INDU SRIVASTAVA V. INCOME TAX SETTLEMENT COMMISSION

WTAX/1555/2018

AI Insights

The case involves Indu Srivastava, who challenged the order of the Income Tax Settlement Commission that rejected her settlement application concerning undisclosed income. The Commission had rejected her application at the first stage, citing insufficient explanation of the manner of earning the undisclosed income. The petitioner had declared undisclosed income amounting to Rs. 13,16,94,000 for the assessment years 2012-13 to 2018-19, following a search operation where a substantial amount of cash was seized. The court found that the Settlement Commission had not adequately considered the evidence provided by the petitioner and had prematurely terminated the proceedings without a valid reason.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 753571 (HC-NEW DELHI)
• Appeal Type: Others
• Pronouncement Date: 17-09-2021
• Assessment Year: misc
• Other Referred Cases: Ajmera Housing Corporation vs. Commissioner of Income Tax, Vishwa Nath Gupta vs. Principal Commissioner of Income Tax, Central Kanpur
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: ANANT TIWARI; IT
• Assessee Lawyers: RITVIK UPADHYA
• Keywords: Income tax settlement; Search and seizure; Undisclosed income; Settlement Application Rejection
• Section: 132; 131; 153(A); 245-D(1)

Judgement Text

"1 Court No. - 3 Case :- WRIT TAX No. - 1555 of 2018 Petitioner :- Indu Srivastava Respondent :- Income Tax Settlement Commission Counsel for Petitioner :- Ritvik Upadhya Counsel for Respondent :- S.S.C.,Anant Kumar Tiwari,S.C. I.T. Hon'ble Naheed Ara Moonis,J. Hon'ble Saumitra Dayal Singh,J. Heard Shri V.K. Upadhya, learned Senior Counsel assisted by Shri Ritvik Upadhya, learned counsel for the petitioner, Shri Gaurav Mahajan, learned counsel for the Revenue and Shri Anant Kumar Tiwari, learned counsel for the Union of India. Challenge has been raised to the order dated 27.09.2018 passed by the Income Tax Settlement Commission, Additional Bench-II, New Delhi. By that order passed under Section 245 (D)(1) of the Income Tax Act, 1961 (hereinafter referred to as 'Act'), the Income Tax Settlement Commission (hereinafter referred to as 'Settlement Commission') has summarily rejected the petitioner's settlement application, at the first stage itself. The reason to reject the application is one, being the manner of earning the undisclosed income has not been satisfactorily explained. Relevant to above, it may be noted that the present petitioner Mrs. Indu Srivastava, was subjected to search proceeding under Section 132 of the Act on 19.04.2017 and 20.04.2017, at Noida. During the course of that search, cash of Rs. 10,75,23,000/- was discovered at her residence. Of that, Rs. 10,74,91,000/- was seized. Also, jewellery, documents and certain other items were seized in the course of that search. Parallel search was also conducted in the case of the husband of the petitioner Mr. Keshav Lal on 19.04.2017 and 20.04.2017, at 2 Kanpur. However, that search proceedings did not lead to any further seizure. During the course of the search, the statement of the present petitioner was also recorded under Section 132 of the Act with respect to the cash found and seized from her possession. At that stage, the petitioner appears to have explained the cash discovered as partly belonging to herself, partly to her daughter and partly by way of cash kept with her by certain friends/acquaintance. As to the jewellery, the petitioner claimed the same, having been received from her father-in-law and her mother-in-law. Some part of the jewellery was explained as belonging to her daughters, lying with her for safe custody. Upon conclusion of the search, the petitioner was again summoned under Section 131 of the Act, wherein, she appears to have reiterated her statement recorded during the search. At the same time, it is the case of the petitioner that during the second statement, thus recorded, she had made a statement to the Assessing Officer explaining the cash discovered belonging to three persons with whom, she had entered into a business arrangement to set up a joint venture enterprise. A Memorandum of Agreement is also claimed to have been produced by her. However, it is the case of the petitioner that neither that part of her statement was recorded under Section 131 of the Act nor the documents namely the Memorandum of Agreement received on record. Therefore, the petitioner further claims to have sent the same to the Assessing Authority by speed post on 21.09.2017. In such facts, the petitioner was visited with an assessment notice under Section 153 A of the Act. She filed her return thereto declaring nil income. While the assessment proceedings were thus pending, the petitioner filed her application before the Settlement Commission on 3 19.09.2018, for the first time, disclosing hither to undisclosed income of Rs. 13,16,94,000/- derived by her during the A.Y. 2012-13 to 2018- 19. She further disclosed tax payable on the additional income thus declared as Rs. 4,46,43,758/-. As extracted in the order itself, the petitioner disclosed three sources of her undeclared income. First, it was explained that though the petitioner had earlier disclosed the business income derived from an entity M/s SIB International which was at Noida engaged in the business of AMC on softwares and services etc., the petitioner further claimed another source of income from jewellery designing etc., that she carried out under the umbrella of M/s SIB International. In that regard, she further claimed to have derived the income from commission from the sale of jewellery. As to the third source of undeclared income, the petitioner disclosed having entered into the Memorandum of Agreement dated 27.3.2017 with Mr. Indravardan G Patel, Mrs. Bindu D. Trivedi and Mr. Pravin K. Patel to start a new business of sole selling agency of the principal namely M/s Royal Ratna Edible Oils Pvt. Ltd, a company engaged in the manufacture of Cotton seed oil and palm oil. It was the further case of the petitioner that the capital to start the new business was to be contributed by the above named persons being Rs. 4 crores each to be contributed by Mr. Indravardan G. Patel and Mrs. Bindu D. Trivedi and a further Rs. 6 crores to be contributed by Mr. Pravin K. Patel. The petitioner's contribution was confined to Rs. 1 crore. Relying upon clause 3.7 of the said Memorandum of Agreement, it was further disclosed that a sum of Rs. 10 crores and 50 lakhs had been contributed by the aforesaid Mr. Indravardan G Patel, Mrs. Bindu D. Trivedi and Mr. Pravin K. Patel being Rs. 2.5 crores, 2.5 crores and Rs. 5.5 crores, in cash. That amount was disclosed to have been deposited with the petitioner for the purpose specified in the Memorandum of Agreement entered between the parties. Though, the 4 money did not belong to the petitioner, however, as to the manner of her undeclared income arising therefrom, it was explained that the aforesaid parties who had contributed to the capital required in the new business had, disowned their connection to it, inasmuch, according to the petitioner, they were not coming forward to claim that money before the Income Tax Authority, occasioned by the seizure of the same in the proceedings carried out against the petitioner. Therefore, the petitioner disclosed the manner in which she came to own that money and therefore offered it as her income before the Settlement Commission. As to the documentary evidence, it does appear that a voluminous documents running into 688 pages in two volumes were submitted before the Settlement Commission containing the details of assessment records of the entity M/s SIB International to establish its genuineness and the income derived therefrom, by the petitioner. Further, the petitioner produced before the Settlement Commission the will deed executed by her father-in-law late Shiv Shankar Lal with respect to the Jewellery disclosed by her. She also placed on record the copies of invoices to establish the sale of jewellery and also earning commission from the jewellery business. Certain receipts and other documents have also been placed on record. Copies of the Memorandum of Agreement dated 27.03.2017 claimed to have been signed by all the parties to the agreement was also placed before the Settlement Commission. In such facts, the matter came up for consideration before the Settlement Commission. At the first stage of entertainment of that application, the commission after taking note of the disclosure made before it, has proceeded to reject the application primarily on a solitary reasoning that the manner of acquiring the undeclared income 5 has not been explained by the petitioner. While dealing with the undeclared income acquired from the business of M/s SIB International, the Settlement Commission has observed that the petitioner has disclosed the undeclared income of Rs. 25 lakhs each for the A.Y. 2012-13 to A.Y. 2016-17. Since the petitioner did not produce the record of earning of such income indicating the manner and source either from the material seized or otherwise, the Settlement Commission has concluded that the manner of earning of the income Rs. 1.25 crores was not explained. As to the undisclosed income, declared by the petitioner, from the sale of jewellery for Rs. 61.92 lakhs during the A.Y. 2013-14, Rs. 45.83 lakhs for the A.Y. 2016-17 and jewellery worth Rs. 3.3 crores found in her possession, the Settlement Commission has recorded that the evidence to establish the time and purchase of such jewellery has not been disclosed by the petitioner. Though, the Settlement Commission presumed that such jewellery had been generated from unknown activities. However, the manner of the unaccounted money was observed to be unexplained. As to the disclosure of cash of Rs. 10.5 crores out of total Rs. 10.75 crores discovered during the search, the same was also not disclosed by the petitioner in her return filed in response to the notice under Section 153 A of the Act. After taking note of the Memorandum of Agreement dated 27.3.2017 relied upon by the petitioner, the Settlement Commission further observed that the Memorandum of Agreement was not referred to or was not relied upon by the petitioner either during the search proceedings or during her statement recorded under Section 131 of the Act or while filing her return in response to the notice under Section 153-A of the Act. Thereafter, the Settlement Commission has 6 proceeded to consider the possibilities and probabilities in two scenarios being (i) if the cash actually belongs to the persons, as claimed by the petitioner and (ii) what would emerge if it belongs to the petitioner. The Settlement Commission has itself chosen to use words and phrases which do not indicate any definite opinion being formed by it, inasmuch as it has only contemplated two possibilities that may exist. After making a discussion of the same, the Settlement Commission has again reached a conclusion that the manner of deriving such unaccounted income has not been explained by the petitioner. We will deal with that reasoning, a little later. In such facts, learned Senior Counsel for the petitioner submits that undisputedly, the proceedings before the Settlement Commission may be divided broadly into three stages. At the first stage, the matter remains confined between the Settlement Commission and the declarant to test whether the declarant had made a true and full disclosure of the undeclared income brought forth by it by means of the declaration. Second, it is to be examined if the manner in which such declared income has been acquired is disclosed by the declarant or not. Third, whether the additional tax liability has been declared or not. At this stage, no adjudication is to take place and no definite findings are required to be recorded by the Settlement Commission. Once the satisfaction is reached as to the prima-facie fulfilment of the aforesaid three conditions by the declarant, the Settlement Commission may then call upon a report of the jurisdictional Commissioner and the revenue authority may raise all objections on merits as also to the maintainability of the application, if such ground exists. Even at that stage, the applicant alone is to be heard by the Settlement Commission. If not satisfied, the Settlement Commission may declare the application to be invalid and drop the 7 proceedings. Only at the third stage, a detailed hearing is to take place wherein both the applicant/declarant and the revenue authorities are to be heard, and if necessary, after a detailed investigation that may take place as directed by the Settlement Commission, the final terms of the settlement are drawn which may be different from the terms offered by the declarant in the application initially filed. The Settlement Commission is not powerless to accept or to reject part of the declaration, at that stage. In the present case, it has been submitted that the Settlement Commission has neither chosen to record its satisfaction on the prima-facie case set up by the petitioner in any definite terms nor it has chosen to allow the parties to contest the matter before the Commission. Thus, the Settlement Commission has prematurely terminated the proceedings without any valid reason. The observations made by the Settlement Commission in its order with respect to the income disclosed by the petitioner from M/s SIB International and jewelleries, are stated to be wholly perverse. The Commission has completely failed to examine the admitted documents in the shape of record of assessment of M/s SIB International in its bank statements etc. that establish genuine business activity of that entity. Similarly, the Settlement Commission has failed to look at the will deed which was executed by the father- in-law of the petitioner, the affidavit of the attesting witness or the sale invoices with respect to the jewellery and has rushed to record its conclusion that the manner of earning from the aforesaid two sources was not disclosed. Such observations/findings do not arise from the relevant material existing on record. They are stated to be wholly untenable. In fact, it is the submission of learned counsel for the petitioner that the Settlement Commission was obligated to look at such material and thereafter record its tentative opinion as to the manner of earning (undisclosed income) declared by the petitioner. 8 As to the cash discovery, it has been submitted that the conclusions drawn by the Settlement Commission are based on extraneous material. In any case, they are self contradicted. The fact that the Memorandum of Agreement dated 27.3.2017 was not discovered during the search proceedings or during her statement recorded under Section 131 of the Act (even if true), would make no difference to the maintainability of the application filed by the petitioner. It is the undisclosed income, that may be brought forth, before the Settlement Commission. Inasmuch as, the petitioner had not filed any return of income with respect to the cash discovery made during the search conducted on 19.04.2017 and 20.04.2017 the petitioner's application was maintainable before the Settlement Commission, to that extent. Then, it has been submitted that the Settlement Commission has dealt with possibilities and probabilities, beyond the scope of its jurisdiction to make an observation that the money could not have been received by the petitioner without any agreement or without any corroborative material before the assessing authority. What would be the true merits of the claim made by the petitioner would remain to be examined at subsequent stages of the proceedings. However, based on the provisions of law as exist by virtue of Section 132 (4A), Section 56 (2) (VII) and Section 292 (C), coupled with the fact that the entire amount of Rs. 10 crores 74 lakhs had been seized from the petitioner, the presumption in law was operating against the petitioner. Only when the persons to whom the money actually belonged, have disowned it, the petitioner realized that it may be difficult for her to establish that fact in regular proceedings. At that stage, the declaration was filed before the Settlement Commission. As to the manner of earning that money, the petitioner had clearly disclosed the above narrated facts of the money having been 9 deposited by Mr. Indravardan G Patel, Mrs. Bindu D. Trivedi and Mr. Pravin K. Patel and the fact that they had now disowned the same. No other or further declaration could have been made by the petitioner in such facts. As to the manner in which she came to earn that income is clear. According to the petitioner, she came to earn that money more by operation of law and conduct of third parties and not by own deliberate conduct. Money that was truly not hers is now to be assessed at her hands because of the provisions of the law and the conduct of the third parties. The fact that she had not disclosed the same either in her regular return or in her return to be filed in response to Section 153-A of the Act would also be of no consequence as that return was filed prior to filing the application before the Settlement Commission. If at all, it only makes her application maintainable in law as she had never claimed that money in any income tax proceedings. Also, it has been submitted that there is no principle under the Income Tax Law that may have been offended by the petitioner. The rejection order has been passed on mere whims and fancies and not on cogent material or reasoning. Learned counsel for the Income Tax Department has submitted that there is no error in the order passed by the Settlement Commission inasmuch as the petitioner had failed to explain the manner in which the undisclosed income had been earned by the petitioner from either of the three sources disclosed. He has placed reliance on the decision of the Supreme Court in Ajmera Housing Corporation vs. Commissioner of Income Tax (2010) 326 ITR 642. He has also placed reliance on the decision of Delhi High Court in Vishwa Nath Gupta vs. Principal Commissioner of Income Tax, Central Kanpur (2017) 395 ITR 165 (Delhi). Having heard learned counsel for the parties and perused the record, 10 the scope of the proceedings before the Settlement Commission, at the stage of entertaining a declaration made i.e. the first stage has been considered by the Supreme Court in Ajmera Housing Corporation (supra). In paragraphs 24 to 27 of the report, it was held as under:-. “24. Before embarking upon the rival contentions, it would be instructive to refer to the scheme of Chapter XIX-A of the Act. The Chapter was inserted in the Act by the Taxation Laws (Amendment) Act, 1975, pursuant to the recommendations of the Justice Wanchoo Committee Report. The recommendation, contained in Chapter 2 of the report (2010) 2 SCC 733 (2005) 2 SCC 751 (1979) 2 SCC 396 under the caption \"Black Money and Tax Evasion\", was for setting up of a statutory settlement machinery, whereby a tax evader could make a clean breast of his past illegitimate affairs, discharge his tax liability as determined by the body so established and thus, buy quittance for himself and in the process accelerate recovery of taxes by the State, although less than what may have been recovered after protracted litigation and recovery proceedings. The said Chapter, with some amendments, envisages settlement of complex tax disputes and grant of immunity from criminal proceedings by a Settlement Commission constituted in this regard. The Chapter sets out in detail the mechanics of application, investigation, consideration, hearing and disposal of the application. 25. Proceedings under the said Chapter commence on the filing of an application by an assessee underSection 245C(1) of the Act, which reads as follows:- \"245-C. Application for settlement of cases.--(1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided: ............................................................................\" 26. A bare reading of the provision would reveal that besides such other particulars, as may be prescribed, in an application for settlement, the assessee is required to disclose: (i) a full and true disclosure of the income which has not been disclosed before the assessing officer; (ii) the manner in which such income has been derived and (iii) the additional amount of income tax payable on such income. 27. It is clear that disclosure of \"full and true\" particulars of undisclosed income and \"the manner\" in which such income had been derived are the pre-requisites for a valid application under Section 245C(1) of the Act. Additionally, the amount of income tax payable on such undisclosed income 11 is to be computed and mentioned in the application. It needs little emphasis that Section 245C(1) of the Act mandates \"full and true\" disclosure of the particulars of undisclosed income and \"the manner\" in which such income was derived and, therefore, unless the Settlement Commission records its satisfaction on this aspect, it will not have the jurisdiction to pass any order on the matter covered by the application.” Insofar as the decision of Vishwa Nath Gupta vs. Principal Commissioner of Income Tax (supra) is concerned, that was a converse case of fact, inasmuch as the declarant (in that case) claimed title over money that had been seized at the hands of third parties who also claimed title over that seized property. In that fact, the declarant filed an application disclosing that income as his own. The facts of the present case are converse to the same, inasmuch as here, the money has been seized from the hands of the petitioner and no other party has owned that money. Therefore, the decision of the Vishwa Nath Gupta (supra) is distinguishable on facts. There can be no doubt that at this stage, the petitioner was required to disclose (i) full proof of disclosure of the income (ii) the manner in which such income had been derived and (iii) the additional amount of income tax payable on such income. Also, the test to be applied by the Settlement Commission was only to record a satisfaction on these aspects. Unless that satisfaction was first recorded, the proceedings if any, conducted by the Settlement Commission would remain defective. Applying the aforesaid principle as laid down by the Supreme Court, plainly, the burden cast upon the declarant is only to make a full and true disclosure. To make a disclosure and to prove that fact are two different things. In the nature of proceedings before the Settlement Commission, at the first stage, as laid down by the Supreme Court, it is only the factum of 12 disclosure that is to be ascertained. In the present case, there is no denial of the fact that such a disclosure had been made by the petitioner. All that remains to be examined is whether the same was true and full in the eyes of the Settlement Commission. To test whether the disclosure made was true and full, the Settlement Commission was only obligated to record a satisfaction. Again, a satisfaction is different and distinct from a concrete finding of fact or law. By very nature of things, the word ‘satisfaction’ may remain only a tentative opinion based on the material existing before an authority, at that stage. The decision of the Supreme Court only uses the word 'satisfaction' and not finding. It cannot be denied that in the course of proceedings that may be entertained by a Settlement Commission i.e. at the final stage, it may chose to reject the application after entertaining the report of the Principal Commissioner, if it finds the application to be invalid. Therefore, the satisfaction to be recorded is only an expression of a tentative opinion to entertain an application or to allow it to be processed further. Such a satisfaction does not and it could not determine either the rights of the parties to any extent or limit the options of the Settlement Commission to reach a different conclusion i.e. to reject the application either in part or in entirety, at a later stage. We also cannot overlook a fact that the satisfaction required to be recorded is wholly ex-parte against the revenue authority inasmuch as at this stage, the revenue authorities are not required or permitted to be heard. Therefore, unless the application filed is found to be wholly bogus or unfounded on facts or law, there may remain less reason to reject such applications outrightly. In the facts of the present case, the petitioner had supported his claim and the Settlement Commission had not reached a conclusion that the disclosure made was not full or 13 true inasmuch as the quantification was not in dispute at that stage. The truthfulness of the disclosure made may be said to have been not believed by the Settlement Commission inasmuch as there are observations disbelieving the manner of acquiring the declared income. In that regard, the petitioner had supported the disclosures with material in the shape of income tax returns, bank statements and another documents pertaining to the business entity M/s SIB International with respect to disclosure of undeclared income of Rs. 1 crore 25 lakhs. It had also brought on record the will deed, the affidavit of the attesting witness and also the invoices of sale and purchase of jewellery etc. in support of the disclosure arising from the jewellery business. These materials have not been considered at all by the Settlement Commission while recording a satisfaction in the negative, to reject the application filed by the petitioner. We find no reason to endorse such an approach adopted by the Settlement Commission inasmuch as at that stage of the proceedings, there was no material to discard such evidence relied upon by the petitioner. The Settlement Commission had no basis to overlook the evidence produced by the petitioner. It would be one thing if the Settlement Commission after considering the same had recorded any conclusion disbelieving the same for cogent reasons. That having not been done, the order of the Settlement Commission can neither be described as reasoned nor it can be said to be based upon consideration of material on record. In fact, to that extent, it suffers from a non application of mind. Insofar as the disclosure of income of cash of Rs. 10 crores 74 lakhs is concerned, the observations made by the Settlement Commission are self contradicted. In the first place, the application could not be thrown out at the threshold on the reasoning that the petitioner had 14 not made any disclosure of such income before filing an application before the Settlement Commission. In fact, if the petitioner had disclosed such income in any earlier proceeding it may have been a ground to record such negative satisfaction to disallow the application to proceed because the petitioner had already disclosed such income in any proceeding under the Act. Here, according to the Settlement Commission, the petitioner did not disclose the income either during search proceedings or during the investigation carried out after the search or in response to the notice issued under Section 153 (A) of the Act. To that extent, the reasoning of the Settlement Commission is clearly erroneous in law. As to the further reasoning offered by the Settlement Commission that the petitioner had not explained the manner of acquiring the income (cash and jewellery), the Settlement Commission has again failed to take into consideration the effect of the Memorandum of Agreement and the further claim of the petitioner that the signatories to that agreement (who had contributed Rs. 10.5 crores to set up a new business) had disowned that amount, subsequent to that search. Prima-facie, there is merit in the submissions advanced by learned Senior Counsel for the petitioner that by virtue of Section 132 (4A), Section 56 (2) (vii) and Section 292 (C), the presumption in law arose as a consequence of the action/inaction of the third party in not claiming the cash seized at the petitioner’s hands as may be treated as her income. Without drawing any final conclusion to that, we find that the said aspect has not been examined and has been completely overlooked by the Settlement Commission. Further, the Settlement Commission appears to have remained in some doubt about the aspect of the matter inasmuch as its observation on the issue are hypothetical and plural. It has thus tried to weigh 15 between two hypothetical possibilities of the money belonging to the third party and, the money belonging to the petitioner. The approach taken by the Settlement Commission cannot be endorsed or appreciated. It is expected from the Settlement Commission to form clear opinion on facts, even at the stage of admission. A quasi-judicial authority vested with such vide powers is not expected to act on doubts and probabilities but on definite opinion formed on material on record. Though such opinion is tentative (at this stage), the Settlement Commission should have remained conscious of the fact that it was only dealing with the first stage of admission of the case, wherein, no prejudice may be caused to the revenue if such application were to be entertained while on the contrary, a rejection of the application at this stage, closes the door to the declarant, for ever. Accordingly, the order dated 27.09.2018 passed by the Income Tax Settlement Commission, Additional Bench-II, New Delhi is hereby set aside. The writ petition is allowed and the matter is remitted to Income Tax Settlement Commission to pass a fresh order in accordance with law keeping in mind the observations made above. We are mindful of the fact that in the meanwhile, the Settlement Commission has been disbanded and at present stands replaced by an Interim Board. Accordingly, let the matter be placed before the Interim Board for further proceedings, in accordance with law. Since the matter has remained pending for long, it is expected that the proceeding may be taken up and appropriate orders be passed, as expeditiously as possible. Order Date :- 17.9.2021 Saurabh "