Sibject:- The relevant details disclosed over pricing of bags/sacks of cement sold to the Dalmia Group.
Referred Sections:
Section 132(4) of the Income Tax Act.
section 127(2)
Section 153A
Section 142(1)
Section 245C of the Act,
Section 245D(1)
Section 245D(2B) of the Act
Section 245D(2C).
Section 68.
Referred Cases / Judgments
Brandy Syndicate Vs. Inland Revenue Commissioners7 and Federation of A.P.
Chambers of Commerce & Industry &Ors. Vs. State of A.P. & Ors.8).
Uttar Pradesh Vs. The Modi Sugar Mills Ltd.)9.
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on:23.01.19
Pronounced on: 15.04.2019
+ W.P.(C) 11859/2016
PRINCIPAL COMMISSIONER OF INCOME TAX-9
..... Petitioner
Through: Mr. Zoheb Hossain, SSC with
Mr. Piyush Goyal, Advocate.
versus
OM PRAKASH JAKHOTIA & ANR.
..... Respondents
Through: Mr. Prashant Shukla, Advocate.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE PRATEEK JALAN
%
S.RAVINDRA BHAT, J.
1. The Income Tax Department (hereinafter referred to as the Revenue)
is aggrieved by the order of the Income Tax Settlement Commission (ITSC)
dated 26.11.2014 which accepted the application made by the respondent
assessees (collectively referred to as the Jakhotias) and issuing
consequential directions.
2. The search was conducted in the premises of the assessee and related
companies together with that of the Dalmia Group on 20.01.2012. Cash to
the tune of `35 lakhs and an incriminating register containing details of
cash loans was also recovered and seized. The first respondent, Om Prakash
Jakhotia made a statement recorded under oath under Section 132(4) of the
Income Tax Act. The relevant details disclosed over pricing of bags/sacks
of cement sold to the Dalmia Group. The statement regarding loan credits
inter alia, is as follows:
W.P.(C)No. 11859/2016 Page 1 of 24
"No, the loan credits are genuine. However, it is not
feasible to me to prove it. The raw materials I sold to
various parties to" meet the unexplained expenditure of
my business. This amount has not been entered into my
books of accounts. These total transactions come to Rs.
16.5 Cr. I am voluntarily offering this amount in my
group and in my personal hands. I ·will pay the taxes
thereon. The detailed break up of Rs. 16.50 Cr will be
submitted in due course. (Reply to query 16)"
In reply to the query regarding the loan credits which emerged from the
books of accounts seized, the statement on oath stated as follows:
... "I have not maintained this type of account books
for unaccounted transactions for previous years. I have
maintained only for this year. "
3. The first respondent submitted an entity-wise and year wise
bifurcation of the surrendered amount aggregating `21.5 crores on
08.05.2012. Subsequently, an order centralising the assessment made in the
case after search was issued under section 127(2) transferring the entire
search proceeding to Delhi from Hyderabad. Later, notices were issued
under Section 153A to all the Jakhotias requiring them to file returns for
AY 2006-2007 to AY 2013-14. The returns were filed for some years by
some respondents and for some other years by the other respondents.
However, none of the assessees filed returns in respect of all the years.
Notice issued under Section 142(1) indicates that the questionnaire to the
Jakhotias was in respect of the assessment years for which the returns were
furnished. At that stage, the assessees approached the ITSC with an
application. On 29.10.2013, in the application under Section 245C of the
Act, the disclosure made was of the income to the tune of `1,93,04,200/-.
An affidavit in addition was filed by the first respondent Jakhotia, and he
retracted from his statement made on 20.01.2012, citing two grounds; that
the surrender was made without referring to the seized documents and
W.P.(C)No. 11859/2016 Page 2 of 24
entirely on ad hoc basis without the help of any professional and secondly
that the statement was untenable in law in light of a CBDT Circular dated
10.03.2003.
4. The disclosure made under Section 245C of the Act before the
Settlement Commission, on 31.10.2013, was to the tune of `38,15,000/- on
behalf of the second respondent and `34,30,000 on behalf of third
respondent. On 11.11.2013, the Commission passed an order under Section
245D(1) allowing the settlement application to proceed
5. Subsequently, on 16.12.2013, a report was filed by Revenue under
Section 245D(2B) of the Act highlighting firstly, that the surrender made by
the first respondent was in his own hand through his voluntary statement on
oath under Section 132(4) on 20.01.2012; secondly, an entity wise and year-
wise break-up of the bifurcation of surrendered amount was disclosed on
08.05.2012. Thirdly, in tune with surrendered amount, deposit of tax during
2012-13 were made to the tune of `52 lakhs. It was highlighted therefore
that the retraction was more than 1 year and 10 months after the search, this
showed that it was an afterthought and the surrender made before the
commission was much lower in comparison to the surrender made during
the search. It was stated that this did not amount to true and full disclosure
as required by Section 245C(1).
6. On 30.12.2013, the Jakhotia's application was allowed to be
proceeded with by an order under Section 245D(2C). As a consequence,
Revenue sought permission from the commission to conduct an enquiry
under Section 245D(3) regarding the genuineness of the loan transaction,
share capital and share premium. A Report prepared by the Revenue under
Rule 9 of the Settlement Commission (Procedure) Rules, 1997, was sought
W.P.(C)No. 11859/2016 Page 3 of 24
which was given on 25.04.2014. It was again urged that the disclosure of
Rs.2.65 crores was far too low compared to the voluntary statement and
disclosure made during the search to the tune of more than Rs.2.65 crores.
Permission sought was for conduct of inquiry by the AO. However, this was
declined and the Settlement Commission asked the parties to remain present
before the Joint Director, Income Tax, of the Settlement Commission for
verification and enquiry.
7. The JDIT filed a report on 12.09.2014, stating that the claims made
by the assessee in the course of the proceedings could not remain
unverified. The material part of the report dated 12.09.2014 is retracted
below:
"5. The DCIT produced the seized register A/OPJ/03
on 26.08.2014. He also produced the original
surrender latter dated 08.05.2012. The seized register
was perused. The accounts of the cash loans were seen.
The A.R was asked to provide the details of cash Loans
stated-that-the applicant feasible to -give-the addresses
of the loan-creditors as most of the loans were
arranged through brokers who only gave names of the
creditors without the addresses. It was stated by the AR
that the seized register A/OPJ/03 contains all the
details of the loans taken by the applicant and it also
shows that interest has been paid on the same, which is
reflected in the seized register in the Interest account,
which is at pages 208, 210, 211, 212, 213, 214. The
A.O stated that they are disputing the fact that these
are loan accounts. The AR pointed to the Rule9 report
page 6 para 2, wherein the A.O himself has stated that
the chart enclosed as Annexure 2 reveals that the
assesse has received cash loans and has repaid the
loan in cash. The A.O stated that it was his internal
report and was not to be treated as Rule 9 report.
W.P.(C)No. 11859/2016 Page 4 of 24
6. The seized register was perused and it was observed
that interest account is there on these pages. Rate of
interest is also mentioned against the names of the
persons to whom the interest has to be paid. However,
the applicant has not provided the name and addresses
of the creditors or their PAN as he has stated that these
loans were organized through brokers who only
provide names of these creditors and the applicant has
therefore kept the account of these loans in the seized
register A/OPJ/03 in the names provided by the broker.
7. Further, during the hearing on 14.08.2014 the AR
was asked to submit ledger account of all the claimed
loan accounts. The AR filed his reply vide his letter
dated 25.08.2014 wherein he submitted a chart of
interest paid to loan creditors. The chart submitted was
verified with the pages 208, 210, 211, 212, 213, 214 of
the seized register A/OPJ/03. It is seen that no interest
has been paid to accounts of Ajay Garg and Mishra ji.
The interest of six parties namely Balaramji, Govind
Gilda, Hari Prasad Badruka, Infusion, Nand Kishore
Gorkha and Raghuram have been clubbed in the name
of Balaram ji Group.
8. As regards the issue of Share Capital and share
premium of Rs 4.92 Crores invested in Jhakotia Plastic
Pvt. Ltd., the AR stated that the same was done out of
the cash loans taken by the applicant. He explained
that the cash loans taken were to the tune of Rs.13.89
crores. Out of that amount Rs. 4.92 Crores was
invested in the share capital. Rest of the amount was
used in the business. As on the date of search the cash
available (as per Annexure A2 of Rule 9 report} was
Rs. 13.94 Crores. But there was no recovery of cash,
nor was any asset found. This happened as the cash
was used to repay the outstanding loan accounts. The
A.O stated that the stand of the applicant taken now is
an afterthought and should not be accepted. He relied
on the offer made by the applicant in 132(4) statement
and on the letter submitted by the applicant on
08.05.2012.
W.P.(C)No. 11859/2016 Page 5 of 24
9. As regards the study of each and every entry, the
Annexure A2 of the Rule 9 report was perused and
compared with the seized register A/OPJ/03. The A.O
stated that the same has been made from the seized
register and the CIT relies on the same. The Rule 9
report has been made after considering all the entries
in the seized register."
8. After hearing the parties, on 26.11.2014, the Settlement commission
passed the impugned order accepting the offer made by the assessee and
granting immunity from penalty and prosecution and other sanctions.
9. The Revenue contends that the impugned order is unsustainable
because the disclosure made was not true and full which is sine-qua-non for
maintainability of application before ITSC. It was submitted that the
Settlement Commission's acceptance of the assessees' explanation with
respect to the statement, is unreasonable. Learned counsel highlighted that
the alleged retraction was made nearly two years after the statement itself
was recorded in January 2012. Furthermore, given that the statement was
under Section 132 in the course of search proceedings, there was probative
and evidentiary value which could not be cast aside as the Settlement
Commission did. It was submitted further that the reliance on the CBDT
Circular of 10.03.2003 was no ground for the retraction because a
distinction was made between the voluntary statement and one under
duress. The object of that Circular was to prevent recording of statement
under duress. Once it was declared that the statement was not recorded
under duress, the question of ignoring it or allowing retraction could not
arise.
10. Serious objection to the Commission's order was taken on the
ground that the disclosure did not offer any explanation as to the
W.P.(C)No. 11859/2016 Page 6 of 24
genuineness or the creditworthiness of the parties in respect of the credits
reflected in the ledger that were considered and on which the Joint Director
made a report. The entire loan claimed to be genuine in fact was not and so
had to be treated as undisclosed income and brought to tax under Section
68. It was emphasized in this regard that the onus of proving the
genuineness of the transaction in law lay upon the assessee; it could not
discharge it because no particulars or details with respect to the creditors or
within the shareholders and creditworthiness was produced.
11. It is argued on behalf of the assessee that the Revenue's charge that
no full disclosure was made is untenable. In this context, it was stated that
the retraction of statement, was correctly accepted. The assessee relied upon
an answer to a question, by Jakhotia, stating that the loan and credits were
genuine and at the same time observing that it was not feasible to prove it.
Further, he stated in the answer that raw material sold to various parties
made to unexplained expenditures of the business which were not entered in
the books of accounts. These transactions aggregated to ` 16.5 crores. It
was submitted that the statement itself clearly showed that unexplained
expenditure had to be incurred and consequently that the veracity of the
expenditure could not be proved, as was not feasible at that point of time.
12. Learned counsel also highlighted that the Revenue never attempted
to verify whether the various entries in the Register, aggregated to `16.5
crores and each of them related to loans, sale proceeds or other transactions.
No attempt was even made to ascertain from the assessee how much of that
amount related to which year. It is also urged that the statement could not
be relied upon because at the tenure of the question to be clearly showed
that undue mental pressure was exerted upon Jakhotia. Learned counsel
relied upon Commissioner of Income Tax v Sunil Aggarwal, (2015) 379
W.P.(C)No. 11859/2016 Page 7 of 24
ITR 367 (Del), which held that the retracted statement had to be
corroborated by some material if the revenue were to rely upon it. It was
stated that similar view was expressed by the Gujarat High Court in
Kailashben Manhar Lala Choksi v Commissioner of Income Tax, (2008)
174 Taxman 466 (Gujarat), and M. Narayanan and Brothers v Additional
Commissioner of Income Tax, (2011) 13 Taxmann.com 49 (Mad).
13. The income declared by three Jakhotia entities after search, is
retracted in a tabular statement, which is as under: -
Asstt. Om Prakash Jakhotia Jakhotia Plastics Pvt. Ltd. Jakhotia Polymers
Year Pvt. Ltd.
Returned Additional Returned Additional Returned Additional
Income Income Income Income Income Income
disclosed disclosed disclosed
2006-07 17190 50000 2658320 20000 0 0
2007-08 176380 50000 3199650 25000 671861 50000
2008-09 171800 50000 2555490 30000 581080 75000
2009-10 0 407600 3948290 40000 624860 80000
2010-11 383600 50000 7396560 55000 1010750 85000
2011-12 0 443610 7335910 1800000 1256890 1090000
2012-13 0 17527180 6705630 1845000 1069600 2050000
2013-14 0 725810 0
Total 848970 19304200 3399985 3515000 5215041 3430000
W.P.(C)No. 11859/2016 Page 8 of 24
14. The first respondent was the director of two Jakhotia entities. The
respondents are engaged in manufacture of polypropylene woven sack bags
supplied to sugar and cement companies. The report under Rule 9 was filed
on 20.05.2014, which was forwarded to the Jakhotias. The Commission
after noting all the relevant facts, including the comments of the assessee to
the report under Rule 9 and revenue's argument on that score, noted with
respect to the cash loans surrendered in the settlements as follows: -
"Regarding the first issue of cash loans surrendered in
the statements dated20.01.2012 and 08.05.2012, as
discussed above, all the loans reflected in the seized
diary are genuine. The loan creditors have been paid
interest and the interest payment is reflected at pages
208 and 210 to 214 of the seized diary. Both the JCIT
and the Assessing Officer have verified the loan
creditors and interest payments reflected in the seized
diary and found them to be genuine. As regard
furnishing of confirmation from the loan creditors, it
may be submitted that the loans were arranged
through broker who only provided names of the
creditors without their addresses.
Further the provisions of section 132( 4A) and 292C of
the Act raise presumption that entries recorded in the
seized diary are correct and the loans cannot be
treated as non-genuine and cannot, therefore, be
treated as undisclosed income of the applicant:-
(a) CIT v. Indeo Airways Pvt. Ltd. (2012) 349 ITR
85 (Delhi)
(b) T. S. Kumaraswamy v. ACIT (1998) 65 ITO 188
(Mad)
(c) CIT v. S.M.S. Investment Corporation (1988)
173 ITR 393 (Raj
(d) Surendra M. Khandhar v. ACIT (2010) 321 ITR
254 (Born)
W.P.(C)No. 11859/2016 Page 9 of 24
(e) Fifth Avenue v. CIT(2009) 319 ITR 127 (Karn) -
(This judgment of the Karnataka High Court
was upheld by the Hon'ble Supreme Court of
India in the case of Fifty Avenue v.CIT(2009)
319 ITR 132 (SC).
(f) CIT v. D.R. Bansal &Ors (20 1 0) 327 ITR 44
(CHG)
(g) CIT v. P.R. Metrani (HUF) (200 1) 251 ITR
244(Karn)
As regards investment of Rs. 4.92 crores in the share
capital and share premium of M/s Jakhotia Plastics
Pvt. Ltd, the same was made out of cash loan of Rs.
13.89 crores. This aspect was examined by the JCIT as
mentioned inpara-8 of his report.
It has further been stated that as on the date of search,
the actual cash available was Rs. 13.94 crores. This
cash balance of Rs. 13.94 crores was confirmed by the
Assessing Officer who was present at the time of
verification/enquiry. The Assessing Officer has further
confirmed that the CIT was in agreement to this
calculation. The relevant extracts of the report is
reproduced below:-
"As regards the study of each and every entry,
Annexure-2 of the Rule-9 Report was perused
and compared with the seized register
A/OPJ/03. The AO stated that the same has
been made from the seized register and the CIT
relies on the same. The Rule-9 Report has been
made after considering all the entries in the
seized register ".
The applicant's submission that the entire cash
loans were repaid out of the cash balance of Rs.
13.94 crores available on the date of search as
worked out the. Department. He has also
endorsed the submissions of the applicant that
since no other outgoings and cash was found on
the date of search, the cash available was not
W.P.(C)No. 11859/2016 Page 10 of 24
physically found on the date of search. On a
consideration of the observation of the JCIT in
paras 8 & 9 and as no adverse comments has-
been offered in the report, the report may be
accepted."
The CIT (DR) Sh. S.K Dash stated that the applicants
were directed to appear before the JDIT and to provide
the names and addresses of the creditors. He further
argued that applicants have not done so. Further, the
applicants have not been able to explain why the cash
available to him of Rs 13.94 crores as per the cash
flow drawn by the A.O was not found during the course
of search. The CIT (DR) also objected to the claim of
the A.R that the same was repaid to the creditors, as
the said cash was available even a month before the
date of search and the same was not repaid when
interest was being charged by the creditors. He
claimed that this is an afterthought and a bogus claim
and the applicant must honour the surrender made by
the applicants during the statement u/s 132(4).
The A.R of the applicants stated that as per seized
diary there was cash available to the applicant and
from the same cash the outstanding loans were repaid
by the applicant. The entries were recorded only when
the part time accountant was available, therefore, the
diary was not updated after 13.01.2012. The date of
search was 20.01.2012, the repayments must have been
done in the period between 13.01 .2012 and
20.01.2012.
We have considered the Rule 9, 9A and verification
report submitted by the DIT (Inv.) and the reply filed
by the applicant. It is seen that all the loans are
reflected in the seized diary and that the applicant has
paid interest on these loans. This fact of interest
payment is reflected at pages 208 and 21 0 to 214 of
the seized diary. However it is to be noted that the
applicants have not provided names or addresses of
the creditors, in-spite of ample opportunities provided
to them. Further, they have not been able to fully
W.P.(C)No. 11859/2016 Page 11 of 24
explain the repayment of loans. In such circumstances
we are left with no alternative but to settle the matter
on the basis of the net assets of the applicant. The
statement of affairs of the applicant as on 13.01.2012
is as under:-
STATEMENT OF AFFAIRS AS AT 13.01.2012
Liabilities Amount Amount Assets Amount Amount
Capital Account 1713982 Fixed 29052145
Assets
Profit 17002461 Land 17040000
Estimated @ 15% New 8987145
on Turnover of Building
Rs.1133449737/-
Constructio 3025000
ns new
property
Add: Other 27900.00 Investment 49200000 49200000
Income offered
Investment
in share
capital
Advertisement 11250.00 Current 77570250
recoveries Assets,
loan and
advances
(circulating
capital,
stock,
debtors
etc.)
Consultancy 5850.00
Charges recover 89521.00
Telephone 17136892
Expenses
W.P.(C)No. 11859/2016 Page 12 of 24
Recoveries
Travelling 138685415
Expenses
recoveries
UNSECURED 400000
LOANS
1000000
1050000
Ajay Garg 1000000
Ajit Patel 120000000
Annu Sharma 200000
Aswaji 4000000
Balaramji 625000
Chanda Bai 2000000
Baheti 800000
Damodar Heda 486000
D.P. Agarwal 50000000
Givubd Gilda 4000000
Hari Prasad 1000000
Infusion 11300000
KCJ 4400000
Kejriwalji 500000
Krishna Bhavi 1800000
Late Opp 6000000
Latha 1500000
Lathur 9000000
W.P.(C)No. 11859/2016 Page 13 of 24
Mami Shri 2500000
Mishraji 7500000
Nand Kishore 5074415
Gorkha 300000
O.P. Jakhotia 250000
O.P. Sharma
P.C. Jain
Pramod Kumar
Raghuram
Sadanandji
Shruthi Daga
Total 155822397 Total 155822397
If the current assets of Rs.7.75 Crores are ignored (as
no such assets could shown by the applicant, nor any
cash was recovered during the search) and if the
creditors/loans of Rs.13.868 Crores are also ignored,
for the reasons stated above then the net assets of the
applicants is Rs.7.82 crores only. The applicants have
declared income as under:-
(i) Mr. Om Prakash Jakhotia 1.93 crore
(ii) Jakhotia Polymers Pvt. Ltd. 0.34 crore
(available funds as per Settlement application)
Total 2.27 crore
Taking the total disclosure of Rs.2.27 crores the
difference in the net asset and the income declared is
of Rs. 5.55 crores. The applicant accepted the
difference as their undisclosed income computed in the
W.P.(C)No. 11859/2016 Page 14 of 24
above manner and in the spirit of settlement agreed to
offer additional income of Rs.5.55 crores. A letter was
filed on 10.11.2014 offering additional income
ofRs.5.55 crores, which is placed on record.
9. As discussed in the foregoing paras, we have
considered the submissions of the applicant and the
Department. All the issues were discussed one by one
during the course of hearing. After carefully
considering the submissions of the department and the
applicant and the facts of the case, we are of the view
that the offer made by the applicant in the SOF and the
additional offer of Rs. 5.55 crores made during the
course of proceedings u/s2450(4) before this
commission adequately cover all the issues. Therefore,
the offer of additional income of Rs. 5.55 crores is
accepted.
15. The stark facts emerging from the above discussion and the
discussion in the impugned order thus are that statement was made
voluntarily on 20.01.2012, in the course of search proceedings. There is
presumptive value to such statement by virtue of Section 132(4) of the Act.
Moreover, it is not merely the statement that is material in the present case;
in fact ledgers and other books of accounts were seized. The first
respondent candidly stated that the amounts constituted unanticipated or
sudden expenditure and that it was not feasible for him to indicate the
veracity of the statement.
16. This Court is of the opinion that the approach of the ITSC was
flawed throughout. Apart from brushing aside the fact that the retraction
took place close to two years after the statement was made, the commission
overlooked that nowhere did the assessees complain that the statement of
the first respondent was recorded under coercion. His explanation for
retraction was that the disclosures were not feasible, because he did not
W.P.(C)No. 11859/2016 Page 15 of 24
have the benefit of the records. But that is the point: if indeed someone is
involved in clandestine activities, but is aware of its monetary magnitude
and indeed discloses it voluntarily, he is in the best position to say if it is
supported by evidence. At the stage of voluntary disclosure there was
candour on the part of the first statement, that he could not support the "out
of book" transactions with evidence. Later too, the position did not alter.
Furthermore, the other important fact is that the assessee made no attempt
to support the claim that the loan credit and other credits were genuine; the
parties concerned, their creditworthiness and the reason for the credit was
not substantiated in any manner.
17. This Court, in Commissioner of Income Tax v Divine Leasing &
Finance Ltd., (2008) 299 ITR 268 held that:
..."In this analysis, a distillation of the precedents
yields the following propositions of law in the context
of Section 68 of the IT Act. The assessed has to prima
facie prove (1) the identity of the creditor/subscriber;
(2) the genuineness of the transaction, namely, whether
it has been transmitted through banking or other
indisputable channels; (3) the creditworthiness or
financial strength of the creditor/subscriber. (4) If
relevant details of the address or PAN identity of the
creditor/subscriber are furnished to the Department
along with copies of the Shareholders Register, Share
Application Forms, Share Transfer Register etc. it
would constitute acceptable proof or acceptable
Explanation by the assessed. (5) The Department
would not be justified in drawing an adverse inference
only because the creditor/subscriber fails or neglects
to respond to its notices; (6) the onus would not stand
discharged if the creditor/subscriber denies or
repudiates the transaction set up by the assessed nor
should the AO take such repudiation at face value and
construe it, without more, against the assessed. (7) The
Assessing Officer is duty-bound to investigate the
W.P.(C)No. 11859/2016 Page 16 of 24
creditworthiness of the creditor/subscriber the
genuineness of the transaction and the veracity of the
repudiation."
18. Long ago, in A. Govindarajulu Mudaliar v CIT, Hyderabad (1958)
34 ITR 807, an argument similar to what was advanced by the
assessee was rejected by the Supreme Court. The court held that-
"Now the contention of the appellant is that assuming
that he had failed to establish the case put forward by
him, it does not follow as a matter of law that the
amounts in question were income received or accrued
during the previous year, that it was the duty of the
Department to adduce evidence to show from what
source the income was derived and why it should be
treated as concealed income. In the absence of such
evidence, it is argued, the finding is erroneous. We are
unable to agree. Whether a receipt is to be treated as
income or not, must depend very largely on the facts
and circumstances of each case. In the present case the
receipts are shown in the account books of a firm of
which the appellant and Govindaswamy Mudaliar
were partners. When he was called upon to give
explanation he put forward two explanations, one
being a gift of Rs. 80,000 and the other being receipt of
Rs. 42,000 from business of which he claimed to be the
real owner. When both these explanations were
rejected, as they have been it was clearly upon to the
Income-tax Officer to hold that the income must be
concealed income. There is ample authority for the
position that where an assessee fails to prove
satisfactorily the source and nature of certain amount
of cash received during the accounting year, the
Income-tax Officer is entitled to draw the inference
that the receipt are of an assessable nature. The
conclusion to which the Appellate Tribunal came
appears to us to be amply warranted by the facts of the
case. There is no ground for interfering with that
finding, and these appeals are accordingly dismissed
with costs."
W.P.(C)No. 11859/2016 Page 17 of 24
19. In Commissioner of Income Tax v Durga Prasad More (1971) 82
ITR 540, Commissioner of Income Tax (Central), Calcutta v Daulat Ram
Rawatmull, (1973) 87 ITR 349 and other decisions, the court observed that
what is shown can be considered real until it is shown that there are reasons
to believe that the apparent is not real and that caution must be exercised on
self-serving statements made in the documents as they are easy to make and
rely upon in case an assessee wants to evade taxes. It was also held that
proof must be called for and the assessing authorities should not put
blinkers while looking at the documents before them and that all
surrounding circumstances are important.
20. In the light of the above discussion, the ITSC should have not lightly
brushed aside the Revenue's concerns about the genuineness of the
retraction given the inability of the assessees to support by any reasonable
material that such credit entries were plausible, even genuine.
21. The second and equally important reason for this Court to hold that
the ITSC gravely erred in its approach is an utter disregard to the condition
that the assessee always has the duty to come clean and make full
disclosure.
22. In Ajmera Housing Corporation and another v Commissioner of
Income Tax (2010) 326 ITR 642, the Supreme Court had emphasized the
mandatory nature of the duty to fully disclose all income, which the
assessee claims it is liable to report, failing which the settlement application
cannot be maintained. It was observed that:
"21. Proceedings under the said Chapter commence
on the filing of an application by an assessee
W.P.(C)No. 11859/2016 Page 18 of 24
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 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 under245C (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 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.
W.P.(C)No. 11859/2016 Page 19 of 24
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26. The procedure laid down in 245D of the Act,
contemplates that on receipt of the application
under 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 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
W.P.(C)No. 11859/2016 Page 20 of 24
furnished by the assessee against item No. 10 of the
prescribed form, and the material gathered by the
revenue by way of its own investigation. It is evident
from the language of 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 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 of
the said question. It is plain from the language of sub-
section (4) of 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 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
W.P.(C)No. 11859/2016 Page 21 of 24
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, 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 of sub-section (3)
of 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 245C (1) of the Act and thus the natural
corollary is that determination of 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."
W.P.(C)No. 11859/2016 Page 22 of 24
23. In the present case, after noting and brushing aside the Revenue's
objections with regard to the complete lack of explanation by the assessee
with respect to credits claimed, the ITSC proceeded to compute the amounts
offered and observed that the difference in the net asset and the income
declared was ` 5.55 crores. Jakhotia accepted the difference as their
undisclosed income computed in the manner given (in the order) and "in
the spirit of settlement agreed to offer additional income of Rs.5.55 crores.
A letter was filed on 10.11.2014 offering additional income of Rs.5.55
crores, which is placed on record." The ITSC thereafter recorded:
"9. As discussed in the foregoing paras, we have
considered the submissions of the applicant and the
Department. All the issues were discussed one by one
during the course of hearing. After carefully
considering the submissions of the department and the
applicant and the facts of the case, we are of the view
that the offer made by the applicant in the SOF and the
additional offer of Rs. 5.55 crores made during the
course of proceedings u/s 2450(4) before this
commission adequately cover all the issues. Therefore,
the offer of additional income of Rs. 5.55 crores is
accepted."
24. Clearly, the decision of the ITSC was untenable in law. Once the
assessee approached it with a certain amount, representing that it
constituted full and true disclosure (and had maintained that to be the
correct amount till the date of hearing) the question of "offering" another
higher amount as a "full" disclosure is impermissible. Ajmera Housing
(supra) clearly held that
"there is no stipulation for revision of an application
filed under 245C (1) of the Act and thus the natural
corollary is that determination of income by the
Settlement Commission has necessarily to be with
W.P.(C)No. 11859/2016 Page 23 of 24
reference to the income disclosed in the application
filed under the said Section in the prescribed form.
25. The amount offered in this case, clearly could not have been
considered or accepted. The ITSC, in this regard, fell into error as there was
no full and true disclosure by the assessees. Consequently, the impugned
order is hereby set aside and quashed. The AO shall proceed hereafter, in
accordance with law and complete the block assessments. The time taken
during the pendency of proceedings before the commission and the time
during which the commission's order was in force, shall be ignored for the
purpose of limitation.
26. The writ petition is allowed in the above terms. No costs.
S. RAVINDRA BHAT
(JUDGE)
PRATEEK JALAN
(JUDGE)
APRIL 15, 2019
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