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October, 05th 2013
$~18 &19.
+                WRIT PETITION (CIVIL) NO. 1900/2013
                                               Date of decision: 18th September, 2013
                                                                       ..... Petitioner
                                      Through Mr. Kaanan Kapur, Advocate.


                                        ..... Respondents
                                      Through Mr. N.P. Sahni, Sr. Standing

                 WRIT PETITION (CIVIL) NO. 1921/2013
                                                                       ..... Petitioner
                                      Through Mr. Kaanan Kapur, Advocate.


                                        ..... Respondents
                                      Through Mr. N.P. Sahni, Sr. Standing



        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.
                 2.       M/s MARC Bathing Luxuries Ltd.

                 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


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

W.P. (C) Nos. 1900/2013 & 1921/2013                                Page 9 of 9
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