Ganesh Bartan Bhandar vs Income-Tax Settlement ...

ORDER R.K. Agrawal, J.

By means of the present writ petition filed under article 226 of the Constitution of India, the petitioners seek a writ, order or direction in the nature of certiorari quashing the order dated 27-11-1998 passed by the Income Tax Settlement Commission, New Delhi, filed as Annexure 6 to the writ petition. The petitioners further seek a writ, order or direction declaring the provisions of section 245G of the Income Tax Act, 1961 (hereinafter referred to as "the Act") as null, void, unconstitutional and inoperative and other consequential reliefs.

Briefly stated, the facts giving rise to the present writ petition are as follows:-

2. The petitioner No. 1 is a registered firm engaged in the business of purchase and sale of utensils. It consists of three partners. The petitioner No. 2 is one of the partners of the petitioner No. 1. On 30/31-8-1998 a search was conducted under section 132 of the Act in the business and residential premises of the petitioner No. 1 and its partners. Certain cash, jewellery and stock of utensils were found. Part of the cash found was also seized. Apart from it, 21 loose papers were also found at the residence of one of the partners which were also seized. Thereafter a notice under section 132(5) of the Act was issued on 8-9-1988 by the Income Tax Officer, Banda. Subsequently, the case was transferred under section 127 of the Act by the Commissioner of Income Tax to the Assistant Commissioner of Income tax, Investigation Circle, III(1), Kanpur. The Assistant Commissioner of Income Tax issued a fresh notice on 4-10-1988 under section 132(5) of the Act, which was replied by the petitioners. The Assistant Commissioner of' Income Tax passed an order on 26-12-1988 creating a tax liability of Rs. 1,35,811 as the petitioners had not filed any return for the assessment year 1989-90. A notice under section 148 of the Act was issued on 4-2-1991. In compliance thereof, the petitioners file a return on 19-2-1991 declaring net taxable income at Rs. 18,250. After filing the aforesaid return, a notice under section 142(1) of the Act was issued on 11-1-1993. Another notice was issued on 25-1-1993 and 17-3-1993 calling upon the petitioner firm to furnish certain information. In response to the said notice, the petitioner submitted the reply in which it was stated that the petitioner had already filed application under section 245C of the Act before the Settlement Commission and, therefore, the assessment proceeding be stayed till the disposal of the application. It may be mentioned here that the application under section 245C of the Act was filed on 9-4-1992. The Assistant Commissioner of Income Tax, vide order dated 16-3-1993, had passed an assessment order for the assessment year 1989-90 assessing the net income at Rs. 13,13,830. The status of the petitioner No. 1 has been taken as unregistered firm. Against the order dated 16-3-1993 the petitioner has preferred a revision under section 264 of the Act before the Commissioner of Income Tax, which has been dismissed. The assessing authority has also initiated proceeding for imposition of penalty under section 271(1)(b) and (c) of the Act to which the reply has been submitted. However, vide order dated 29-9-1993 penalty of Rs. 7 lakhs have been imposed against which an appeal has been filed before the CIT(A). The said appeal has been dismissed vide order dated 15-3-1994. According to the petitioners, they have preferred a second appeal before the Tribunal, which is still pending. It has been further stated by the petitioners that the application dated 9-4-1992 filed by the petitioners under section 245C of the Act has been decided ex parte vide order dated 27-9-1994, which was the subject-matter of challenge before this court in Civil Misc. Writ Petition No. 1009 of 1994 and this Court, vide order dated 26-3-1996, had set aside the order passed by the Settlement Commission and directed it to pass a fresh order after giving an opportunity of hearing to the petitioners. Thereafter, the Settlement Commission has passed a fresh order on 27-11-1998 rejecting the petitioners application. The order dated 27-11-1998 is under challenge in the present writ petition.

3. We have heard Sri Rakesh Kumar, the learned counsel for the petitioners, and Sri A.N. Mahajan, learned counsel appearing for the revenue respondent.

4. The learned counsel for the petitioners submitted that the Settlement Commission had not provided with a copy of the report submitted by the Commissioner of Income Tax while passing its order on the said report and, therefore, the principle of equity, fair play and natural justice has been violated. He relied upon the following decisions:-

(i) R.B. Shreeram Durga Prasad and Fatechand Nursing Das v. Settlement Commission 1989 UPTC 939 (SC);

(ii) Bhaskar Upadhaya v. State of U.P. 1990 AWC 948 (All); and

(iii) Managing Director, ECIL v. B. Karunakar AIR 1994 SC 1074.

5. He further submitted that the findings recorded by the Settlement Commission that it was only after being confronted with inconvertible evidence connecting the loose paper sheets to the petitioners, that they came forward with this settlement application with the sole objective of escaping with the penal consequences, is based on pure surmises and conjectures. He further submitted that in the impugned order the Settlement Commission has relied upon the decision of the Apex Court in the case of CIT v. Express Newspapers Ltd. (1994) 206 ITR 443, which is misplaced as it related to sub-section (1A) of section 245D of the Act, which has since been omitted by the Finance Act No. 2 of 1991 with effect from 1-4-1991. He, thus, submitted that the order passed by the Settlement Commission, which has been impugned in the present writ petition, is liable to be set aside and the Settlement Commission should be directed to decide the application afresh in accordance with law on merits.

6. Sri A.N. Mahajan, the learned Standing counsel for the respondents, while supporting the order of the Settlement Commission, submitted that it had been established that the loose papers actually belonged to the petitioner and despite several opportunities given to them for cross-examining the writing expert, the opportunity was not availed and only after being confronted with evidence which they were not in a position to controvert, they have come forward before the Settlement Commission with the sole objective of escaping from the penal consequences. He further submitted that there is no complexity of investigation involved in the matter and, therefore, the Settlement Commission had rightly rejected the application. According to him, the report of the Commissioner of Income-tax only contained the narration of events and the findings recorded by various authorities in the assessment proceedings which was already known to the petitioners and no prejudice has been caused to the petitioners by not providing with the copy of the report.

7. At the outset, it may be mentioned here that the learned counsel has not advanced any argument regarding the validity of section 245G of the Act and, therefore, the court is not called upon to go into that question.

8. Having heard the learned counsel for the parties, we find that the notice under section 148 was issued to the petitioner No. 1 on 4-2-1991. Thereafter on examination of the seized documents, a detailed show-cause notice proposing various additions on the basis of loose papers was issued. Detailed reasons were given in the show-cause notice and when the petitioner was cornered, he had approached the Settlement Commission. Thus, the finding recorded by the Settlement Commission that after being confronted with inconvertible evidence the petitioners had approached the Settlement Commission, cannot be said to be based on irrelevant material and consideration and the only aim was to avoid penal consequences following the discovery and establishment of concealed income by the department. The Settlement Commission has further found that there has been no true and full disclosure of income not admitted before the Income Tax Officer by the assessee.

9. In the case of R.B. Shreeram Durga Prasad and Fatehchand Nurshing Das (supra), the Apex Court has held that the assessee is entitled to be heard on the objection made by Commissioner of Income Tax even appeals for the years for which the Commissioner of Income-tax has objected, the concealment has been upheld.

10. In the case of Bhaskar Upadhaya (supra) this court has held that decision based on the materials collected at the back of the affected person without any reasonable opportunity to rebut or contradict am material, is highly unfair and is violative of the principle of natural justice.

11. In the case of Managing Director, ECIL, Hyderabad (supra), the Apex Court has held that the enquiry report is to be furnished to the delinquent irrespective of the fact that he asked for it or not. However, prejudice been caused to the employee or not on the ground of denial to him of the report, has to be considered on the facts and circumstances of each case.

12. Applying the principles laid down by the Apex Court in the aforesaid cases, we find that in the present case the Settlement Commission has relied upon the findings recorded by the Assessing Authority in the assessment order and had come to the conclusion that the loose paper sheets have been connected with the petitioners. The report, if any, of Commissioner of Income Tax did not contain any fresh material which was not within the knowledge of the petitioners and, therefore, even if is taken that the Settlement Commission has not provided a copy of the report to the petitioners, it has not caused any prejudice because at the time of hearing before the Settlement Commission, the petitioners' luepresentative had submitted that the computation of income on the basis of the loose sheets involved complexity and the estimate made by the Assessing Authority was very much on the higher side. Thus, no prejudice has been caused to the petitioners. The findings recorded by the Settlement Commission is also based on appreciation of evidence and material on record.

13. In view of the foregoing discussion, we do not find any infirmity in the order passed by the Settlement Commission.

14. The writ petition lacks merit and is dismissed.