduct further enquiries and
investigation as contemplated by sub-section (3) of section 245D and
furnish a report. It would appear that the CIT in his letter dated 2.2.2012
had referred to certain enquiries made which revealed that the parties
from whom the applicant had claimed to have made purchases of cement
and steel were not trading in those goods at all; it was also pointed out
that one Ashok Oberoi, the proprietor of all those concerns had stated on
oath to this effect and had also admitted that they had issued bogus bills
of steel, cement and TMT bars to the assessee without actually supplying
W.P. (C) No.5262/2013 Page 5 of 18
those materials and that they had charged commission from the assessee
at the rate of 10 to 15 paise per hundred rupees for issuing those bills.
The report further pointed out that the address of the account holders
mentioned in the bank statement of the five firms were found to be
fictitious as also the names of the persons who introduced the account
holders.
5. Another report was filed by the CIT on 17.10.2012 before the
ITSC. The assessee was asked to explain as to how the genuine and
bogus bills of the parties were identified, to which the assessee stated
that they were separately filed and further submitted that in respect of
TMT iron bar invoices claimed as genuine the corresponding dharam
kanta receipts were also available. The assessee itself filed details in the
form of a chart recording the bogus purchases admitted before the ITSC
including the purchase invoices of iron bars where dharam kanta
receipts were not available. This worked out to Rs.43.78 crores. Thus,
though the assessee admitted Rs.39.53 crores in the application filed
before the ITSC under section 245C(1) as additional income not
disclosed before the assessing officer, after the report filed by the CIT on
17.10.2012, the additional income was enhanced to Rs.43.78 cores, thus
W.P. (C) No.5262/2013 Page 6 of 18
making a further surrender of Rs.4.25 crores on account of bogus
purchases.
6. In the hearing which took place before the ITSC on 18.10.2012,
apparently on the basis of the report filed by the CIT, he was directed to
carry out a further enquiry in respect of the bogus purchases and to bring
out the facts which are not acceptable to the revenue, after verification
from the assessee. Pursuant to this direction, the CIT filed another
report dated 10.12.2012 before the ITSC. In this report it was stated that
the assessing officer was directed to give an opportunity to the assessee
of cross-examining Ashok Oberoi, the main person who was said to have
issued the bogus bills. The assessee was not able to cross-examine
Ashosk Oberoi and the reasons thereof were also mentioned in the report
of the CIT. The CIT further referred to the statement of Ashok Oberoi
recorded on 16.11.2012 in which he confirmed his earlier statements and
affidavits to the effect that the bills issued to the assessee were bogus
bills and no material was in fact supplied against the same.
7. A final report was submitted by the CIT on 8.1.2013 in which it
was stated that verification from the road transport authorities revealed
that there was no proof that the registration numbers of the vehicles
mentioned in the bills were used for transporting the cement and steel; in
W.P. (C) No.5262/2013 Page 7 of 18
some cases, the registration numbers were those of two wheelers which
were incapable of transporting the goods and in some cases the
registration numbers were found to be of those vehicles registered with
the transport authorities later than the relevant period in which they were
claimed to have transported the goods. Some of the transport operators
also stated, on cross verification with them, that they did not transport
any material for the assessee.
8. When the ITSC took up the matter for hearing on 10.1.2013, the
applicant was not able to controvert any finding recorded in the reports
submitted by the CIT under section 245D(3). When it was asked by the
ITSC to support its claim regarding transport of the goods, the assessee
expressed its inability to do so on the ground that the matter was old and
the records were not maintained. However, the assessee submitted
certificates by a chartered engineer and a registered valuer in respect of
some of the buildings constructed by it, on the basis of which it was
argued that the cement and steel actually consumed in the construction
was less than what was shown in the books of account by only 15% and
therefore the additional income disclosed by it in the settlement
application would cover such excess consumption.
W.P. (C) No.5262/2013 Page 8 of 18
9. After examining the above aspect of the settlement proceedings,
the ITSC observed in para 25 of its order (majority view) as under: -
"25. After examining the facts of the case and after taking
into account the evidences submitted by both the applicant
and the Department to substantiate their contentions, the
Bench in the spirit of settlement advised the applicant to
offer the entire purchase of Rs.117.98 crores of cement
and TMT iron bars from 5 parties under consideration as
additional income in place of Rs.39.53 offered by it."
Thereafter on the last hearing which took place on 15.1.2013 the
applicant submitted before the ITSC that it "has agreed to offer the
entire purchase of cement and TMT iron bars from the 5 parties for
Rs.117.98 as additional income." On the question of immunity from
prosecution and penalty the ITSC (majority view) observed as under: -
"30. The applicant has prayed for immunity from
prosecution and imposition of penalties under various
provisions of the Income Tax Act. Considering the facts
and circumstances of the case and the cooperation
extended to the Commission during the proceedings before
it, immunity is granted from prosecution and penalty
imposable under the I.T. Act."
10. The minority view is that the assessee is not entitled to immunity
from penalty. It has been stated by the Member, who delivered the lone
dissenting opinion, that the facts established that the applicant did not
W.P. (C) No.5262/2013 Page 9 of 18
disclose its true and full income in the settlement application since it
cannot be held with certainty that the applicant was not aware of the fact
that it had claimed bogus expenditure of Rs.117.98 crores in the books
of account. He further observed that the basic intent behind not offering
full and true income in the settlement application is to suppress the
taxable income. He expressed surprise that: -
"the applicant, which was fully aware of the fact that the
clinching evidences indicating bogus expenditure claimed
in its P & L account were found during search and post-
search investigation as mentioned above, had not offered
the entire suppressed income/ bogus expenditure for tax
either before the search team or the Assessing Officer
(AO) or Income Tax Settlement Commission (ITSC). Thus,
it cannot be ruled out that there was no attempt by the
applicant to evade tax even in its SA where one of the
prime conditions for filing application is full and true
disclosure of the income. Further, it is evident from the
above discussion that the applicant has tried its best till
end during the settlement proceedings also to justify its
stand, however, the Ld. CIT has demonstrated and
establishing that the applicant has claimed bogus
expenditure of Rs.117.98 crores in its books of account as
against admitted disallowance of Rs.39.58 in its SA.
Hence, it can be concluded that the applicant has not
offered Rs.78.45 crores voluntarily, however it has done so
when it has no option except to do so. Thus, consequential
disallowance of Rs.78.45 crores was made."
11. The revenue assails the majority opinion expressed by the ITSC
on the ground that it is contrary to the parameters laid down in Section
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245H(1). It is contended that the ITSC has taken a perverse view of the
facts and the evidence brought on record and, therefore, it is permissible
for this Court, in writ proceedings, to upstage the majority opinion
granting immunity to the assessee from penalty and prosecution.
12. On behalf of the assessee it is submitted that the assessee has
made a full and true disclosure of the income which it did not disclose
before the assessing officer, in the proceedings before the ITSC and has
also co-operated by offering such additional income in the proceedings
before the ITSC in a spirit of settlement at the suggestion of the ITSC.
According to him this conduct of the assessee satisfied the requirements
of Section 245H(1).
13. It seems to us that the criticism levelled by the revenue against the
majority opinion of the ITSC granting immunity to the assessee is well-
founded. Immunity can be granted only within the parameters of Section
245H(1) which requires full and true disclosure of income and co-
operation from the assessee in the proceedings before the ITSC. Co-
operation implies an act of volition on the part of the assessee; the
present assessee "co-operated" in the proceedings before the ITSC only
when faced with the reports submitted by the CIT. The ITSC, in our
opinion, was therefore not justified in taking a somewhat charitable view
W.P. (C) No.5262/2013 Page 11 of 18
towards the assessee when it observed that it was at its "advice", made
in a "spirit of settlement" that the assessee offered the entire bogus
purchases of Rs.117.98 crores as its income. Right from the beginning,
as the seized material would show, the assessee was aware that the
purchase of steel and cement from the five parties of Delhi and Gurgaon
was bogus; it had no evidence that the goods were transported to it it
had, in fact submitted evidence which established that the vehicles which
allegedly carried the goods were not even registered with the transport
authorities at the relevant time, that some of them were two-wheelers
which were incapable of transporting cement and steel; the proprietors of
those five firms had gone on record, on oath, that they issued bogus bills
for a commission; there was immediate withdrawal of funds from the
bank accounts of those firms after the cheques issued by the assessee
were cleared, but there was no information forthcoming as to the
destination of those funds leading to the inference that they came back to
the till of the assessee; the addresses given by those firms were found to
be non-existent. All this was known to the assessee, but still it did not
make a full and true disclosure in the settlement application; it waited till
the ITSC called for reports from the CIT which reiterated the aforesaid
facts established by the seized material. It had no answer to the evidence,
W.P. (C) No.5262/2013 Page 12 of 18
but in a desperate attempt tried to prove its innocence by filing valuation
reports before the ITSC to show that the inflation of the expenses on
purchase of cement and steel was only in the order of 15% of the actual
consumption, which difference would be taken care by the offer of
additional income of Rs.43.78 crores.
14. The aforesaid factual position shows that the assessee took a
chance sat on the fence, so to say by not coming clean in the
settlement application and not disclosing income which it did not
disclose before the assessing officer and when the CIT's reports
exposed its conduct in the proceedings before the ITSC, it was
"advised" by the ITSC, "in a spirit of settlement" to offer the entire
amount of bogus purchase of Rs.117.98 crores, which it accepted. We
fail to see any spirit of settlement; that spirit ought to have been
exhibited by the assessee in the application filed before the ITSC, as the
law requires, and it is not enough if it is shown in proceedings before the
ITSC after being confronted with adverse reports, to which it had no
answer. In Ajmera Housing Co-operation and another v. CIT, (2010)
326 ITR 642, the Supreme Court held that the fact that the assessee kept
revising its application for settlement by disclosing higher income in the
revised applications established that it did not make a full and true
W.P. (C) No.5262/2013 Page 13 of 18
disclosure of income which it did not disclose to the assessing authority.
In the circumstances, the assessee cannot be said to have "co -operated"
in the proceedings before the ITSC. It did not voluntarily offer the
additional income, being the difference between 117.98 crores and 39.53
crores. It first offered additional income of Rs.39.53 crores in the
settlement application filed under Section 245-C(1); when the ITSC
found, pursuant to the report filed by the CIT on 17.10.2012, that by the
assessee's own admission, purchase invoices were bogus to the extent of
Rs.43.78 crores instead of Rs.39.53 crores, the assessee made a further
disclosure of Rs.4.25 crores. After all the reports were examined by the
ITSC and after considering the evidence adduced by both the sides, it
found that the assessee ought to have offered the entire amount of
Rs.117.98 crores, being the bogus purchases of cement and steel from 5
parties as against Rs.39.53 crores offered by it. It was only at that stage,
when cornered and when it was unable to rebut the evidence and the
facts established by the evidence, that the assessee came forward with
the additional income of Rs.78.45 crores, which when added to Rs.39.53
crores disclosed in the settlement application, aggregated to Rs.117.98
crores. In other words the assessee waited till the last moment to make
the additional offer. This conduct of the assessee, far from showing co-
W.P. (C) No.5262/2013 Page 14 of 18
operation in the proceedings before the ITSC, shows defiance and an
attitude of a fence-sitter. The Member who expressed the minority view
rejecting the claim for immunity from penalty and prosecution has
pertinently brought out this aspect of the assessee's conduct in the
observations quoted hereinabove. We agree with his view that the
assessee was all along quite aware that the entire amount of Rs.117.98
crores, being bogus purchase of cement and steel from 5 parties of
Gurgaon and Delhi, was concealed income. There is ample evidence
brought on record by the revenue in this behalf. Yet the assessee
consciously chose not to offer the aforesaid amount as additional income
i.e. income which was not disclosed before the assessing officer in
the application filed before the ITSC under Section 245(1). The assessee
has thus failed to satisfy the twin conditions of Section 245H (1) and
was, therefore, not entitled to the immunity. The majority view
expressed by the ITSC, with respect, goes contrary to the evidence on
record and fails to take note of the contumacious conduct of the assessee
despite an opportunity afforded by Chapter XIX-A of the Income Tax
Act to errant assessees to come clean and turn a new leaf. The spirit of
settlement was absolutely lacking; it may not be without justification to
say that the assessee was indulging in abuse of a well-intentioned
W.P. (C) No.5262/2013 Page 15 of 18
statutory provision. It is certainly open to the ITSC to grant immunity
to an applicant from penalty and prosecution. This power, however, has
to be exercised only in accordance with law i.e. on satisfaction of the
conditions of Section 245H(1). We are constrained to observe that the
majority view taken by the ITSC in the present case reflects a somewhat
cavalier approach, perhaps driven by the misconception that granting of
immunity from penalty and prosecution was ritualistic, once the assessee
discloses the entire concealed income, ignoring the vital requirement that
it is the stage at which such income is offered that is crucial and that the
applicant cannot be permitted to turn honest in instalments. When there
is unimpeachable evidence of a much larger amount of concealed
income, about which there is no ambiguity, then what was disclosed by
the assessee in the application filed under Section 245-C1 cannot be
regarded as full and true disclosure of income merely because the
assessee, when cornered in the course of the proceedings before the
ITSC, offered to disclose the entire concealed income. In as much as the
ITSC has ignored this crucial aspect, the majority view expressed by it
cannot at all be countenanced.
15. So far as the power of judicial review of the orders of ITSC is
concerned, we need only refer to the following judgments of the
W.P. (C) No.5262/2013 Page 16 of 18
Supreme Court: R.B. Shreeram Durga Prasad v. Settlement Commission ,
(1989) 176 ITR 169; Jyotendrasinghji v. S.I. Tripathi & Ors., (1993) 201
ITR 611; Shriyans Prasad Jain v. Income-tax Officer and others, (1993)
204 ITR 616 and Kuldeep Industrial corporation v. ITO, (1997) 223 ITR
840. In Jyotendrasinghji (supra), the position was summed up as
follows: -
"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 appropriate.
Indeed, it would be difficult to predicate the reasons and
considerations which induce the Commission to make a
particular order, unless the Commission itself chooses to
give reasons for its order. Even if it gives reasons in a
given case, the scope of inquiry 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 alterant
partem) has been incorporated in section 245D 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, apart
from ground of bias, fraud and malice which, of course,
constitute a separate and independent category has it
prejudiced the petitioner/ appellant."
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The impugned order of the ITSC (majority view) is contrary to the
provisions of Section 245H(1).
16. In view of the foregoing discussion, we uphold the contentions of
the revenue and quash the majority view of the ITSC granting immunity
to the assessee from penalty and prosecution vide order dated
08.02.2013.
The writ petition is allowed with no order as to costs.
(R.V. EASWAR)
JUDGE
(S. RAVINDRA BHAT)
JUDGE
FEBRUARY 10, 2014
vld/hs
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