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March, 08th 2014

                                        Reserved on: 28th January, 2014
%                                  Date of Decision:10th February, 2014

+      W.P. (C) 5262/2013

                                               ..... Petitioner
                      Through: Mr. Rohit Madan, sr. standing
                               counsel with Mr Akash Vajpai,

                                             ..... Respondents
                    Through: Mr. C.S. Aggarwal, Sr. Advocate
                             with Mr Prakash Kumar and Mr
                             Sheel Vardhan, Advocates.



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

W.P. (C) No.5262/2013                                          Page 1 of 18
(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


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


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

W.P. (C) No.5262/2013                                          Page 10 of 18
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."

W.P. (C) No.5262/2013                                              Page 17 of 18
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


       The writ petition is allowed with no order as to costs.

                                                    (R.V. EASWAR)

                                                (S. RAVINDRA BHAT)
FEBRUARY 10, 2014

W.P. (C) No.5262/2013                                            Page 18 of 18
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