IN HIGH COURT OF DELHI AT NEW DELHI Reserved on: 23.01.2017 Pronounced on: 15.05.2017 + W.P.(C) 5185/2016 SH. VISHWA NATH GUPTA ..... Petitioner Through : Sh. C.S. Aggarwal, Sr. Advocate with Sh. Prakash Kumar, Advocate. versus PRINCIPAL COMMISSIONER OF INCOME TAX CENTRAL, KANPUR AND ANR. ..... Respondents Through : Sh. Zoheb Hossain, Sr. Standing Counsel with Sh. Deepak Anand, Jr. Standing Counsel. CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE NAJMI WAZIRI MR. JUSTICE S. RAVINDRA BHAT % 1. petitioner seeks direction to quash order of 03.05.2016, passed by Income Tax Settlement Commission, Additional Bench -II, New Delhi (hereinafter referred to as "Settlement Commission" or "ITSC") under Section 245D(2C) of Income Tax Act, 1961 (hereinafter referred to as 'Act'). said order had rejected petitioner's application under section 245C(1) of Act. petitioner also claims writ of mandamus directing ITSC to treat application under Section 245 C (1) as valid and commence proceedings before it from same stage as on 03.05.2016 and also consequential and appropriate directions to restrain W.P.(C) 5185/2016 Page 1 of 14 income tax authorities from taking any action under Act, till disposal of its application by ITSC. 2. brief facts are that search and seizure operation was carried out under Section 132(1) of Act against M/s. Rotomac and Anand/Dolphin Developers Group on 25.06.2014. search was conducted at business premises of those companies and their directors, associates, etc. After search, cases of all such assessees were centralized with office of Assistant Commissioner of Income Tax, Central Circle-II, Kanpur by order dated 29.07.2014 passed by Principal Commissioner of Income Tax-II, Kanpur. assessment order dated 31.03.2016 under Section 148/143(3) of Act was made by Assistant Commissioner of Income Tax, Central Circle-II, Kanpur in case of M/s. Dolphin Developers Ltd. (one of group companies). Notices under Section 153A were issued by Assessing Officer (situated at Kanpur), to companies as well as individuals directors/partners for A.Y. 2009-10 to 2013-14. Returns in response to said notices were filed by respective parties. In backdrop of these developments, petitioner filed application under Section 245C of Act before Income Tax Settlement Commission, Additional Bench-II, New Delhi. 3. On 18.03.2016, after considering parties' submissions, ITSC passed an order allowing settlement application to be proceeded with, after recording that it was prima facie maintainable, under Section 245 D(1) of Act. ITSC observed, inter alia, that: "6. During course of hearing, learned Authorized representative explained pendency position, manner of earning undisclosed income in this case and background of filing Settlement Application. Ld. AR has submitted that W.P.(C) 5185/2016 Page 2 of 14 application filed by Shri Vishwa Nath Gupta, in status of 'specified person' - is covered within meaning of clause (i) of proviso to sub-section (1) of Section 245C of Income Tax Act as tax payable exceeds Rs.50 Lacs. intimation to AO in Form No. 34BA has been made on 10.03.2016 complying with requirements u/s 245C(4) of Income Tax Act. 7. Ld. A.R. submitted that additional income has been declared on basis of compilation of seized material printouts taken from Hard-Disk (HD-33), assessment year wise working of additional income which has been tested and cross checked by "Net Asset Method" has been offered for taxation. Accordingly, as figure arrived at by 'net assets' method is more, that figure has been offered as income. 8. It was pointed out by Bench that in schedule-I1 of 'Income-Outgoings' for F.Y. 2008-09 opening balance has been whereas in para 28 of SOF (Page 92) and elsewhere it has financial affairs of applicant are 'in continuation' with earlier years. It was also brought to notice of applicant that in 'compilation certificate' on page 160 of SOF, applicant's C.A has stated, inter-alia, that "there are variations in opening balances as are appearing in ledger accounts for F.Y. 2008-09 (under reference) as compared to closing balances of preceding year i.e. F.Y. 2007-08.". It was brought to notice of A.R., that complete information in this regard i.e. quantum of difference in closing balance and opening balance has not been disclosed by applicant. It was further pointed out by Bench that in 'Incoming and Outgoing' statement no narration or description is provided in report of outgoings because of which Bench is unable to appreciate whether outgoing is for business purpose or if it is merely on application of money or investment. A.R. fairly admitted deficiencies/discrepancies pointed out to him on above noted issues. He under took to provide clarification/information on these two aspects during section 245D(2C) proceedings, to make issues clear. W.P.(C) 5185/2016 Page 3 of 14 9. After considering facts on record and submissions of Ld. AR, we are satisfied that applicant, prima-facie, fulfills conditions prescribed u/s 245C(1) of I.T. Act. issues arising, without prejudice, would be considered at subsequent stage of proceedings. Accordingly, Settlement Application is allowed to be proceeded with." 4. During proceedings, report was submitted by Principal Commissioner under Section 245D(2B) of Act, on 13.04.2016. This report suggested that claim made by applicant that amount declared by him to belong to entity, was unsubstantiated and that moneys were unaccounted sums collected by other assessees who were subjected to search. ITSC considered submission of parties, and by impugned order rejected petitioner's application. It held, in impugned order, that: "We have considered arguments and written submissions made by both sides. main issue that emerges out of above discussion, for our consideration, is whether additional income declared before Settlement Commission belongs to Sh Vishwanath Gupta applicant or to various companies of Dolphin Group as per stand taken by Pr. CIT in his report under Section 245D(2B) of I.T. Act dated 13.04.2016. It is quite apparent that key person behind whole group is Shri Vishwanath Gupta. It is also fact that number of companies, belonging to group, were promoted for purposes of acquisition, development and sale of real- estate as their main objective. These companies are separate legal entities who have undertaken 23 projects towards furtherance of objectives of real-estate development. Besides M/s Dolphin Developers Ltd., these companies are M/s Gam Builders, M/s Pragati Structure Pvt. Ltd, M/s Dolphin Infra Project Ltd., M/s Dolphin Structures Ltd., M/s Illec Trading Pvt. Ltd. and M/s Ashwariya Coloniser Pvt. Ltd. These W.P.(C) 5185/2016 Page 4 of 14 are separate entities carrying out their activities as mandated by their Articles of Association and are assessed to tax as independent tax payers. 7.1 On other hand, M/s ABC (of which Mr. Vishwanath Gupta claims to be controlling person) appears to be amorphous entity, and certainly not legal entity. transactions appearing on seized papers particularly hard disc marked as HD-33, and excel sheet forming part of these accounts, clearly show that unaccounted monies received are against particular property in particular project against each buyer. No evidence has been brought before us to substantiate claim of applicant that unaccounted money related to "special and specific requirements of customers/investors in projects". This being so, cash components paid by investors has only gone towards cost of individual flats and is part of total cost of flat. As this money relates to particular project/property of particular company it should form part of its accounts as each company is separate taxable entity for income tax purposes. accounts of such receipts might have been kept at single place for convenience of main person handling affairs of these companies. Keeping all such accounts at one place for sake of convenience cannot by any stretch of imagination, be considered as relating to, and belonging to person maintaining it. This fact only leads to conclusion that money under consideration has been received by said group companies and any resultant profit or loss arising out of any subsequent transactions rightfully belong to company concerned. 7.2 In this background, claim made by applicant that entire income, accounted and unaccounted, in fact belongs to him and not to various recognized and separate legal and taxable entities whose names figure in seized papers, appears to farfetched, and lacks credibility. W.P.(C) 5185/2016 Page 5 of 14 7.3 After careful consideration of above facts and in this circumstances of case, we hold that additional income declared in settlement application filed by Sh. Vishvvanath Gupta does not rightfully belong to him and therefore, same cannot be considered in his hands for settlement of income u/s 245D(4) of I.T. Act. It is, therefore, held that applicant has failed to make full and true disclosure of his income. Besides manner of earning of such income in his hands remains unexplained. Thus applicant fails on both vital parameters, as laid down, in section 245C. Accordingly, we hold that Settlement Application filed by applicant in prima-facie 'invalid', and therefore, cannot be allowed to be proceeded with further." 5. Petitioner argues that Settlement Commission erred in holding his application to be invalid by erroneously holding that he failed to make full and true disclosure of his income and that, manner of earning such income in his hands remains unexplained. petitioner contends that he made full and true disclosure of his income before Settlement Commission and further he has also explained manner of earning such income. In this context it is stated that said disclosure of sum of `10.80 Crores is supported by statement of affairs drawn from seized material (i.e. print out from HD-33) duly certified by chartered accountants compiling same. said statement of affairs have been summarized in paras 34, 35 and 36 of Annexure-II filed before settlement commission. It is further submitted that in order dated 18.03.2016 under Section 245D(2B) of Act ITSC specifically required petitioner to explain said statement of affairs on basis of which he disclosed sums aggregating to `10.80 Crores. W.P.(C) 5185/2016 Page 6 of 14 6. petitioner submits that Settlement Commission also erred in holding that manner in which income was earned was not explained. It is submitted that petitioner had duly explained manner in which income has been earned. In fact, petitioner had furnished detailed information in Annexure-I and Annexure-II, filed before Settlement Commission. sources of funds received in cash by Petitioner in his proprietary concern M/s. ABC, which were recorded in books of account/ excel sheet found from Hard Disk (HD-33) found from computer during search of premises at 7/71A, Tilak Nagar, Kanpur are as under: (i). From Flat Buyers, i.e. end users (ii). Investors who are not end users (iii). Refunds along with returns from amounts advanced 7. petitioner also argues that as stated above, he was instrumental in setting upto 8 business entities. said business entities had undertaken 23 projects from time to time, and execution of such projects was spread over span of number of years. Besides, there are other projects also, execution of which was in progress as on date of search and seizure action and continued thereafter also. In order to provide ancillary services to customers and investors, petitioner on his own devised model in name of "Anand Builders Co." ("ABC" for short) and evidence to that effect is available in seized material (printouts taken from hard disc under seizure marked as "HD-33") and other information available in computer. It is argued that seized material also discloses that ABC had been making W.P.(C) 5185/2016 Page 7 of 14 investments in properties acquired by various "business concerns" in relation to which projects were yet to be launched. 8. Learned senior counsel for petitioner, Mr. C.S. Agarwal, argued that seized material (printouts taken from HD-33) showed that very frequently, Petitioner had been receiving funds from investors for bulk bookings in projects that were being run by various business entities of VNG group of which Petitioner is key person, as he was repository of faith of said persons (investors). Sometimes deals proposed by them had matured and many times there were cancellations too. funds so provided by them were utilized by Petitioner in its venture "ABC". funds available with M/s. ABC as reflected in seized material was in nature of sinking fund kept ready to meet contingency in execution of various Projects. Counsel pointed out that Petitioner's Chartered Accountants compiled statement of affairs for financial year 2008-09, 2009- 10 and 2010- 11. All these aspects, submitted learned senior counsel, were erroneously overlooked by ITSC. 9. counsel for petitioner argued that Commission's findings with respect to income disclosed additionally not belonging to petitioner was invalid consideration; it was argued that this was not legally sustainable finding. It was emphasized that under scheme of Chapter XIX-A of Income Tax Act, basic criteria or objective is revenue recovery, in respect of undisclosed income. In doing so, idea of settlement is to move away from rigid insistence on form and letter of law but rather to ensure that tax net yields substantial recovery of tax. This essential or basic consideration was entirely overlooked by ITSC in facts of this case. It was lastly argued that in absence of any W.P.(C) 5185/2016 Page 8 of 14 specific provision under Section 245 D prescribing conditions to hold that application is invalid, in present case, petitioner could not have been denied relief, more so because Principal Commissioner in his report and had not alleged that application did not satisfy requirements of law. In fact, there was full and truthful disclosure of all material facts and findings of commission to contrary are unsustainable. 10. revenue, in its counter affidavit and by submission of its counsel Mr. Zoheb Hossain, argues that merely because order was made under Section 245D petitioner could not claim vested right to relief. settlement commission, or its counsel is under duty to consider revenue's report under Section 245D (2B) of Act. As matter of fact, report is first opportunity given to revenue to explain its position before Commission. ITSC has opportunity and right to declare any application invalid on basis of such report after duly considering it. 11. revenue argues that in facts of this case, Commission was justified in rejecting petitioner's application. It is asserted that comparison of material, especially account books and hard disk HD 33 containing waste materials was found and seized from offices of Dolphin Developers P. Ltd which contained details of month-wise payments made by its customers during three years. comparison with details verified from books of ABC matched undeclared amounts, that tallied with customers of Dolphin Developers Ltd. Clearly, therefore, inference was that amount declared by petitioner, in fact belongs to that company and not his concern ABC. It is highlighted that petitioner in W.P.(C) 5185/2016 Page 9 of 14 fact admitted in submissions before Commission that such books seized, contained transactions not only relating to M/s. Dolphin Developers Ltd, but also to 23 projects launched by 8 group concerns. Having, therefore, admitted that these amounts were received towards sale of flats in projects of different group companies, petitioner could not have in same breath urged before Commission that monies were his own undisclosed income. It is argued, therefore, that impugned order of ITSC is in conformity with law declared by Supreme Court in Ajmera Housing v Commr of Income Tax 2010 (8) SCC 739. 12. Under Section 245-C of Act, any assessee can, at any stage of assessment, apply for settlement in prescribed form which would require full and true disclosure to be made by him of his income which has not been disclosed before Assessing Officer and manner in which such income has been derived. While processing such application under section 245-D of Act it would be open for Settlement Commission to reject application for settlement, if it is found that applicant has not made true and full disclosure of his income in application for settlement. In context of these provisions, Supreme Court had occasion to examine issue of true and full disclosure and stage where same must be made in case of Ajmera Housing Corporation (supra). In that case, assessee applied for immunity under section 245C(1) of Act disclosing additional income of ` 1.94 crores (rounded off) for assessment years 1989-90 to 1993-94 which was in addition to income declared in return filed before AO. Commissioner opposed disclosures made by assessee as not being true and full disclosures and suggested that income of group assessees should not be settled at less than ` 223.55 crores. arguments on question of W.P.(C) 5185/2016 Page 10 of 14 whether Settlement Commission should allow application to proceed further were concluded and order was reserved at which stage, assessee filed revised settlement application declaring additional income of ` 11.41 crores. Settlement Commission passed order on 17.11.1994 deciding to proceed with application of settlement. Commission directed revenue to furnish further report. further report stated that income disclosed by assessee should not be treated as true and correct. According to it, assessee's total unaccounted income was substantially higher. After hearing started, assessee disclosed further unaccounted income of ` 2.76 crores. Ultimately on 29.01.1999, Settlement Commission passed final order determining total income of assessee for said assessment years at ` 42.58 crores. That order was challenged by revenue before Bombay High Court. Aggrieved by order of High Court, assessee had approached Supreme Court. Supreme Court remanded matter back to Bombay High Court for fresh consideration upon which Bombay High Court passed order remitting matter back to Settlement Commission against which applicants- assessees approached Supreme Court. It was in this background that Supreme Court observed as under: 26........It is plain from language of sub- section (4) of Section 245D of Act that jurisdiction of Settlement Commission to pass such orders as it may think fit is confined to matters covered by application and it can extend only to such matters which are referred to in report of Commissioner under sub- section (1) of sub-section (3) of said Section. full and true disclosure of income which had not been previously disclosed by assessee, being pre-condition for valid application under Section 245C(1) of Act scheme of Chapter XIX-A does not contemplate revision of income so disclosed in application against item No. 11 of form. Moreover, if assessee is permitted to revise his W.P.(C) 5185/2016 Page 11 of 14 disclosure, in essence, he would be making fresh application in relation to same case by withdrawing earlier application. In this regard, Section 245C(3) of Act which prohibits withdrawal of application once made under sub-section (1) of said Section is instructive in as much as it manifests that assessee cannot be permitted to resile from his stand at any stage during proceedings. Therefore, by revising application, applicant would be achieving something indirectly what he cannot otherwise achieve directly and in process rendering provision of sub-section (3) of Section 245C of Act otiose and meaningless. In our opinion, scheme of said Chapter is clear and admits no ambiguity. 31. We are convinced that, in instant case, disclosure of Rs. 11.41 crores as additional undisclosed income in revised annexure, filed on 19th September, 1994 alone was sufficient to establish that application made by assessee on 30th September, 1993 under Section 245C(1) of Act could not be entertained as it did not contain true and full disclosure of their undisclosed income and manner in which such income had been derived. However, we say nothing more on this aspect of matter as Commissioner, for reasons best known to him, has chosen not to challenge this part of impugned order. 13. It is evident from above narrative that petitioner is aggrieved by rejection of his application. He contends that total unaccounted amount declared (over ` 10 crores) should have been accepted. revenue had successfully opposed application, contending that assessee had not made full disclosure and that amount declared had never belonged to him, but rather to M/s. Dolphin Developers Ltd, who had accepted cash but not declared it. This was accepted by ITSC. petitioner has given his explanation and version as to why such rejection was unjustified and how such amount belonged to him. However, this court is of opinion that petitioner's contentions are entirely factual. Unless there is manifest unreasonableness or perversity in ITSC's order, court cannot substitute W.P.(C) 5185/2016 Page 12 of 14 its reasoning with that of said body. ITSC's findings here are based upon analysis of facts such as that ABC's identity was unknown and that there was certain degree of amorphousness in its functioning. Furthermore, clear linkages between amounts disclosed before ITSC and amounts declared by M/s. Dolphin Developers Ltd. was discernable. 14. judgments of Supreme Court in R.B. Shreeram Durga Prasad v. Settlement Commission, (1989) 176 ITR 169; Jyotendrasinghji v. S.I. Tripathi & Ors., (1993) 201 ITR 611 and Kuldeep Industrial corporation v. ITO, (1997) 223 ITR 840 delineate scope of High Court, while considering whether to interfere with orders of ITSC. In Jyotendrasinghji (supra), correct legal position was explained as follows: - Be that as it may, fact remains that it is open to Commission to accept amount of tax by way of settlement and to prescribe manner in which said amount shall be paid. It may condone defaults and lapses on part of assessee and may waive interest, penalties or prosecution, where it thinks appropriate. Indeed, it would be difficult to predicate reasons and considerations which induce Commission to make particular order, unless Commission itself chooses to give reasons for its order. Even if it gives reasons in given case, scope of inquiry in appeal remains same as indicated above, viz., whether it is contrary to any of provisions of Act. In this context, it is relevant to note that principle of natural justice (audi alterant partem) has been incorporated in section 245D itself. sole overall limitation upon Commission thus appears to be that it should act in accordance with provisions of Act. scope of enquiry, whether by High Court under article 226 or by this court under article 136 is also same whether order of Commission is contrary to any of provisions of Act and if so, apart from ground of bias, fraud and malice which, of course, constitute separate and W.P.(C) 5185/2016 Page 13 of 14 independent category has it prejudiced petitioner/ appellant. Furthermore, this court cannot review or second guess findings of fact as would appellate court. Given these parameters, inference of facts having regard to totality of circumstances, this court is of opinion that findings of fact which ITSC rendered cannot be set aside or interfered with. writ petition has to fail and is, therefore, dismissed. S. RAVINDRA BHAT (JUDGE) NAJMI WAZIRI (JUDGE) MAY 15, 2017 W.P.(C) 5185/2016 Page 14 of 14 Vishwa Nath Gupta v. Principal Commissioner of Income-tax Central, Kanpur and Anr