Kerala H.C : Settlement Commission was bound by method adopted by Assessing Officer as to reliance upon voluntary statement of assessee

High Court Of Kerala

CIT, Cochin vs. Settlement Commission (IR&WT)

Section : 245D

T.R. Ramachandran Nair, J.

O.P. No. 37260 Of 2002 (I)

May 28, 2010

JUDGMENT

1. This writ petition is filed by the Revenue challenging the proceedings of the Settlement Commission.

2. Heard learned Standing Counsel for the Revenue and the learned counsel appearing for the second respondent.

3. The second respondent who is an assessee to Income-tax, is associated with a number of IMFL bars and restaurants either as partner or proprietor. On 6-5-1999 a search operation was conducted at the residential and business premises of the assessee. The assessment was completed under section 158BC of the Income-tax Act, as evidenced by Ext.P1.

4. The undisclosed income has been determined for the block period at Rs. 43,92,960. It was challenged in appeal by the assessee. While the same was pending consideration, he filed a petition under section 245(1) of the Act before the Settlement Commission. Ext.P4 is the order passed by the Settlement Commission admitting the application. Ext.P2 is the order passed by the Commission which is under challenge in this original petition.

5. The Settlement Commission estimated the net profit on the total turnover for the block period at Rs. 12,09,120. The net income from food sale at 20 per cent of the turnover is taken at Rs. 4,47,385.

6. Learned Standing Counsel for the Revenue submitted that the Settlement Commission, in Ext.P2, did not consider the effect of the sworn statement made by the assessee. The same has been produced as Ext.P3 in this writ petition. It is pointed out that the net income has been fixed at 3.75 per cent of the turnover, by the Commission which is not supportable. It is further pointed out that the method adopted by the Commission in the final order, Ext.P2, varies from the principle proposed to be adopted, going by Ext.P4 order. These contentions have been argued in detail by the learned Standing Counsel.

7. Learned counsel appearing for the second respondent submitted that reasons have been pointed out in Ext.P4 itself as to why the sworn statement is not being relied upon. Actually, the second respondent had retracted the admission later on, which fact is recorded in para 6 of Ext.P4 order. It is pointed out that the Commission has adopted the very same method as in the case of M/s. Hotel Vysali & Mayur Bar, situated within the same town and therefore it cannot be said that the method adopted is illegal. It is further pointed out that the method adopted cannot be said to be arbitrary and in violation of any statutory provisions warranting interference by this Court, in this writ petition.

8. Learned Standing Counsel for the Revenue relied upon the decision of a Division Bench of this Court in V. Kunhambu & Sons v. CIT [1996] 219 ITR 235 with regard to the legality of the assessment made on the basis of voluntary statement given by the assessee. Learned counsel for the second respondent relied upon the following decisions : N. Krishnan v. Settlement Commission [1989] 180 ITR 585/ 47 Taxman 294 (Kar.), Shriyans Prasad Jain v. ITO [1993] 204 ITR 616/ 70 Taxman 290 (SC) and CIT v. ITSC [2000] 246 ITR 63 / 112 Taxman 523 (Bom.), in support of his pleas.

9. A reading of Ext.P4 order passed by the Settlement Commission while admitting the application shows that the Assessing Officer had estimated the gross profit in the liquor division at 45 per cent. With regard to the voluntary statement, in para 6 it is clearly mentioned that the basis for estimate of the gross profit was mainly the admission made by the second respondent which was seen retracted later on. Significantly, it is mentioned that the instances of suppression of sales unearthed by the department as a result of the search under section 132 of the Act were only two or three in the year 1998. It is on the basis of these instances, the Assessing Officer had resorted to estimate the gross profit for all the three assessment years. While considering the pleas raised by the Revenue, these observations are significant. A reading of Ext.P2 order shows that with regard to the sale of liquor, the Settlement Commission had determined the net profit at 3.75 per cent on the total turnover in the case of M/s. Hotel Vysali & Mayur Bar and the same method was adopted in the case of the second respondent also. There is no case for the petitioner that they had challenged the method adopted in respect of Hotel Vysali & Mayur Bar or the same has been set aside in any proceedings. It is therefore clear that the method adopted cannot be said to be arbitrary. Actually, as far as the sales of food articles are concerned, the profit rate is estimated at 20 per cent as adopted by the Assessing Officer.

10. Herein, the argument raised by the learned Standing Counsel for the Revenue is that the voluntary statement ought to have been accepted, the reliability of which was upheld by this Court in V. Kunhambu & Sons’s case (supra) of course, the Division Bench in the said case, had upheld the assessment on the basis of the voluntary statement, treating it as valid. Herein, the question is quite different. The Settlement Commission, in exercise of its power, has adopted a method which cannot be said to be arbitrary. It cannot be said that the Settlement Commission is bound by the method adopted by the Assessing Officer itself, relying upon the voluntary statement. Significantly, materials, if any, have not been relied on by the petitioner before the Settlement Commission in support of the disclosure made in the voluntary statement. There is a finding in that regard, in Ext.P2 in para 4. Therefore, it cannot be said that the Settlement Commission had acted illegally in not exclusively relying upon the voluntary statement. As mentioned already, in Ext.P4 it was mentioned that the second respondent had retracted the admission later on. The finding that the instances of suppression of sales unearthed by the Department as a result of the search under section 132 of the Act were only two or three in the year 1998, is a finding of fact which cannot, normally, be upset in a writ petition under Article 226 of the Constitution of India. Interference is justified only if irrelevant materials have been relied on by the authority concerned and the view taken is so perverse.

11. Learned Standing Counsel for the Revenue further argued that while admitting the application, in para 6 it was observed that the proper method for determining the total income of the applicant in the block period would be the net wealth accretion over the years in the block period and the Commission has totally deviated from the same, while passing Ext.P2. It is explained by the learned counsel for the second respondent that the same is not correct. It is clear that Ext.P2 order has been passed after hearing both sides and after assessing various aspects. As observed already, the net profit has been determined at 3.75 per cent of the total turnover as adopted in the case of another Bar. It cannot therefore be said that the order is palpably wrong. Therefore, I find no reason to accept the said argument also.

12. In the argument notes submitted by the learned counsel for the second respondent, it is mentioned that the assessee has filed the Wealth Statement for the period 31-3-1990 to 6-5-1999; increase in wealth to each year to 6-5-1999, and the cash flow statement for each year, details of investment in business in each firm, withdrawals, additions, investment in shares and bank deposits and immovable property have been furnished for each year and the department has no objection regarding the correctness of the above statement and has not raised any item of the asset which is not included in the wealth statement or any liability which is not correct. It cannot therefore be found that the order Ext.P2 suffers from any legal infirmities warranting interference.

13. The question is whether this Court in a writ petition, can interfere with such findings made on certain questions of fact. The extent of jurisdiction of this Court in such cases, has been laid down by various decisions of the Apex Court and the Bombay and Karnataka High Courts in the decisions relied upon by learned counsel for the second respondent. In N. Krishnan’s case (supra), with regard to the scope of interference with the decisions of the Settlement Commission, it was held thus :

“The provision for settlement would show that it is in the nature of statutory arbitration to which a person may submit himself voluntarily. Hence, many of the grounds on which an arbitration award could be set aside would not be available in view of the nature and jurisdiction of the Settlement Commission. A decision of the Settlement Commission could be interfered with only (i) if grave procedural defects such as violation of the mandatory procedural requirements of the provisions in Chapter XIX-A of the Income-tax Act, 1961, and/or violation of the rules of natural justice are made out; or (ii) if it is found that there is no nexus between the reasons given and the decision taken by the Settlement Commission. The court cannot interfere either with an error of fact or error of law alleged to have been committed by the Settlement Commission.”

14. In Shriyans Prasad Jain’s case (supra), it was held by the Apex Court thus :

“Mr. Poti, learned counsel for the Revenue, is right in submitting that in this appeal this Court would not go into questions of fact or review the findings of fact recorded by the Commission. As pointed out by this Court in Jyotendrasinhji v. S.I. Tripathi [1993] 201 ITR 611 , this Court can interfere with the Commission’s order only if it is found to be “contrary to any of the provisions of the Act”. To the same effect is the earlier decision of this Court in R.B. Shreeram Durga Prasad and Fatechand Nursing Das v. Settlement Commission (IT&WT) [1989] 176 ITR 169 (SC).”

It is therefore clear that interference can be made only if it is found that the order is contrary to any of the provisions of the Act. The Bombay High Court in ITSC’s case (supra), has also laid down the scope of interference in such matters and the scope of writ jurisdiction has been explained thus at page 79 :

“The first question we have to consider is what is the scope of the writ jurisdiction under article 226 of the Constitution of India while examining the order of the Settlement Commission? Broadly speaking an essential feature of the writ of certiorari is that the control which is exercised through it over judicial or quasi-judicial bodies is not in an appellate but supervisory capacity. One consequence of this is that the court will not review findings of fact reached by the inferior court or Tribunal, even if they be erroneous. A writ of certiorari can be issued to correct an error of law. But it is essential that it should be something more than a mere error; it must be one which must be manifest on the face of the record. The principles are well settled when the writ jurisdiction should be exercised. It should be issued in grave cases where the subordinate Tribunals bodies or officers act wholly without jurisdiction or in exercise of it, or in violation of principles of natural justice or refuse to exercise jurisdiction vested in them. There is an error apparent on the face of the record. Whether there is an excess exercise of jurisdiction may depend upon the existence of some facts in each case. There are cases where jurisdiction of the inferior Tribunal depends upon fulfilment of some conditions precedent upon existence of some particular fact. Such a fact is collateral to be actual matter, which the inferior Tribunal has to try and determination. Whether it exists or not is logically and in sequence prior to the determination of the actual question which the inferior Tribunal has to try. In such a case, in certiorari proceedings the court can enquire into the correctness of the decision of the inferior Tribunal as to the collateral fact and may reverse that decision if it appears to it on material before it to be erroneous. The certiorari jurisdiction can also be exercised if conclusions are perverse and, therefore suffer from patent error on the face of the record.”

It was also observed at page 82 thus: “As pointed out in Jyotendrasinhji v. S.I. Tripathi [1993] 201 ITR 611 / 68 Taxman 59 (SC), this Court can interfere with the order if it is found to be contrary to the provisions of the Act.” The above principles are therefore relevant to consider the scope of interference on Ext.P2 by this Court in these proceedings. There is no violation of the provisions of the Act and there is no error apparent on the proceedings also.

The writ petition is therefore dismissed. No costs.

[Citation : 344 ITR 288]

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