Ajmera Hng.Corp.& Anr.Etc.Etc vs Commissioner Of Income Tax

AJMERA HOUSING CORPORATION & -- APPELLANTS ANR. ETC. ETC.

VERSUS

COMMISSIONER OF INCOME TAX -- RESPONDENT

JUDGMENT

D.K. JAIN, J.:

1. Leave granted.

2. These appeals, by special leave, arise out of the judgment and order

dated 8th July, 2009 delivered by the High Court of Judicature at

Bombay in a batch of 22 writ petitions. By the impugned common

judgment, the High Court has set aside order dated 29th January, 1999

passed by the Income Tax Settlement Commission (for short "the 2

Settlement Commission") under Section 245D(4) of the Income Tax

Act, 1961 (for short "the Act"), and has remanded all the proceedings

back to the Settlement Commission for a fresh consideration in the

light of the observations made in the impugned judgment.

3. Since the case has had a chequered history and, in fact, the present

appeal is the second round of litigation between the parties before this

Court, in order to appreciate the questions raised, it would be

necessary to take notice of the foundational facts in greater detail.

The Ajmera Group of firms, consisting of mainly 4 firms and their

partners are engaged in the business of land development and

building/construction. For the sake of convenience, facts relating to

the main firm viz. M/s. Ajmera Housing Corporation, Bombay

(hereinafter referred to as "the assessee"), in which other firms and

partners have stakes, are being noticed. These are:

In January, 1989 and again in December, 1992, searches were

conducted at the premises of the Group under Section 132(1) of the Act and

voluminous books of account, loose papers and other documents were seized

during the second search. Files, loose papers and a computer together with

its hard disk were seized from the residence of one B.L. Vora, Accountant of 3

Ajmera Group. In his statement B.L. Vora admitted that he was managing

secret books and documents in code words as per the instructions given to

him by one Chhotalal Ajmera, who was controlling the whole Ajmera

Group.

On the basis of the seized documents, assessment for the assessment

year 1989-90 was completed, determining the total income at Rs.18.93

crores as against the returned income of Rs.70 lakhs. Similarly, assessment

for the assessment year 1990-91 was completed at Rs.4.01 crores as against

the returned income of Rs.4 lakhs. An addition of Rs.90 lakhs was also

made to the returned income for the assessment year 1991-92. Prior to the

completion of assessment for the said assessment years, an order under

Section 132(5) of the Act was passed determining the concealed income of

the group at Rs.200.60 crores for the assessment year 1993-94

4. On 30th September, 1993 the assessee filed an application under

Section 245C(1) of the Act before the Settlement Commission,

disclosing an additional income of Rs.1,94,33,580/- for the assessment

years 1989-90 to 1993-94, in addition to the income declared in the

returns of income submitted by them earlier. The Settlement

Commission called for a report from the Commissioner of Income 4

Tax, (for short "the Commissioner") in terms of Section 245D(1) of

the Act read with Rule 6 of the Income Tax Settlement Commission

(Procedure) Rules, 1987 (for short "the 1987 Rules"). On 27th

January, 1994, the Commissioner, while objecting to the

entertainment of the application for settlement submitted by the

assessee, as not being a full and true disclosure of their income,

suggested that, at any rate, the income of the group should not be

settled at less than Rs. 223.55 crores.

5. Arguments on the question of whether or not the Settlement

Commission should proceed with the application were concluded on

12th September, 1994 and orders were reserved. However, on

19th September, 1994, the assessee filed a revised settlement

application containing "confidential annexure and related papers",

declaring therein an additional income of Rs.11.41 crores. On 17th

November, 1994, the Settlement Commission passed an order under

Section 245D(1) of the Act deciding to proceed with the application.

Accordingly, the Settlement Commission asked the Commissioner to

submit a further report, as required under Rule 8 of the 1987 Rules.

The Commissioner in his elaborate report dated 30th August, 1995,

while observing that the income disclosed by the assessee should not 5

be treated as true and correct, reported that the total unaccounted

income of the assessee was to the tune of Rs.187.09 crores. A

yearwise summary of unaccounted receipts and investments made by

the assessee, compiled on the basis of the seized books of account and

documents, was submitted with the report. It appears that on 20th

October, 1997, the Commissioner sent to the Settlement Commission

a general note on reconciliation of various annexures to the earlier

report, submitted on 30th August, 1995.

6. Hearing in the case commenced before the Settlement Commission on

6th October, 1998 and various hearings took place thereafter, but some

time in the year 1999 the assessee made a further disclosure of

undisclosed income of Rs.2.76 crores, apparently during the course of

hearing, as no application/letter to that effect is on record. Hearings

concluded on 14th October, 1998.

7. Vide his letter dated 6th January, 1999, the departmental representative

furnished to the Settlement Commission some clarifications regarding

the taxability of advance booking amounts received by the assessee.

In the said letter, the Commissioner requested the Settlement

Commission to examine the question of identifying the "so called" 6

persons who had booked the flats because this information would be

necessary in order to locate them. Instead of responding to the said

issue raised by the Commissioner, the assessee, by their letter dated

25th January, 1999, revised their statement of facts and offered an "ad-

hoc income of Rs.1 crore for the assessment year 1992-93 and Rs.6

crores for the assessment year 1993-94 to cover up any discrepancies

and/or any unforeseen contingencies". On 29th January, 1999, the

Settlement Commission passed the final order under Section 245D(4),

determining the total income of the assessee for assessment years

1989-90 to 1993-94 at Rs.42.58 crores. Observing that the assessee

had co-operated during the proceedings before it, the Settlement

Commission imposed a "token" penalty of Rs.50 lakhs as against the

minimum leviable penalty of Rs.562.87 lakhs, as per its own

assessment. The Settlement Commission also granted immunity to the

assessee against prosecution and in respect of other penalties under

the Act.

8. Dis-satisfied with the order by the Settlement Commission, the

Commissioner challenged it by preferring a writ petition in the High

Court of Bombay. Holding that the Settlement Commission had not

given any finding as to whether there was full and true disclosure of 7

the income by the assessee, by a strongly worded order, dated 28th

July, 2000, the High Court allowed the writ petition and set aside the

order. It would be useful to extract the relevant observations in the

judgment:

"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 made 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(1) 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 245C(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.

............................................................................. ............................................................................. On the fact 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 of the facts available on record."

8 Dealing with the grievance of the Commissioner that he was not apprised of

the revised settlement application filed by the assessee on 19th September,

1994, i.e. after the hearing on the question of whether or not the assessee's

application is to be proceeded with in terms of Section 245D(1) of the Act

had concluded, disclosing additional income of Rs. 11.41 crores, the High

Court observed that order dated 17th November, 1994 was bad, illegal and

ab-initio void being in breach of principles of natural justice. Accordingly,

the High Court held that all subsequent proceedings and orders passed

therein would be of no consequence and they had to be set aside because the

subsequent order under Section 245D(4) of the Act could survive only

subject to the validity of the order required to be passed under Section

245D(1) of the Act. Even on the merits of the quantification of the total

undisclosed income of the assessee, the High Court held that the final order

was clearly perverse and could not stand the scrutiny of law. Finally

declaring order dated 17th November, 1994 as ab-initio void and quashing

order dated 29th January, 1999, the High Court remitted the proceedings

back to the Settlement Commission, keeping all the questions open, with a

direction to decide the application afresh in accordance with law. 9

9. Aggrieved by the decision of the High Court, the assessee challenged

the same before this Court. By order dated 11th July, 2006, this Court

set aside the order of the High Court solely on the ground that the

second report submitted by the Commissioner on 20th October, 1997,

estimating the undisclosed income at Rs. 42.5 crores, which

approximately coincided with the figures arrived at by the Settlement

Commission, and accepted by the assessee, had not been taken into

consideration by the High Court, which fact was also conceded by

learned counsel appearing for the revenue. The special leave petition

was disposed of in the following terms:

"Without expressing any opinion on the merits of the dispute, the findings recorded on the first report or the effect of not recording a finding on the second report, we set aside the impugned order and remit the case back to the High Court for a fresh decision, leaving the parties to raise all points including the point raised before us on behalf of the assessee that the High Court should not have entertained the revenue's writ petitions in exercise of its discretionary jurisdiction under Article 226 of the Constitution of India, and the stand taken by the revenue that the application filed by the assessee for settlement before the Settlement Commission was not entertainable as the assessee had not made, inter alia, true and complete disclosure of its undisclosed income, as provided under the law. All contentions of the parties are left open to be agitated before the High Court."

(Emphasis supplied by us) 1

10. Pursuant to and in furtherance of the order passed by this Court, the

matter was heard afresh by the High Court. By the impugned

judgment and order, the High Court has again set aside Settlement

Commission's order dated 29th January, 1999 and has remitted the

matter back to it for fresh adjudication, observing thus:

"In view of the facts and the legal position noted above, even though we find that the respondents had not made full and true disclosure of their income while making applications under Section 245C, it would not be proper to set aside the proceeding. However, at the same time, the Commission appears to have misdirected itself on several important aspects while passing the final order. The Settlement Commission had not supplied the annexure dated 19.9.1994 declaring additional income of Rs.11.41crore and thus, due opportunity was not given to the Revenue to place (sic) its stand properly. Huge amount of unexplained expenses, unexplained loans and unexplained surplus, total of which is more than Rs.14 crore, was not taken into consideration while passing the final order. Thirdly, the Settlement Commission has imposed token penalty of Rs.50 lakh while in its own assessment leviable penalty would be 562.87 (sic Rs.562.87). In fact the amounts, which were not taken into consideration while assessing the total undisclosed income, are also taken into consideration, the amount of leviable penalty may be much more. Taking into consideration the multiple disclosures and the fact that the respondents had failed to make true and full disclosure initially as well as at the time of second disclosure, we do not find any justifiable reasons to reduce or waive the amount of penalty so drastically. Taking into consideration all these circumstances, in our considered opinion, it will be in the interest of justice to set aside the final order passed by the Settlement Commission and to remand the matter back to the Settlement Commission for hearing parties afresh and to pass orders as per law. Facts and circumstances noted in respect of writ petition no. 2191 of 1

1999 are also relevant for the remaining writ petitions and, therefore, it will be necessary that the final orders passed in all these proceedings should be set aside."

(Emphasis added)

Thus, the remand of the case by the High Court to the Settlement

Commission was confined only to the question of determination of total

income, penalty etc. and the Settlement Commission was not required to go

into the question of maintainability of application under Section 245C(1) of

the Act.

11. Still being dissatisfied, all the applicants before the Settlement

Commission are before us in these appeals.

12. We have heard Dr. A.M. Singhvi, learned senior counsel appearing

for the assessee and Shri H.P. Raval, learned Additional Solicitor

General, on behalf of the Commissioner.

13. Dr. Singhvi strenuously urged that the impugned order is clearly

fallacious as the High Court has again failed to consider the two

reports submitted by the Commissioner on 30th August, 1995 and 20th

October, 1997 in their proper perspective, despite specific direction by

this Court vide order dated 11th July, 2006. Refuting the stand of the

Commissioner that undisclosed income determined in her report was 1

Rs.187.20 crores and not Rs.42.58 crores, learned counsel referred us

to several documents, forming part of the revised confidential

annexure, in particular to the last page of Commissioner's report dated

30th August, 1995 wherein, according to the learned counsel, while

referring to Annexure-VII of the revised annexure, the Commissioner

has determined undisclosed income at Rs.42.58 crores. It was thus,

asserted that the High Court has gone wrong in equating "unaccounted

income" with "unaccounted receipts" and payments of Rs.187.20

crores. On the basis of the very same annexure, learned counsel also

attempted to demonstrate that the revised annexure, disclosing

undeclared income of Rs.11.41 crores was, in fact, in the knowledge

of the Commissioner before she had submitted her report, whereafter

the Settlement Commission had decided to proceed with the

assessee's application. It was pleaded that the finding of the High

Court that the Commissioner had not been supplied with the annexure

filed on 19th September, 1994 declaring additional income of Rs.11.41

crores and thus, due opportunity was not given to the revenue to put

forth its stand properly, was erroneous and, therefore, the impugned

order deserves to be set aside on this ground alone. 1

14. Next, it was urged by learned senior counsel for the assessee that the

High Court erred in entertaining the writ petition filed by the

Commissioner under Article 226 of the Constitution against the order

passed by the Settlement Commission because: (i) in terms of Section

245D(1) of the Act, the order made by the Settlement Commission

under sub-section (4) of the said Section is conclusive as to the

matters stated therein and no matter covered by such order can be

reopened in any proceedings under the Act or under any other law for

the time being in force and (ii) in the absence of any illegality in the

procedure followed by the Settlement Commission, the power of

judicial review could not be exercised by the High Court to interfere

with the findings of fact recorded by the Settlement Commission. To

buttress his proposition that judicial review is concerned only with the

decision making process and not with the final decision, learned

counsel referred us to the decisions of this Court in Jyotendrasinhji

Vs. S.I. Tripathi & Ors.1, M/s R.B. Shreeram Durga Prasad &

Fatehchand Nursing Das Vs. Settlement Commission (IT & WT) &

Anr.2 and Shriyans Prasad Jain Vs. Income Tax Officer & Ors.3.

1 1993 Supp (3) SCC 389 2 (1989) 1 SCC 628 3 1993 Supp (4) SCC 727 1

15. It was also argued by the learned counsel that since by operation of

Section 245D(1) of the Act read with Rule 6 of the 1987 Rules,

annexure, statements and other documents accompanying such

annexure were not to be supplied to the Commissioner before the

Settlement Commission had decided to proceed with assessee's

application, no prejudice was caused to the Commissioner by the

filing of revised annexure by the assessee on 19th September, 1994.

16. Shri Raval, on the other hand, supporting the impugned judgment,

submitted that the scheme of Chapter XIX-A does not envisage

revision of the application filed by the assessee under Section 245C(1)

of the Act and, therefore, the Settlement Commission committed

serious procedural irregularity in permitting the assessee to file

revised annexure, declaring higher undisclosed income. Additionally,

the learned counsel argued that acceptance of such annexure, after the

conclusion of hearing on 12th September, 1994, behind the back of the

departmental representative and after the Settlement Commission had

reserved its order under Section 245D(1), was improper and clearly in

breach of principles of natural justice and, therefore, the order passed

by the Settlement Commission on 17th November, 1994, deciding to

proceed with the application deserves to be set aside. 1

17. Learned counsel contended that revision of undisclosed income from

Rs.1.94 crores to Rs.11.41 crores, as projected in the revised annexure

and thereafter the two voluntary disclosures during the course of

hearing and finally acceptance of Settlement Commission's order

determining total income at Rs.42.58 crores without demur shows that

the disclosure made by the assessee in their application under Section

245C of the Act was neither full nor true and, therefore, the

Settlement Commission ought to have rejected the application for

settlement. It was pleaded that the piecemeal disclosures, in particular

the revision of the statement of facts vide assessee's letter dated 25th

January, 1999, offering an ad hoc income of Rs.1 crore for the

assessment year 1992-93 and Rs.6 crores for the assessment year

1993-94 to cover up "any discrepancies and/or any unforeseen

contingencies" is not contemplated in the scheme of Chapter XIX-A

and, therefore, the final order passed by the Settlement Commission

on the basis of revised statement of facts and annexures is void ab

initio. In support of the submission that a full and true disclosure of

income in the application is a sine qua non for an application under

Section 245C(1) of the Act, learned counsel placed reliance on the

decisions of this Court in Sanghvi Reconditioners Private Limited 1

Vs. Union of India & Ors.4 and Commissioner of Income Tax,

Jalpaiguri Vs. Om Prakash Mittal5.

18. Responding to the contention urged on behalf of the assessee

regarding entertainment of writ petition by the High Court, learned

counsel submitted that having conceded before the High Court that the

assessee was not pressing the point of tenability of the writ petition,

the assessee is estopped from raising the said issue before this Court.

19. Lastly, relying on the decision of this Court in Mrs. Margaret Lalita

Samuel Vs. The Indo Commercial Bank Ltd.6, learned counsel for the

Commissioner pleaded that since the High Court has merely

remanded the case back to the Settlement Commission for fresh

determination of income and penalty etc., this Court may not like to

exercise its discretionary power under Article 136 of the Constitution.

20. Before embarking upon the rival contentions, it would be instructive

to refer to the scheme of Chapter XIX-A of the Act. The Chapter was

inserted in the Act by the Taxation Laws (Amendment) Act, 1975,

pursuant to the recommendations of the Justice Wanchoo Committee

Report. The recommendation, contained in Chapter 2 of the report 4 (2010) 2 SCC 733 5 (2005) 2 SCC 751 6 (1979) 2 SCC 396 1

under the caption "Black Money and Tax Evasion", was for setting up

of a statutory settlement machinery, whereby a tax evader could make

a clean breast of his past illegitimate affairs, discharge his tax liability

as determined by the body so established and thus, buy quittance for

himself and in the process accelerate recovery of taxes by the State,

although less than what may have been recovered after protracted

litigation and recovery proceedings. The said Chapter, with some

amendments, envisages settlement of complex tax disputes and grant

of immunity from criminal proceedings by a Settlement Commission

constituted in this regard. The Chapter sets out in detail the mechanics

of application, investigation, consideration, hearing and disposal of

the application.

21. Proceedings under the said Chapter commence on the filing of an

application by an assessee under Section 245C(1) of the Act, which

reads as follows:-

"245-C. Application for settlement of cases.--(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 payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the 1

case settled and any such application shall be disposed of in the manner hereinafter provided:

............................................................................"

A bare reading of the provision would reveal that besides such other

particulars, as may be prescribed, in an application for settlement, the

assessee is required to disclose: (i) a full and true disclosure of the income

which has not been disclosed before the assessing officer; (ii) the manner in

which such income has been derived and (iii) the additional amount of

income tax payable on such income.

22. It is clear that disclosure of "full and true" particulars of undisclosed

income and "the manner" in which such income had been derived are

the pre-requisites for a valid application under Section 245C(1) of the

Act. Additionally, the amount of income tax payable on such

undisclosed income is to be computed and mentioned in the

application. It needs little emphasis that Section 245C(1) of the Act

mandates "full and true" disclosure of the particulars of undisclosed

income and "the manner" in which such income was derived and,

therefore, unless the Settlement Commission records its satisfaction

on this aspect, it will not have the jurisdiction to pass any order on the

matter covered by the application.

1

23. Section 245D(1) lays down the procedure to be followed after the

receipt of the application under Section 245C(1) of the Act. It reads

thus:

"Procedure on receipt of an application under section 245C. 245D. (1) On receipt of an application under section 245C, 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 sub-section unless an opportunity has been given to the applicant of being heard:

.............................................................................. .........................................................................................

(3) 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 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 a 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 2

with the provisions of this Act, pass such 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 but referred to in the report of the Commissioner under sub-section (1) or sub-section (3)."

24. Since Rules 6 and 8 of the 1987 Rules have some bearing on the

issues involved, for the sake of ready reference, these are extracted

below:

"6. Commissioner's report etc., under section 245D (1).-- On receipt of a settlement application, a copy of the said application (other than the Annexure and the statements and other documents accompanying such Annexure) shall be forwarded by the Commission to the Commissioner with the direction to furnish his report under sub-section (1) of section 245D within thirty days of the receipt of the said copy of the application by him or within such further period as the Commission may specify."

"8. Commissioner's further report.--Where an order is passed by the Commission under sub-section (1) of section 245D allowing the settlement application to be proceeded with, copy of the Annexure to the said application, together with a copy of each of the statements and other documents accompanying such annexure, shall be forwarded to the Commissioner along with a copy of the said order with the direction that the Commissioner shall furnish a further report within ninety days of the receipt of the said Annexure (including the statements and other documents accompanying it or within such further period as the Commission may specify."

2 25. It will also be useful to extract the relevant portions of Form

(No.34B), prescribed for making an application under Section

245C(1) of the Act:

"[FORM NO. 34B] [See rules 44C and 44CA] Form of application for settlement of cases under section 245C(1) of the Income-tax Act, 1961 ........................................................................... ...........................................................................

10. Particulars of the issues to be settled, nature and circumstances of the case and complexities of the investigation involved [See Note 7]

11. Full and true disclosure of income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived and the additional amount of income-tax payable on such income [See Notes 9 and 10]

...........................

Signed (Applicant)

Notes:

........................................................................... ...........................................................................

2 7. Full details of issues for which application for settlement is made, the nature and circumstances of the case and complexities of the investigation involved must be indicated against item 10. Where the application relates to more than one assessment year, these details should be furnished for each assessment year.

.............................................................................

9. The additional amount of income-tax payable on the income referred to in item 11 should be calculated in the manner laid down in sub-sections (1A) to (1D) of section 245C.

10. The details referred to in item 11 shall be given in the Annexure to this application."

[Emphasis supplied by us]

26. The procedure laid down in Section 245D of the Act, contemplates

that on receipt of the application under Section 245C(1) of the Act,

the Settlement Commission is required to forward a copy of the

application filed in the prescribed form (No. 34B), containing

full details of issues for which application for settlement is made, the

nature and circumstances of the case and complexities of the

investigation involved, save and except the annexures, referred to in

item No. 11 of the form and to call for report from the Commissioner.

The Commissioner is obliged to furnish such report within a period of

45 days from the date of communication by the Settlement

Commission. Thereafter, the Settlement Commission, on the basis of 2

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. After an order under Section

245D(1) is made, by the Settlement Commission, Rule 8 of the 1987

Rules mandates that a copy of the annexure to the application,

together with a copy of each of the statements and other documents

accompanying such annexure shall be forwarded to the Commissioner

and further report shall be called from the Commissioner. The

Settlement Commission can also direct the Commissioner to make

further enquiry and investigations in the matter and furnish his report.

Thereafter, after examining the record, Commissioner's report and

such further evidence that may be laid before it or obtained by it, the

Settlement Commission is required to pass an order as it thinks fit on

the matter covered by the application and in every 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) of the said

Section. It bears repetition that as per the scheme of the Chapter, in

the first instance, the report of the Commissioner is based on the bare

information furnished by the assessee against item No. 10 of the 2

prescribed form, and the material gathered by the revenue by way of

its own investigation. It is evident from the language of Section

245C(1) of the Act that the report of the Commissioner is primarily

on the nature of the case and the complexities of the investigation, as

the annexure filed in support of the disclosure of undisclosed income

against item No. 11 of the form and the manner in which such income

had been derived are treated as confidential and are not supplied to

the Commissioner. It is only after the Settlement Commission has

decided to proceed with the application that a copy of the annexure to

the said application and other statements and documents

accompanying such annexure, containing the aforesaid information

are required to be furnished to the Commissioner. In our opinion even

when the Settlement Commission decides to proceed with the

application, it will not be denuded of its power to examine as to

whether in his application under Section 245C(1) of the Act, the

assessee has made a full and true disclosure of his undisclosed

income. We feel that the report(s) of the Commissioner and other

documents coming on record at different stages of the consideration of

the case, before or after the Settlement Commission has decided to

proceed with the application would be most germane to determination 2

of the said question. It is plain from the language of sub-section (4) of

Section 245D of the Act that the jurisdiction of the Settlement

Commission to pass such orders as it may think fit is confined to the

matters covered by the application and it can extend only to such

matters which are referred to in the report of the Commissioner under

sub-section (1) or sub-section (3) of the said Section. A "full and

true" disclosure of income, which had not been previously disclosed

by the assessee, being a pre-condition for a valid application under

Section 245C(1) of the Act, the scheme of Chapter XIX-A does not

contemplate revision of the income so disclosed in the application

against item No. 11 of the form. Moreover, if an assessee is permitted

to revise his disclosure, in essence, he would be making a fresh

application in relation to the same case by withdrawing the earlier

application. In this regard, Section 245C(3) of the Act which prohibits

the withdrawal of an application once made under sub-section (1) of

the said Section is instructive in as much as it manifests that an

assessee cannot be permitted to resile from his stand at any stage

during the proceedings. Therefore, by revising the application, the

applicant would be achieving something indirectly what he cannot

otherwise achieve directly and in the process rendering the provision 2

of sub-section (3) of Section 245C of the Act otiose and meaningless.

In our opinion, the scheme of said Chapter is clear and admits no

ambiguity.

27. It is trite law that a taxing statute is to be construed strictly. In a taxing

Act one has to look merely at what is said in the relevant provision.

There is no presumption as to a tax. Nothing is to be read in, nothing

is to be implied. There is no room for any intendment. There is no

equity about a tax. (See: Cape Brandy Syndicate Vs. Inland Revenue

Commissioners7 and Federation of A.P. Chambers of Commerce &

Industry & Ors. Vs. State of A.P. & Ors.8). In interpreting a taxing

statute, the Court must look squarely at the words of the statute and

interpret them. Considerations of hardship, injustice and equity are

entirely out of place in interpreting a taxing statute. (Also see:

Commissioner of Sales Tax, Uttar Pradesh Vs. The Modi Sugar

Mills Ltd.)9.

28. As afore-stated, in the scheme of Chapter XIX-A, there is no

stipulation for revision of an application filed under Section 245C(1)

of the Act and thus the natural corollary is that determination of

7 (1921) 1 KB 64 8 (2000) 6 SCC 550 9 1961 (2) SCR 189 2

income by the Settlement Commission has necessarily to be with

reference to the income disclosed in the application filed under the

said Section in the prescribed form.

29. Having noticed the scheme of Chapter XIX-A of the Act, we shall

now advert to the facts at hand and evaluate the rival submissions.

30. Before addressing the other issues, at the outset, we record our

disapproval with the view of the High Court that it would not be

proper to set aside the proceedings before the Settlement Commission

even though it was convinced that the assessee had not made full and

true disclosure of their income while making application under

Section 245C of the Act. As stated above, in its earlier order dated

28th July, 2000 while declaring order dated 17th November, 1994, as

ab initio void and setting aside order dated 29th January, 1999, the

High Court had remitted the case to the Settlement Commission to

decide the entire matter afresh, including the question of

maintainability of the application under Section 245C(1) of the Act.

The said order of the High Court was put in issue before this Court

and was set aside vide order dated 11th July, 2006 and the case was

remanded back to the High Court for fresh consideration. 2

Nevertheless, all points raised by the parties, including the plea of the

revenue that the application filed by the assessee before the Settlement

Commission was not maintainable as the assessee had not made a full

and true disclosure of their undisclosed income were kept open. The

High Court addressed itself on the said issue and found that the

assessee had not made a full and true disclosure of their income while

making the application under Section 245C(1) of the Act, yet did not

find it proper to set aside the proceedings on that ground. Having

recorded the said adverse finding on the very basic requirement of a

valid application under Section 245C(1) of the Act, the High Court's

opinion that it would not be proper to set aside the proceedings is

clearly erroneous. The High Court appears to have not appreciated

the object and scope of the scheme of settlement under Chapter XIX-

A of the Act. At this juncture, it would be appropriate to notice a few

illuminating observations in W T Ramsay Ltd. Vs. Inland Revenue

Commissioners10, which was considered to be a turning point in the

interpretation of tax laws in England and was a significant departure

from Inland Revenue Commissioners Vs. Duke of Westminster11

dictum, noted in the passage extracted below :-

10

(1981) 1 All ER 865 11 [1936] AC 1, [1935] All ER Rep 259 2

"Given that a document or transaction is genuine, the court cannot go behind it to some supposed underlying substance.

This is the well-known principle of Inland Revenue Comrs v Duke of Westminster [1936] AC 1, [1935] All ER Rep 259, 19 Tax Cas 490. This is a cardinal principle but it must not be overstated or over-extended. While obliging the court to accept documents or transactions, found to be genuine, as such, it does not compel the court to look at a document or a transaction in blinkers, isolated from any context to which it properly belongs. If it can be seen that a document or transaction was intended to have effect as part of a nexus or series of transactions, or as an ingredient of a wider transaction intended as a whole, there is nothing in the doctrine to prevent it being so regarded; to do so is not to prefer form to substance, or substance to form. It is the task of the court to ascertain the legal nature of any transactions to which it is sought to attach a tax or a tax consequence and if that emerges from a series or combination of transactions, intended to operate as such, it is that series or combination which may be regarded."

31. We are convinced that, in the instant case, the disclosure of Rs.11.41

crores as additional undisclosed income in the revised annexure, filed

on 19th September, 1994 alone was sufficient to establish that the

application made by the assessee on 30th September, 1993

under Section 245C(1) of the Act could not be entertained as it did not

contain a "true and full" disclosure of their undisclosed income and

"the manner" in which such income had been derived. However, we

say nothing more on this aspect of the matter as the Commissioner,

for reasons best known to him, has chosen not to challenge this part of

the impugned order.

3

32. We shall now deal with the principal argument of learned counsel for

the assessee that the High Court had failed to consider, in their correct

perspective the two reports submitted by the Commissioner on 30th

August, 1995 and 20th October, 1997, in as much as, in the latter

report the Commissioner had himself computed the undisclosed

income at Rs. 42.52 crores, which was equivalent to the amount

finally determined by the Settlement Commission. Therefore,

according to the learned counsel, there was no justification for the

remand of the case back to the Settlement Commission. At the first

blush, the argument appears to be attractive but on a deeper scrutiny,

it does not merit acceptance. In the impugned order, on a critical

examination of the order passed by the Settlement Commission with

reference to the said two reports, in particular the reconciliation

report submitted by the Commissioner on 20th October, 1997,

estimating the undisclosed income at Rs. 187.20 crores, the High

Court had found that only that part of the report dated 20th October,

1997, which dealt with "on money" was highlighted before this

Court, while other incomes, investments, receipts or payments were

not covered in that part of the statement. The High Court also

observed that the manner in which expenses had been shown, created 3

a serious doubt about the expenditure of Rs.734.02 lakhs. The High

Court has also noted that the Settlement Commission had not properly

dealt with the amount of Rs.911.51 lakhs on account of unexplained

expenses, loans and surplus amount of Rs.488.98 lakhs, while

assessing the total income and thus an amount of Rs.14.49 crores

had been left out while determining the undisclosed income of the

assessee. Besides, the High Court has also commented that having

come to the conclusion that the penalty leviable worked out to be Rs.

562.87 lakhs, the Settlement Commission had no reason for levying a

token penalty of Rs. 50 lakhs, which was not even 10% of the

minimum leviable penalty. Ultimately the High Court observed that

: (i) since the Settlement Commission had not supplied annexure

filed on 19th September, 1994, declaring additional income of

Rs.11.41 crores, due opportunity had not been given to the revenue to

place its stand properly; (ii) huge amount of unexplained expenses,

unexplained loans and unexplained surplus, total of which was more

than Rs.14 crores, was not taken into consideration while passing the

final order and (iii) the Settlement Commission had imposed token

penalty of Rs.50 lakhs while on its own assessment leviable penalty

would have been Rs.562.87 lakhs. Further, if the amount which had 3

not been taken into consideration while assessing the total undisclosed

income was to be taken into account, the amount of leviable penalty

would have been much more. In light of these facts, the High Court

formed the opinion that it would be in the interest of justice to set

aside the final order passed by the Settlement Commission and to

remand the case back to it for fresh adjudication on assessee's

application. Bearing in mind the afore-stated factual position, as

emanating from the material on record, we find it difficult to persuade

ourselves to agree with learned counsel for the assessee that there was

no justification for order of remand by the High Court and that the

order passed by the Settlement Commission should have been

affirmed. We are satisfied that under the given scenario, the High

Court was correct in making the order of remand and no good ground

is made out for interference in exercise of our jurisdiction under

Article 136 of the Constitution.

33. As regards the argument of learned counsel for the assessee that the

scope of judicial review being limited, the High Court should not have

interfered with the order of the Settlement Commission in exercise of

its power under Article 226 of the Constitution, in our opinion, the

argument is stated to be rejected. Having conceded before the High 3

Court that the assessee was not pressing the point of maintainability of

the writ petition before the High Court, the assessee cannot be now

permitted to resile from its earlier stand and raise the same issue

before us. Even otherwise, as stated above, we have no hesitation in

observing that the manner in which assessee's disclosures of

additional income at different stages of proceedings were entertained

by the Settlement Commission, rubbishing the objection of the

Commissioner that the assessee had not made a full and true

disclosure of their income in the application under Section 245C(1) of

the Act, leaves much to be desired.

34. We may now evaluate the submission of learned counsel for the

assessee that since the Commissioner was not entitled to receive a

copy of the annexure to the application before the Settlement

Commission had decided to proceed with the application, no prejudice

was caused to the Commissioner because of the alleged non-supply of

the revised annexure at a stage anterior to the making of order under

Section 245D(1) of the Act. It is true that details of the "full and true"

disclosure of income and "the manner" in which such income is

derived is to be given in the form of an annexure to the application,

which is treated as confidential and is not to be forwarded to 3

Commissioner for the purpose of his report under sub-section (1) of

Section 245D of the Act and therefore, apparently there is substance

in the contention. But when the argument is tested on the anvil of the

scheme of Chapter XIX-A, the revision of the annexure by itself was

prejudicial to the interest of the revenue. Apart from the fact, as

explained above, revision of the annexure is tantamount to revision

of the application, not contemplated in the scheme, withholding of

the information regarding filing of revised annexure, disclosing

undisclosed income of Rs.11.41 crores as against the income of

Rs.1.94 crores, disclosed in the annexure forming part of the

application, deprived the Commissioner of his right to object to the

maintainability of assessee's application on the ground that the

assessee had not made true and full disclosure of their income in the

previous application, the foundational requirement of a valid

application under Section 245C(1) of the Act. Accordingly, we have

no hesitation in rejecting the argument.

35. For all the reasons aforesaid, we do not find any merit in these

appeals, which are dismissed accordingly. The Commissioner will be

entitled to costs, quantified at Rs.50,000/-.

3

..........................................J. (D.K. JAIN)

...........................................J. (H.L. DATTU) NEW DELHI;

AUGUST 20, 2010.