$~18 &19.
*IN THE HIGH COURT OF DELHI AT NEW DELHI
+ WRIT PETITION (CIVIL) NO. 1900/2013
Date of decision: 18th September, 2013
MARC BATHING LUXURIES LTD.
..... Petitioner
Through Mr. Kaanan Kapur, Advocate.
versus
INCOME TAX SETTLEMENT COMMISSION & ANR.
..... Respondents
Through Mr. N.P. Sahni, Sr. Standing
Counsel.
WRIT PETITION (CIVIL) NO. 1921/2013
MARC SANITATION PRIVATE LTD.
..... Petitioner
Through Mr. Kaanan Kapur, Advocate.
versus
INCOME TAX SETTLEMENT COMMISSION & ORS.
..... Respondents
Through Mr. N.P. Sahni, Sr. Standing
Counsel.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
SANJIV KHANNA, J. (ORAL):
Marc Bathing Luxuries Limited and Marc Sanitation Private
Limited, the two sister concerns, have invoked writ jurisdiction under
Articles 226 and 227 of the Constitution of India to question common
W.P. (C) Nos. 1900/2013 & 1921/2013 Page 1 of 9
order dated 1st March, 2013 passed by the Income Tax Settlement
Commission under Section 245D(2C) of the Income Tax Act, 1961
(Act, for short). As the facts are inter-linked and the reasons given by
the Settlement Commission are in a common order, we are disposing
of these writ petitions by one order.
2. As the issues and arguments raised before us are limited and lie
in a narrow compass, we deem it appropriate to refer to relevant and
pivotal facts necessary to decide the two petitions. The petitioners
herein had filed two applications under Section 245C of the Act
relating to Assessment Years 2005-06 to 2012-13 on 31st December,
2012. At that time, assessment proceedings under Section 153A and
143(3) were pending before Additional Commissioner of Income Tax,
Central Circle-10, New Delhi. By order dated 14th January, 2013
under Section 245D(1) of the Act, applications were allowed to be
proceeded with and a report under Section 245D(2B) was sought from
the concerned Commissioner of Income Tax. The Commissioner
submitted reports on 15th February, 2013 and the two petitioners were
heard on 22nd February, 2013 and 1st March, 2013. The petitioners had
filed written submissions on 28th February, 2013 and 1st March, 2013.
3. The impugned order passed by the Settlement Commission is
rather brief and we would like to reproduce paragraphs 4 to 6 of the
said order to understand and appreciate the contention of the
W.P. (C) Nos. 1900/2013 & 1921/2013 Page 2 of 9
petitioners. The said paragraphs which record and give reasons for
dismissing the applications read as under:-
"4. After the admission of both the cases u/s
245D(1) of the IT Act vide order dated
14.1.2013 holding that the applicants have
prima facie fulfilled the condition for
admission, CIT Central-II, New Delhi furnished
detailed reports u/s 245D(2B) of the I.T. Act
dated 13.02.2013. In these reports CIT for
detailed reasons and after examining the
outcome of searches by the Central Excise
Department and Income Tax Department on the
applicants arrived at the figure of short
disclosure by the applicants as under:-
1. M/s MARC Sanitation Pvt. Ltd.
Rs.22,85,09,933/-
2. M/s MARC Bathing Luxuries Ltd.
Rs.35,35,75,834/-.
5. In response to this, the applicants filed
detailed submissions on 28.02.2013 and
01.03.2013. The cases of both the applicants
were heard on 1.3.2013. The Learned Counsel
for the applicants and learned CIT (DR)
accompanied by A.O. strenuously argued their
respective cases. Apart from the issues raised
by the CIT in his reports it was noticed that in
several respects the applicants were not
maintaining their accounts as per law nor were
they revealing the real income. In the case of
M/s MARC Sanitation Pvt. Ltd. stock on the
date of search was found short but no income
on the business carried on outside the books of
sale of this stock was declared. The applicant
contended that stocks as per books have been
inflated to paint a rosy picture before the banks.
However at page 26 of the SOF para 19 it was
seen that the applicant company had in
Assessment Year 2012-13 reduced the level of
stocks in the books of accounts by
W.P. (C) Nos. 1900/2013 & 1921/2013 Page 3 of 9
Rs.5,88,14,889/- without proper entries in the
respective years. It was also noticed that this
deviation from the normal accounting
principles was sought to be suppressed by the
applicant and its C.A. in the audit report. In the
case of M/s MARC Bathing Luxuries Ltd. also
apart from the suppression of income pointed
out by CIT it was also noticed that the applicant
had filed Profit & Loss Account (actually
manufacturing and trading account) which had
neither the opening stock nor the closing stock
disclosed in the accounts. This appears to be an
attempt to complicate the accounts.
6. It is apparent that the applicants have
indulged in suppression of Income even before
the Settlement Commission where they are
required to declare full and true income. The
applicants have not come before the
Commission with clean hands and have
indulged in creative accounting to suppress
their income."
4. Learned counsel for the petitioners submits that the Settlement
Commission has completely erred in not examining and dealing with
the contentions raised, facts stated and submitted. He has referred to
the written submissions filed on 28th February, 2013 and 1st March,
2013. Even oral submissions have not been adjudged and reflected
upon. Our attention is drawn to paragraph 5 wherein it is recorded that
the matter was strenuously argued by both sides. It is submitted by the
petitioners that the finding of the tribunal in the case of Marc
Sanitation Private Limited that the said company had wrongly reduced
the level of stock in the books of accounts by Rs.5,88,14,889/- without
W.P. (C) Nos. 1900/2013 & 1921/2013 Page 4 of 9
proper entries was not objected to and adversely commented upon by
the Commissioner in his report. It is accordingly submitted that the
Settlement Commission was swayed by factors which even the
Commissioner did not consider, were relevant. The petitioner contends
that stocks were inflated to paint a rosy picture before the bank. With
regard to the objection noticed in the case of Marc Bathing Luxuries
Limited, it is submitted that there is a gross error as an extract of the
profit and loss account was separately filed and the Settlement
Commission has ignored the full account/profit and loss account and
computation of income with the opening and closing stock were duly
on record. Thus, there was a lapse and obvious error on the part of the
Settlement Commission in not considering the papers filed before
them. The applications have been erronously dismissed by recording
and relying upon wrong and factually incorrect findings.
5. The two petitioners were subjected to search under the Central
Excise Act, 1944 on 25th September, 2008 and by the Income Tax
Department on 26th April, 2010.
6. After the search by the Excise Department, Marc Bathing
Luxuries Limited had approached Customs and Central Excise
Settlement Commission by way of an application on 30 th May, 2011.
The said application was disposed of vide order dated 1st November,
2011. In the order passed by the Settlement Commission, unaccounted
W.P. (C) Nos. 1900/2013 & 1921/2013 Page 5 of 9
manufactured items were quantified and valued at Rs.20,11,59,509/-.
The Settlement Commission while computing the said amount took the
average cost of manufactured items at Rs.505.50 per kg. In the case of
Marc Sanitation Private Limited, the assessee had surrendered
unconcealed or unrecorded turnover of Rs.13,17,00,000/- before the
adjudicating authority. They had paid excise duty of Rs.2,14,00,000/-
on the said unrecorded turnover.
7. Learned counsel for the petitioners has drawn our attention to
the statement of affairs filed before the Settlement Commission and it
is pointed out that the entire amount of unaccounted turnover which
became subject matter of orders passed by the Settlement Commission
under the Excise Act or by the adjudicating authority were disclosed in
the said applications. It is further submitted that the income tax
department had substantially relied upon the documents and material
seized during the search under the Excise Act. It is stated that the main
dispute and the contention was not the quantum of turnover, though the
said issue had been raised, but the gross profit rate, which should be
applied on the unaccounted for but now declared turnover.
8. The petitioners had declared a GP rate of 10.21%, whereas the
Revenue, i.e., Commissioner was claiming GP rate of 25% was
appropriate and should be applied.
9. We have referred to the said contentions in some detail to
W.P. (C) Nos. 1900/2013 & 1921/2013 Page 6 of 9
highlight the contentions/issues raised and which required
consideration and application of mind. Aforesaid facts and the dispute
inter se parties have not been reflected upon and adverted to in the
impugned order. With some hesitation, we record that the order under
challenge is cryptic and is not focused on the issues and contentions,
which were raised by the petitioners and by the Commissioner. The
Settlement Commission earlier had directed and decided to proceed
with the applications on 14th January, 2013 in the two cases. They had
set out points, which had to be adjudicated and decided. These
included turnover of the two applicants for the assessment years
covered, determination of the issues arising out of the stock, including
valuation by the Department, allowability of excise duty for the
Assessment Year 2009-10 and determination of year-wise additional
income. All these factors and facts have been shunned and ignored.
The Settlement Commission has rejected the applications for all
assessment years, without referring to facts and issues relating to each
year.
10. Learned counsel for the Revenue accepted that there were some
factual errors in the impugned order like opening and closing stock
were on record, and accepts that the Commissioner had not objected to
inflation of stock issue. However, he has submitted that assessment
proceedings under Section 153A read with Section 143(3) are pending
W.P. (C) Nos. 1900/2013 & 1921/2013 Page 7 of 9
and all issues and questions can be thrashed out and decided there.
11. We cannot accept the said submission as the petitioners have a
right to invoke jurisdiction of the Settlement Commission, which is
provided under the statute, i.e., Income Tax Act. Once an application
is filed, then the said application must be dealt with in accordance with
law, i.e., refer to the contentions of the petitioners, the contention of
the Revenue and then an objective, considered and a reasoned decision
has to be taken. This is only when the stand of the two sides are fully
noticed and considered before an order under Section 245D(2C) is
passed. The impugned orders do not meet the said legal requirements.
12. The petitioners must come clean and be honest and admit their
faults and cannot but declare their true and full undisclosed income.
However, their plea and explanation that their declarations are genuine
and truthful, cannot be rejected without a legitimate and fair
consideration. The two searches were conducted in earlier years and
not in the period relevant to the Assessment Year 2012-13. The
Settlement Commission's order has not referred to any specific issues
and documents or made references to the contentions of the
Commissioner. Facts stated are incorrect or that Commissioner had
not objected to the stock reduction is not adverted to. May be the
applications deserve dismissal for the said reasons but full factual
position should be noted, before opinion is formed whether there has
W.P. (C) Nos. 1900/2013 & 1921/2013 Page 8 of 9
been full and true disclosure. There has been error and failure in the
decision making process and the failure vitiates the order passed.
13. In view of the aforesaid discussion, we set aside the impugned
order dated 1st March, 2013 in the case of the two petitioners and pass
an order of remand. The proceedings will commence from the same
stage as on 1st March, 2013 and after hearing the parties, a fresh order
without being influenced by the earlier order will be passed. The
Settlement Commission will deal with the application in accordance
with law. The effect of the present order is that the settlement
application will be treated as pending and necessary consequences in
law will flow. Merits of the case will be examined, without being
influenced by the present order. Nothing stated in this decision, will be
treated as binding opinion on merits of the case of the parties.
14. The writ petitions are disposed of. No costs.
SANJIV KHANNA, J.
SANJEEV SACHDEVA, J.
SEPTEMBER 18, 2013
VKR/NA
W.P. (C) Nos. 1900/2013 & 1921/2013 Page 9 of 9
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