By TIOL News Service:

CHENNAI, AUGUST 22, 2016: THE issue before the Bench is - Whether the reasons accorded by the Settlement Commission can be substituted by a Writ Court, when there is no allegation of violation of principles of natural justice nor any plea of malafide raised by the assessees. NO is the ANSWER.

Facts of the case:

The assessee is a partnership firm engaged in the manufacture and sale of gold and silver ornaments at Kunamkulam Trichur District, Kerala State. The firm consists of about 13 partners, who admittedly, belong to the same family i.e., they are brothers and their respective spouses. The business activities of the brothers and their spouses were manufacture and sale of gold and silver ornaments. According to the assessee, there was intermingling of funds between the family members and business concerns. In the meanwhile, a search was conducted u/s 132 in all the business establishment workshops, residential premises etc., in which about 12kgs of gold were seized apart from that fixed deposit receipts, cash certificates, books of accounts, etc. Pursuant to the search and seizure operation, notices were issued u/s 158BC calling upon the assessees to furnish returns setting forth total income including undisclosed income for the said block period. Uniformly all the assessees filed NIL returns in Form-2B before the AO and after about a month, filed Settlement Application before the Settlement Commission, offering undisclosed income as additional income. The Settlement Commission however rejected the said applications.

The High Court has held:

1. The order impugned in the present petition is an order passed by the Settlement Commission. Section 245A of the I-T Act is the definition section, which defines "case" under clause (b) of the Section to mean any proceedings under the Act for the assessment or re-assessment of any person in respect of any year or years, or by way of appeal or revision in connection with such assessment or reassessment, which may be pending before the Income Tax Authority on the date on which an application u/s 245C(1) is made. Proviso states that where any appeal or application for revision has been preferred after the expiry of the period specified for the filing of such appeal or application for revision and which has not been admitted, such appeal or revision shall not be deemed to be a proceedings pending within the meaning of this clause. It is not in dispute that the application filed by the assessees before the Settlement Commission would fall within the definition of case as defined u/s 245A(b). Section 245C deals with 'Application for Settlement of cases', which provision was invoked by the assessees, while filing their applications. Section 245D stipulates the procedure to be followed by the Commission on receipt of an application u/s 245C. The Settlement Commission has rejected the assessee's application by the impugned orders, the correctness of which are being tested in these petitions. The submission made by the DR before the Commission that the undisclosed income could have been offered by the assessees before the AO, was found to be of considerable force. The Commission was of the view that determining the assessee's income for the block period based on the aggression of their net wealth and cash flow statement does not present any complexity of investigation and that all the assessees have rushed to the Commission soon after filing their block returns declaring NIL income and this buttress an attitude of non-cooperation with the department on the part of the assessees and appears to be an attempt to obstruct the department's enquiry and examination pursuant to the facts, which came to light as a result of search. Further, the Commission was of the view that having regard to the huge seizure of unaccounted assets at the time of search, additional income offered by the assessees in their settlement applications is not prima facie full and true;

2. Section 245D postulates three circumstances, which the Commission would take note for either rejecting or entertaining an application for settlement, they being (i) on the basis of the materials contained in the Commissioner's report; (ii) having regard to the nature and circumstances of the case; or (iii) the complexity of the investigation involved therein. The Commission, in the impugned order, has considered the nature and circumstances of the case taken note of and the observations contained in the Commission's report and held that there is no complexity of investigation. The question would be whether this Court exercising Writ jurisdiction would re-examine such factual finding recorded by the Commission. The Division Bench of the Karnataka High Court in the case of N.Krishnan vs. Settlement Commission, has held that the Court should be slow in interfering with the Settlement Commission's order and can be interfered if there are grave procedural defects, such as violation of mandatory procedural requirements of the provisions in Chapter XIX of the Act and/or violation of the rules of natural justice are made out or if it is found that there is no nexus between the reasons given and the decision taken by the Commission and that the Court cannot interfere either with an error of fact or error of law alleged to have been committed by the Commission. The Commission, on examination of the facts, the Commissioner's report, the nature and circumstances of the case, thought fit to reject the applications, as it is not a case worth to be proceeded with. The specific finding of the Commission is that there is no complexity of investigation involved. The counsel for the assessee sought to project the complexity of the case by referring to the number of firms, which were carrying on business and the number of partners. Would this factor alone lead to a complexity of investigation. The Commission in the impugned order took note of the submission of the Revenue that there was a large scale suppression of stock deducted at the time of search and unaccounted gold ornaments were seized, other documents relating to unaccounted investments were seized and the partner of Dix Francis admitted deriving undisclosed income in his sworn statement recorded at the time of search and the subsequent retraction after nearly a year, can be given no credence;

3. The Revenue contended that there is no complexity of investigation and it is a case of sheer non-cooperation by the assessees to complete the block assessment proceedings. This submission by the Revenue found favour with the Settlement Commission to examine the nature and circumstances of the case. The Commission noted the conduct of the assessees and comparing the huge seizure of unaccounted assets at the time of search and the additional income offered in the Settlement Application is not prima facie full and true. Thus, the conclusion arrived at by the Commission stating that there is no complexity of investigation having been rendered taking note of the nature and circumstances of the case and on the basis of the materials contained in the Commissioner's report, the said findings cannot be disagreed on the mere fact that there are several partners and several firms alone would not result in complexity of investigation, especially when the Revenue has clearly set out as to what is the nature and circumstances of the case. The Courts have shown restraint in the matter and refused even to direct the Commission to expedite the process. If such is the position of law as propounded in various decisions, the question would be as to whether this Court should exercise its jurisdiction and interfere with the impugned order.

4. Considering the power granted to the Commission u/s 245D(1) coupled with the law referred to in the preceding paragraphs, the only answer to the question should be in the negative. The reasons accorded by the Commission will not be substituted by a Writ Court, more so when there is no allegation of violation of principles of natural justice nor any plea of malafide raised by the assessees. In the view of this court, merely because there are number of partners and several firms, itself will not make the matter complex. The expression complexity of investigation connotes a different meaning and the complexity will be decided by the Commission considering the materials, contained in the Commission's report and having regard to the circumstances of the case. In my view, the contention of the assessee that NIL return has been filed to comply with the "technical requirements", cannot be countenanced. Section 245C(1) states that an assessee may at any stage of the matter relating to him, make an application containing full and true disclosure of his income, which has not been disclosed before the AO, explaining the manner in which such income has been derived, additional amounts of income tax payable on such income and such other particulars, as may be prescribed to the Settlement Commission to have the case settled. To be entitled to file such an application u/s 245C(1), the assessee is required to comply with the conditions provided in the proviso. Therefore, the return which is contemplated under clause (a) of the proviso mandates the assessee to file a return, which he is or was required to furnish under any of the provisions of the Act and (b) the additional amount of income tax payable on the income disclosed in the application exceeds one hundred thousand rupees. In my view the requirement is a pre-requisite to be entitled to file the application before the Commission and cannot be reduced to an insignificant or a mere technical requirement.

(See 2016-TIOL-1809-HC-MAD-IT)