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Sh. Vishwa Nath Gupta Vs. Principal Commissioner Of Income Tax Central, Kanpur And Anr.
June, 30th 2017

                                                    Reserved on: 23.01.2017
                                                  Pronounced on: 15.05.2017

+      W.P.(C) 5185/2016
       SH. VISHWA NATH GUPTA                        ..... Petitioner
                       Through : Sh. C.S. Aggarwal, Sr. Advocate with
                       Sh. Prakash Kumar, Advocate.


       KANPUR AND ANR.                       ..... Respondents
                    Through : Sh. Zoheb Hossain, Sr. Standing
                    Counsel with Sh. Deepak Anand, Jr. Standing


1.     The petitioner seeks a direction to quash the order of 03.05.2016,
passed by the Income Tax Settlement Commission, Additional Bench -II,
New Delhi (hereinafter referred to as "Settlement Commission" or "ITSC")
under Section 245D(2C) of the Income Tax Act, 1961 (hereinafter referred
to as the 'Act'). The said order had rejected the petitioner's application under
section 245C(1) of the Act. The petitioner also claims a writ of mandamus
directing the ITSC to treat the application under Section 245 C (1) as valid
and commence the proceedings before it from the same stage as on
03.05.2016 and also consequential and appropriate directions to restrain the

W.P.(C) 5185/2016                                                     Page 1 of 14
income tax authorities from taking any action under the Act, till disposal of
its application by the ITSC.
2.     The brief facts are that a search and seizure operation was carried out
under Section 132(1) of the Act against M/s. Rotomac and Anand/Dolphin
Developers Group on 25.06.2014. The search was conducted at the business
premises of those companies and their directors, associates, etc. After the
search, the cases of all such assessees were centralized with the office of the
Assistant Commissioner of Income Tax, Central Circle-II, Kanpur by order
dated 29.07.2014 passed by Principal Commissioner of Income Tax-II,
Kanpur. An assessment order dated 31.03.2016 under Section 148/143(3) of
the Act was made by the Assistant Commissioner of Income Tax, Central
Circle-II, Kanpur in the case of M/s. Dolphin Developers Ltd. (one of the
group companies). Notices under Section 153A were issued by the Assessing
Officer (situated at Kanpur), to the companies as well as individuals
directors/partners for A.Y. 2009-10 to 2013-14. Returns in response to the
said notices were filed by the respective parties. In the backdrop of these
developments, the petitioner filed an application under Section 245C of the
Act before the Income Tax Settlement Commission, Additional Bench-II,
New Delhi.
3.     On 18.03.2016, after considering the parties' submissions, the ITSC
passed the an order allowing the settlement application to be proceeded with,
after recording that it was prima facie maintainable, under Section 245 D(1)
of the Act. The ITSC observed, inter alia, that:
       "6. During the course of hearing, the learned Authorized
       representative explained the pendency position, manner of
       earning undisclosed income in this case and background of
       filing the Settlement Application. The Ld. AR has submitted that

W.P.(C) 5185/2016                                                    Page 2 of 14
       the application filed by Shri Vishwa Nath Gupta, in the status of
       'specified person' - is covered within the meaning of clause (i)
       of proviso to sub-section (1) of Section 245C of the Income Tax
       Act as the tax payable exceeds Rs.50 Lacs. The intimation to the
       AO in Form No. 34BA has been made on 10.03.2016 complying
       with the requirements u/s 245C(4) of the Income Tax Act.

       7.     The Ld. A.R. submitted that additional income has been
       declared on the basis of compilation of the seized material
       printouts taken from the Hard-Disk (HD-33), assessment year
       wise working of additional income which has been tested and
       cross checked by "Net Asset Method" has been offered for
       taxation. Accordingly, as the figure arrived at by 'net assets'
       method is more, that figure has been offered as income.

       8.     It was pointed out by the Bench that in schedule-I1 of
       'Income-Outgoings' for F.Y. 2008-09 the opening balance has
       been whereas in para 28 of SOF (Page 92) and elsewhere it has
       financial affairs of the applicant are 'in continuation' with the
       earlier years. It was also brought to the notice of the applicant
       that in the 'compilation certificate' on page 160 of SOF, the
       applicant's C.A has stated, inter-alia, that "there are variations
       in the opening balances as are appearing in the ledger
       accounts for the F.Y. 2008-09 (under reference) as compared to
       the closing balances of the preceding year i.e. F.Y. 2007-08.". It
       was brought to the notice of the A.R., that the complete
       information in this regard i.e. the quantum of difference in the
       closing balance and opening balance has not been disclosed by
       the applicant. It was further pointed out by the Bench that in the
       'Incoming and Outgoing' statement no narration or description
       is provided in the report of the outgoings because of which the
       Bench is unable to appreciate whether an outgoing is for
       business purpose or if it is merely on application of money or
       an     investment.     The     A.R.     fairly    admitted     the
       deficiencies/discrepancies pointed out to him on the above
       noted issues. He under took to provide clarification/information
       on these two aspects during section 245D(2C) proceedings, to
       make the issues clear.

W.P.(C) 5185/2016                                                     Page 3 of 14
       9.      After considering the facts on record and submissions of
       the Ld. AR, we are satisfied that the applicant, prima-facie,
       fulfills the conditions prescribed u/s 245C(1) of the I.T. Act. The
       issues arising, without prejudice, would be considered at the
       subsequent stage of proceedings. Accordingly, the Settlement
       Application is allowed to be proceeded with."

4.     During the proceedings, a report was submitted by the Principal
Commissioner under Section 245D(2B) of the Act, on 13.04.2016. This
report suggested that the claim made by the applicant that the amount
declared by him to belong to an entity, was unsubstantiated and that the
moneys were unaccounted sums collected by the other assessees who were
subjected to search. The ITSC considered the submission of parties, and by
the impugned order rejected the petitioner's application. It held, in the
impugned order, that:

       "We have considered the arguments and written submissions
       made by both the sides. The main issue that emerges out of the
       above discussion, for our consideration, is whether the
       additional income declared before the Settlement Commission
       belongs to Sh Vishwanath Gupta the applicant or to various
       companies of Dolphin Group as per the stand taken by the Pr.
       CIT in his report under Section 245D(2B) of the I.T. Act dated
       13.04.2016. It is quite apparent that the key person behind the
       whole group is Shri Vishwanath Gupta. It is also a fact that a
       number of companies, belonging to the group, were promoted
       for the purposes of acquisition, development and sale of real-
       estate as their main objective. These companies are separate
       legal entities who have undertaken 23 projects towards the
       furtherance of the objectives of real-estate development.
       Besides M/s Dolphin Developers Ltd., these companies are M/s
       Gam Builders, M/s Pragati Structure Pvt. Ltd, M/s Dolphin
       Infra Project Ltd., M/s Dolphin Structures Ltd., M/s Illec
       Trading Pvt. Ltd. and M/s Ashwariya Coloniser Pvt. Ltd. These

W.P.(C) 5185/2016                                                      Page 4 of 14
       are separate entities carrying out their activities as mandated
       by their Articles of Association and are assessed to tax as
       independent tax payers.

       7.1 On the other hand, M/s ABC (of which Mr. Vishwanath
       Gupta claims to be the controlling person) appears to be an
       amorphous entity, and certainly not a legal entity. The
       transactions appearing on seized papers particularly the hard
       disc marked as HD-33, and the excel sheet forming a part of
       these accounts, clearly show that the unaccounted monies
       received are against a particular property in a particular
       project against each buyer. No evidence has been brought
       before us to substantiate the claim of the applicant that the
       unaccounted      money related to "special and specific
       requirements of the customers/investors in the projects". This
       being so, the cash components paid by the investors has only
       gone towards the cost of the individual flats and is a part of the
       total cost of the flat. As this money relates to a particular
       project/property of a particular company it should form part of
       its accounts as each company is a separate taxable entity for
       income tax purposes. The accounts of such receipts might have
       been kept at single place for convenience of the main person
       handling the affairs of these companies. Keeping all such
       accounts at one place for the sake of convenience cannot by any
       stretch of imagination, be considered as relating to, and
       belonging to the person maintaining it. This fact only leads to
       the conclusion that money under consideration has been
       received by the said group companies and any resultant profit
       or loss arising out of any subsequent transactions rightfully
       belong to the company concerned.

       7.2 In this background, the claim made by the applicant that
       the entire income, accounted and unaccounted, in fact belongs
       to him and not to the various recognized and separate legal and
       taxable entities whose names figure in the seized papers,
       appears to farfetched, and lacks credibility.

W.P.(C) 5185/2016                                                     Page 5 of 14
       7.3 After careful consideration of the above facts and in this
       circumstances of the case, we hold that additional income
       declared in the settlement application filed by Sh. Vishvvanath
       Gupta does not rightfully belong to him and therefore, the same
       cannot be considered in his hands for the settlement of income
       u/s 245D(4) of the I.T. Act. It is, therefore, held that the
       applicant has failed to make full and true disclosure of his
       income. Besides the manner of earning of such income in his
       hands remains unexplained. Thus the applicant fails on both
       vital parameters, as laid down, in the section 245C.
       Accordingly, we hold that Settlement Application filed by the
       applicant in prima-facie 'invalid', and therefore, cannot be
       allowed to be proceeded with further."

5.     The Petitioner argues that the Settlement Commission erred in holding
his application to be invalid by erroneously holding that he failed to make
full and true disclosure of his income and that, the manner of earning such
income in his hands remains unexplained. The petitioner contends that he
made full and true disclosure of his income before the Settlement
Commission and further he has also explained the manner of earning such
income. In this context it is stated that the said disclosure of the sum of
`10.80 Crores is supported by statement of affairs drawn from the seized
material (i.e. print out from HD-33) duly certified by the chartered
accountants compiling the same. The said statement of affairs have been
summarized in paras 34, 35 and 36 of Annexure-II filed before the settlement
commission. It is further submitted that in the order dated 18.03.2016 under
Section 245D(2B) of the Act the ITSC specifically required the petitioner to
explain the said statement of affairs on the basis of which he disclosed sums
aggregating to `10.80 Crores.

W.P.(C) 5185/2016                                                   Page 6 of 14
6.       The petitioner submits that the Settlement Commission also erred in
holding that the manner in which the income was earned was not explained.
It is submitted that the petitioner had duly explained the manner in which the
income has been earned. In fact, the petitioner had furnished detailed
information in Annexure-I and Annexure-II, filed before the Settlement
Commission. The sources of funds received in cash by the Petitioner in his
proprietary concern M/s. ABC, which were recorded in the books of account/
excel sheet found from the Hard Disk (HD-33) found from the computer
during the search of the premises at 7/71A, Tilak Nagar, Kanpur are as
(i).     From Flat Buyers, i.e. end users
(ii).    Investors who are not end users
(iii). Refunds along with returns from the amounts advanced

7.       The petitioner also argues that as stated above, he was instrumental in
setting upto 8 business entities. The said business entities had undertaken 23
projects from time to time, and execution of such projects was spread over a
span of a number of years. Besides, there are other projects also, execution
of which was in progress as on date of search and seizure action and
continued thereafter also. In order to provide ancillary services to the
customers and investors, the petitioner on his own devised a model in the
name of "Anand Builders Co." ("ABC" for short) and evidence to that effect
is available in the seized material (printouts taken from hard disc under
seizure marked as "HD-33") and other information available in the computer.
It is argued that the seized material also discloses that ABC had been making

W.P.(C) 5185/2016                                                     Page 7 of 14
investments in the properties acquired by various "business concerns" in
relation to which projects were yet to be launched.
8.     Learned senior counsel for the petitioner, Mr. C.S. Agarwal, argued
that the seized material (printouts taken from HD-33) showed that very
frequently, the Petitioner had been receiving funds from investors for bulk
bookings in the projects that were being run by various business entities of
VNG group of which the Petitioner is a key person, as he was the repository
of faith of the said persons (investors). Sometimes the deals proposed by
them had matured and many a times there were cancellations too. The funds
so provided by them were utilized by the Petitioner in its venture "ABC".
The funds available with M/s. ABC as reflected in the seized material was in
the nature of sinking fund kept ready to meet contingency in the execution of
various Projects. Counsel pointed out that the Petitioner's Chartered
Accountants compiled the statement of affairs for the financial year 2008-09,
2009- 10 and 2010- 11. All these aspects, submitted learned senior counsel,
were erroneously overlooked by the ITSC.
9.     The counsel for the petitioner argued that the Commission's findings
with respect to the income disclosed additionally not belonging to the
petitioner was an invalid consideration; it was argued that this was not a
legally sustainable finding. It was emphasized that under the scheme of
Chapter XIX-A of the Income Tax Act, the basic criteria or objective is
revenue recovery, in respect of undisclosed income. In doing so, the idea of
the settlement is to move away from a rigid insistence on the form and letter
of the law but rather to ensure that the tax net yields substantial recovery of
tax. This essential or basic consideration was entirely overlooked by the
ITSC in the facts of this case. It was lastly argued that in the absence of any

W.P.(C) 5185/2016                                                    Page 8 of 14
specific provision under Section 245 D prescribing the conditions to hold
that an application is invalid, in the present case, the petitioner could not
have been denied relief, more so because the Principal Commissioner in his
report and had not alleged that the application did not satisfy the
requirements of law. In fact, there was full and truthful disclosure of all
material facts and the findings of the commission to the contrary are
10.    The revenue, in its counter affidavit and by the submission of its
counsel Mr. Zoheb Hossain, argues that merely because an order was made
under Section 245D the petitioner could not claim a vested right to relief.
The settlement commission, or its counsel is under a duty to consider the
revenue's report under Section 245D (2B) of the Act. As a matter of fact, the
report is the first opportunity given to the revenue to explain its position
before the Commission. The ITSC has the opportunity and the right to
declare any application invalid on the basis of such a report after duly
considering it.
11.    The revenue argues that in the facts of this case, the Commission was
justified in rejecting the petitioner's application. It is asserted that a
comparison of the material, especially the account books and the hard disk
HD 33 containing waste materials was found and seized from the offices of
Dolphin Developers P. Ltd which contained details of month-wise payments
made by its customers during three years. A comparison with the details
verified from the books of ABC matched the undeclared amounts, that tallied
with the customers of Dolphin Developers Ltd. Clearly, therefore, the
inference was that the amount declared by the petitioner, in fact belongs to
that company and not his concern ABC. It is highlighted that the petitioner in

W.P.(C) 5185/2016                                                   Page 9 of 14
fact admitted in the submissions before the Commission that such books
seized, contained the transactions not only relating to M/s. Dolphin
Developers Ltd, but also to the 23 projects launched by the 8 group concerns.
Having, therefore, admitted that these amounts were received towards sale of
flats in projects of different group companies, the petitioner could not have
in the same breath urged before the Commission that the monies were his
own undisclosed income. It is argued, therefore, that the impugned order of
the ITSC is in conformity with the law declared by the Supreme Court in
Ajmera Housing v Commr of Income Tax 2010 (8) SCC 739.

12.    Under Section 245-C of the Act, any assessee can, at any stage of an
assessment, apply for settlement in a prescribed form which would require a
full and true disclosure to be made by him of his income which has not been
disclosed before the Assessing Officer and the manner in which such income
has been derived. While processing such application under section 245-D of the
Act it would be open for the Settlement Commission to reject an application for
settlement, if it is found that the applicant has not made true and full disclosure
of his income in the application for settlement. In the context of these
provisions, the Supreme Court had an occasion to examine the issue of true and
full disclosure and the stage where the same must be made in the case of
Ajmera Housing Corporation (supra). In that case, the assessee applied for
immunity under section 245C(1) of the Act disclosing additional income of `
1.94 crores (rounded off) for the assessment years 1989-90 to 1993-94 which
was in addition to income declared in the return filed before the AO. The
Commissioner opposed the disclosures made by the assessee as not being true
and full disclosures and suggested that the income of the group assessees should
not be settled at less than ` 223.55 crores. The arguments on the question of

W.P.(C) 5185/2016                                                       Page 10 of 14
whether the Settlement Commission should allow the application to proceed
further were concluded and order was reserved at which stage, the assessee
filed revised settlement application declaring additional income of ` 11.41
crores. The Settlement Commission passed an order on 17.11.1994 deciding to
proceed with the application of settlement. The Commission directed the
revenue to furnish a further report. The further report stated that the income
disclosed by the assessee should not be treated as true and correct. According to
it, the assessee's total unaccounted income was substantially higher. After
hearing started, the assessee disclosed further unaccounted income of ` 2.76
crores. Ultimately on 29.01.1999, the Settlement Commission passed a final
order determining total income of the assessee for the said assessment years at `
42.58 crores. That order was challenged by the revenue before the Bombay
High Court. Aggrieved by the order of the High Court, the assessee had
approached the Supreme Court. The Supreme Court remanded the matter back
to the Bombay High Court for fresh consideration upon which the Bombay
High Court passed an order remitting the matter back to the Settlement
Commission against which the applicants- assessees approached the Supreme
Court. It was in this background that the Supreme Court observed as under:

       "26........It is plain from the language of sub- section (4) of
       Section 245D of the Act that the jurisdiction of the Settlement
       Commission to pass such orders as it may think fit is confined to
       the matters covered by the application and it can extend only to
       such matters which are referred to in the report of the
       Commissioner under sub- section (1) of sub-section (3) of the said
       Section. A "full and true" disclosure of income which had not
       been previously disclosed by the assessee, being a pre-condition
       for a valid application under Section 245C(1) of the Act the
       scheme of Chapter XIX-A does not contemplate revision of the
       income so disclosed in the application against item No. 11 of the
       form. Moreover, if an assessee is permitted to revise his

W.P.(C) 5185/2016                                                     Page 11 of 14
       disclosure, in essence, he would be making a fresh application in
       relation to the same case by withdrawing the earlier application.
       In this regard, Section 245C(3) of the Act which prohibits the
       withdrawal of an application once made under sub-section (1) of
       the said Section is instructive in as much as it manifests that an
       assessee cannot be permitted to resile from his stand at any stage
       during the proceedings. Therefore, by revising the application, the
       applicant would be achieving something indirectly what he cannot
       otherwise achieve directly and in the process rendering the
       provision of sub-section (3) of Section 245C of the Act otiose and
       meaningless. In our opinion, the scheme of the said Chapter is
       clear and admits no ambiguity."

       "31. We are convinced that, in the instant case, the disclosure of
       Rs. 11.41 crores as additional undisclosed income in the revised
       annexure, filed on 19th September, 1994 alone was sufficient to
       establish that the application made by the assessee on 30th
       September, 1993 under Section 245C(1) of the Act could not be
       entertained as it did not contain a "true and full" disclosure of
       their undisclosed income and "the manner" in which such income
       had been derived. However, we say nothing more on this aspect of
       the matter as the Commissioner, for reasons best known to him,
       has chosen not to challenge this part of the impugned order."

13.    It is evident from the above narrative that the petitioner is aggrieved
by the rejection of his application. He contends that the total unaccounted
amount declared (over ` 10 crores) should have been accepted. The revenue
had successfully opposed the application, contending that the assessee had not
made full disclosure and that the amount declared had never belonged to him,
but rather to M/s. Dolphin Developers Ltd, who had accepted cash but not
declared it. This was accepted by ITSC. The petitioner has given his
explanation and version as to why such rejection was unjustified and how such
amount belonged to him. However, this court is of the opinion that the
petitioner's contentions are entirely factual. Unless there is a manifest
unreasonableness or perversity in the ITSC's order, the court cannot substitute

W.P.(C) 5185/2016                                                     Page 12 of 14
its reasoning with that of the said body. The ITSC's findings here are based
upon an analysis of the facts such as that the ABC's identity was unknown and
that there was a certain degree of amorphousness in its functioning.
Furthermore, the clear linkages between the amounts disclosed before the ITSC
and the amounts declared by M/s. Dolphin Developers Ltd. was discernable.
14.    The judgments of the Supreme Court in R.B. Shreeram Durga Prasad
v. Settlement Commission, (1989) 176 ITR 169; Jyotendrasinghji v. S.I.
Tripathi & Ors., (1993) 201 ITR 611 and Kuldeep Industrial corporation v.
ITO, (1997) 223 ITR 840 delineate the scope of the High Court, while
considering whether to interfere with the orders of the ITSC. In
Jyotendrasinghji (supra), the correct legal position was explained 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

W.P.(C) 5185/2016                                                      Page 13 of 14
       independent category has it prejudiced the petitioner/

Furthermore, this court cannot review or second guess the findings of fact as
would an appellate court. Given these parameters, the inference of facts
having regard to the totality of circumstances, this court is of the opinion that
the findings of fact which the ITSC rendered cannot be set aside or interfered
with. The writ petition has to fail and is, therefore, dismissed.

                                                        S. RAVINDRA BHAT

                                                              NAJMI WAZIRI
MAY 15, 2017

W.P.(C) 5185/2016                                                     Page 14 of 14
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