“Certainly The High Court Should Not Scrutinise An Order Of The ITSC As An Appellate Court,” Says Bombay High Court

The Bombay High Court has held that interference with the orders of the Income Tax Settlement Commission (ITSC) should be avoided, keeping in mind the legislative intent. The scope of interference is very narrow, and certainly the High Court should not scrutinize an order of the ITSC as an appellate court. Unsettling reasoned orders from the ITSC may erode the confidence of assessees. The larger picture has to be kept in mind.The bench of Justice K.R. Shriram and Justice Neela Gokhale has observed that the ITSC was entitled to exercise discretion and has rightly exercised its discretion. The bench found that nothing was wrong with the judicial decision-making process of the Commission. When the department relies on the seized records for estimating the undisclosed income, we see no reason why the expenditure stated therein should be disbelieved. The assessee/respondent is in the business of developing and selling residential and commercial properties in the western suburbs of Mumbai. The assessee was subjected to search and seizure action on March 29, 2011 under Section 132. During the course of the search and seizure action, cash worth Rs. 45 lakh was seized. Besides, cash, various papers, books of accounts, and other documents were also found and seized. A scrutiny of the documents allegedly revealed that the assessee, along with other group entities, had shown purchases in its books of account from certain entities without receipt of any material from any such party, and these entities had only issued accommodation bills without supplying any materials. This was the allegation against the department. The documents revealed the total of such purchases to be Rs. 11,95,41,448 for the financial years 2006–07 to 2010–11. The search also revealed that cash amounting to Rs. 21,31,812 on the sale of scrap was also not recorded in the books of account. As a result, a director of the assessee, in the statement recorded under Section 132(4) during the search proceedings, offered to tax additional income.The assessee, with the objective of putting an end to all issues, filed an application under Section 245C of the Act before the ITSC for settlement of its case for the years 2005–06 and 2011–12.The ITSC allowed the settlement application of the assessee to proceed. Revenue submitted a report dated November 23, 2012, under Section 245D(2B). Various grounds were used by the department to oppose the settlement application. The ITSC held that the application was not invalid and allowed it to proceed further. The ITSC gave directions to the department to furnish a report under Rule 9 of the Income Tax Settlement Commission (Procedures) Rules 1997. The department accordingly submitted a report. The report was called for by the ITSC, and in response, the department submitted another report dated July 1, 2013. The ITSC allowed the assessee's settlement application and also granted immunity from penalty and prosecution.The department contended that the ITSC accepted the case of the assessee that an amount of Rs. 8,33,53,000/- generated by bogus cash purchases has been invested in the renovation of the office and the purchase of air conditioners and furniture without directing an inquiry or investigation as to whether the amount was in fact spent or invested in the renovation of the office and the purchase of air conditioners and furniture. The procedure followed by the ITSC is in the nature of a presumption, and therefore the ITSC should have directed the Commissioner to investigate or inquire as to whether the expenditure as claimed by the assessee was correct.The assessee contended that there is a difference between assessment in law (regular assessment or assessment under Section 143(1) of the Act) and assessment by settlement under Chapter XIX-A. The order under Section 245D(4) is not an order of regular assessment. It is neither an order under Section 143(1), 143(3), or 144 of the Act. No steps of filing a return or inquiry by the AO under Sections 142 and 143 of the Act or issuing a notice of demand under Section 156 on the basis of the assessment order, etc. are required to be followed in the case of proceedings under Chapter XIX-A. The nature of the orders under Sections 143(1), 143(3), and 144 is different from the orders of the ITSC because Chapter XIX-A only contemplates the taxability determined with respect to undisclosed income by the process of settlement or arbitration.“It is rather unfortunate that the Central Government questions the findings of the ITSC without explicitly and in detail explaining how the order of the Commission is contrary to the provisions of the Act, there was a miscarriage of justice, or an order has been passed without jurisdiction. More so when bias, fraud, or malice is not alleged in the petition against the members of the ITSC. In the case at hand, we are not satisfied that the order of the ITSC is contrary to the provisions of the Act. It is rather unfortunate that the Commissioner ...

“Certainly The High Court Should Not Scrutinise An Order Of The ITSC As An Appellate Court,” Says Bombay High Court

Mariya Paliwala

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