By TIOL News Service

CUTTACK, SEPT 15, 2016: THE issue is - Whether when the order of SETCOM has become conclusive being not agitated before the Commission and no other legal points are submitted, exercise of writ jurisdiction in such a case is still available. NO is the verdict.

Facts of the case

There were search and seizure operation made u/s 132 in the business premises of Sri Kamaljeet Singh Ahluwalia and group and several incriminating documents, cash and other material were seized. The search operation was made by opposite parties 2 to 6 for the assessment years ranging from 2004-05 to 2010-11. The Ahluwalia group has got business in iron ore mining, sponge iron ore plant and rolling mill. This group has also business of manufacturing of cement. The statement of Sri Kamaljeet Singh Ahluwalia was recorded u/s 132(4). During the search and seizure operation, Sri Ahluwalia has admitted undisclosed income of Rs.150.00 crores but later on by letter dated 16.11.2009, Sri Ahluwalia retracted from the disclosure made on 12.11.2009. However, after the search and seizure operation, the opposite parties 2 to 6 filed an application before the Commission on 9.9.2011 for determination of the total income and fixation of tax liability for the assessment years 2004-05 to 2010-11. Assessee while filed such application before the Commission, have admitted that income amounting to Rs.141.30 crores was not disclosed before the Assessing Officer under Section 153A relating to the above AYs. It was also stated that the opposite parties 2 to 6, for the assessment years 2004-05 to 2010-11, have got additional disclosed income of Rs.99.20 crores, 2.00 crores, 25.40 crores,12.70 crores and 2.00 crores respectively. After receipt of the application, the Commission directed the petitioner to submit the report under Section 245D(2B) and at the same time, the petitioner filed his report under Rule 9 of the Income Tax Settlement Commission (Procedure) Rules, 1997. After consideration of the report under Rule 9 of the petitioner and submission of observation and counter observation of both parties, the order was passed u/s 245D (4) by the Commission on 28.3.2012 which is under challenge in this writ petition. The The Commission in its report added further Rs.110.28 crores upon the assessee group as additional income over and above the income disclosed by the assessee before the Commission.

It was stated that the assessee have booked fictitious expenditure under the head of transportation charges on rejects, removal of rejects, port handling charges and machinery hire charges in respect of Rs.192.38 crores in the case of opposite party no.2, Rs.28.53 crores in case of opposite party no.3, Rs.133.22 crores in case of opposite party no.4, Rs.31.05 crores in case of opposite party no.5 and Rs.22.25 crores in case of opposite party no.6. The CIT in its report has referred to survey conducted consequent to search at mine sites and statement recorded of different managers who clarified that nothing except statutory payment of Government over and above the contractual payment is borne by the mines owners and all other expenses relating to the entire mining process are incurred by the mining contractors. It is stated that M/s.Triveni Earth Movers (P) Limited at iron ore mines of opposite party no.3 at Guali in Keonjhar was engaged by later as mining contractor and said contractor, i.e., M/s.Triveni Earth Movers (P) Limited did all work including mining development, handling and dumping etc. till dispatching of the mining product under the supervision of the staff of opposite party no.3 and Government officials. Similarly, the CIT reported that M/s.AMR Construction Limited, Hyderabad and M/s.Indu Projects Private Limtied, Hyderabad have not rendered any service in either sector to the assessee group, they have issued cheques in favour of some Kolkata based parties on the promise made by the assessee group that they would give work orders for big amount in future.

The CIT also found when the vendors have not provided any service to assessee group, the payments were made to the alleged vendors through account payee cheques and tax has also been deducted thereby. It is also reported by the CIT to the Commission that opposite parties 2 to 6 have routed the money through share applications and by this, it is clear that bogus expenditure which was claimed by the assessee group in profit and loss account under the head transportation charges of rejects, machinery hire charges and port handling charges was passed on to the respective concerns whose names are figuring in the account. Names of M/s.AMR Constructions Private Limited and M/s.Indu Projects Private Limited find place to the extent of huge amount. The CIT during survey also had found that many persons against whom expenses have been booked under the head removal of rejects and transportations charges of rejects during the financial years 2007 to 2009 have never been deployed and most of their names have not been heard by the assessee group.

With regard to suppression of sales, the CIT has reported under Rule 9 that opposite parties 2 to 4 have systematically suppressed their sales year after year by under invoicing the sales. According to the CIT, Odisha Mining Corporation (OMC), a Public Sector Undertaking is also engaged in the same group as the assessee group is engage. But the OMC is following the tender process for sale of its products used whereby the highest bidder is entitled to buy the iron ore at the price tendered by it and, in the event, the requirement of the highest bidder is less than the quarterly production of OMC, the balance stock is sold to the next highest bidder, but only at the price quoted by the highest bidder. The demand of material of OMC is their because the price of OMC in iron ore market of Odisha is the lowest, but the assessee group sold their products at higher rate than the OMC even if their grade of course is +3 which is +63FE by suppressing the sales because the CIT found that the assessee have sold product to M/s.P.K.Ores Pvt. Limited and M/s.TTL Minerals Export Pvt. Limited at higher rate whereas they have sold the same product to M/s.Shree Metaliks Limited at lower rate by understating the rate and in most of the cases, it is understood that difference between the final price and recorded price has been received in cash. Thus, the CIT found the suppression of sales.

With regard to unexplained cash expenditure as submitted by CIT, the Commission estimated the gross profit of the assessee group at 47% as against 44% are disclosed by the assessee group in their settlement application, but this estimate of 47% is arbitrary and not acceptable being too low in comparison to other parties. If the Commission was not satisfied with the report of the CIT, it could have directed the CIT to investigate further as per the order of the Bombay High Court in the case of Major Metals Limited –V- Union of India; 2012-TIOL-212-HC-MUM-IT. Thus the Commission has not taken into account the income suppressed by the assessee as per the report of the CIT. It is stated that in view of the decision of Hon'ble Supreme Court in the case of Jyotendrasinhji –VS. I.Tripathi, 2002-TIOL-993-SC-IT, this Court has got power of review for which the writ petition under Articles 226 and 227 of the Constitution of India has been filed to make judicial review and quash the order of the Commission dated 28.3.2013 and remit the matter back to the Assessing Officer or after quashing the same, remand the matter to the Commission to conduct inquiries and/or direct the Department to conduct inquiry and submit the report to the Commission. Hence, the writ petition.

Held that,

Decision as to 'whether the order passed by the Commission has reached its finality'

++ we are of the view that the Commission has got the power to compute the aggregate income of the assessee by adding the additional income to determine the liability of the assessee towards tax, penalty and interest and also the Commission under Section 245F(I) has all the powers vested in the Income Tax Authority under the Act. So the allegation of the petitioner that the Commissioner made additional income of approximately Rs.110 crores added finding thereby that there is no true and full disclosure income is untenable because the Commission has got not only power to decide the lis before them but also to find out if at all any income left out or could not be disclosed by the assessee to come to a mechanism of settlement. The settlement of lis is not only covered by the dispute arose before them but also for the dispute yet to come. So the Commission has got wide power to consider the income disclosed, add additional income after due investigation and also to add any income which is found to be valid as per report under Rule-9 submitted by the Department and finally settle the tax payable by the assessee;

++ in the instant case, when the order of the Commission was communicated to the Department, the Department could have brought to the notice of the Commission about the mistakes or to declare the same as void but instead it appears from the pleadings and arguments of both sides that the Assessing Officer has been directed to compute the tax as per law and charge the interest as available from paragraph-7 of the impugned order of the Commission and the assessee have also paid tax as per demand made by the Assessing Officer under the order of the Commission. From the aforesaid provisions, it is clear that where the settlement is found to be void as per sub-section 6 of the Act, all the proceedings would be heard de novo and the Commission has to complete the proceedings within a period of two years from the date of the final order in which the settlement became void. In the instant case, when the tax under Sub-section-6A of the Act has been paid by the assessee as per the demand by the Assessing Officer in consequence of the order of the Commission, it appears that the Commission has not found the order void obtained by fraud or misrepresentation. By reading the provision of Sub-section 6, 6A, 6B and 7, we are of the view that the Commission has got statutory power to implement, vary, modify and rectify its own order. So the Settlement Commission is self-regulatory body having all powers of adjudication and conciliation. It is reported in the case of R.B.Shreeram Durga Prasad & Fatechandnursing Das -Vs- Settlement Commission (IT & WT) & another 2002-TIOL-894-SC-IT 1038 where their Lordships have observed at Paragraph-6 that "in exercise of our power of judicial review of the decision of the Settlement Commission, we are concerned of the legality of the procedure followed or not with the validity of the order;

++ with due regards to the decisions, it is settled that the judicial review of the decision of the Settlement Commission is not permissible but it is permissible to interfere if there is any illegality in the procedure followed by the Commission or if the same is contrary to the provisions of the Act causing prejudice to the appellant. In the instant case, it has been already observed in the aforesaid paragraphs that the Commission has provided proper opportunity to both sides and after that passed the order under Sub-section 4 of Section 245D of the Act. Not only this but also the order has been implemented and the assessees have already paid the tax in view of the terms of the settlement as observed earlier. The authority of the Commission was not invoked by the petitioner to exercise its power under Sub-section 6 for the reasons best known to them. When the statutory authority has already been conferred with the power to declare the settlement void and it has been clearly also indicated in the order passed under Sub-section 4, the plea of the order being void or misrepresentation being not agitated before the appropriate authority cannot be agitated in this application; otherwise the statutory provision will be otiose. From the foregoing discussions, we are of the view that opportunity was given to the petitioner to agitate about the matter relating to true and full disclosure of the income by the opposite parties 2 to 6 and also there being no order of the Settlement Commission to find the settlement as void or finding any mistake to rectify the impugned order, it must be held that the impugned order has reached its finality. Issue no.1 is answered accordingly;

Decision regarding HC's power to entertain petition challenging the order of SETCOM under the writ jurisdiction

++ in the aforesaid paragraphs, it has already been observed that the impugned order of the Commission has reached its finality because of the compliance of the provisions enshrined in Sections 245C read with Section 245D. The rule of natural justice can be agitated in a writ jurisdiction but since we have already observed that appropriate opportunity of hearing has been afforded to the Department to make the report and the same has been considered. In the impugned order, there lies no ground to agitate that rule of natural justice has not been followed in this case. Moreover in view of the Judgment of R.B.Shreeram Durga Prasad, the writ jurisdiction is being only limited to decide the manner of procedure of being followed by the Commission but not the decision thereto. We, therefore, are of the considered view that the writ jurisdiction to vary or set aside the impugned order of the Commission in view of the facts and circumstances of the case is not maintainable. Of course the jurisdiction of this Court under writ jurisdiction is not excluded but under certain circumstances, it can be only exercised otherwise as per said statutory provision, the proceedings before the Commission is final. We have already observed in the aforesaid paragraphs that in the instant case, the order of the Commission has reached its finality. When the order of the Commission has become conclusive being not agitated before the same Commission and no other legal points are submitted, exercise of writ jurisdiction is not available. It is true that if there is law prescribed and is not followed or natural justice has been violated or there is no efficacious remedy available, the writ jurisdiction can be exercised but in view of the discussions made above, we are of the view that the claim of the petitioner is not maintainable under the writ jurisdiction in the facts and circumstances of the case. It may not be out of place to mention that the procedure prescribed in the Act by the Settlement Commission is an exhaustive and comprehensive and in that case, if the party does not follow the procedure, it will be abusive of power if this Court will exercise its power under writ jurisdiction conferred under Articles 226 or 227 of the Constitution of India. Issue No.2 is answered accordingly. We have already observed that the Commission has passed the order which has become conclusive and reached its finality and the same has already been implemented by collecting tax from the assessee-opposite parties 2 to 6 and the writ jurisdiction is not maintainable in view of the reasons as stated above. Thus, we are constrained to observe that the present writ petition is nothing but to polarize the provisions of law even if huge amount of revenue is claimed by the Department. We, therefore, are of the view that no interference is required to the order of the Commission and hence, the writ petition, being devoid of merit, stands dismissed.

(See 2016-TIOL-2106-HC-ORISSA-IT)