HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR S.B. Civil Writ Petition No. 802 / 2014 Shri Prakash Chand Dhadda, Prop. M/s. P.C. Dhadda & Co., 3815, Laxmi Atithi Grah, Moti Singh Bhomion Ka Rasta, Johari Bazar, Jaipur. ----Petitioner Versus 1. Income Tax Settlement Commission, Additional Bench II, 9th Floor, Lok Nayak Bhawan, Khan Market, New Delhi through its Secretary, earlier Principal Bench. 2. Commissioner of Income Tax (Central) Central Revenue Building, Statue Circle, Bhagwan Das Road, Jaipur. 3. Deputy Commissioner of Income Tax, TDS, Central Revenue Building, Statue Circle, Bhagwan Das Road, Jaipur now jurisdiction with Deputy Commissioner of Income-tax, Central Circle 2, Jaipur / Assistant commissioner of Income-tax, Central Circle 2, Jaipur. ----Respondent For Petitioner(s) : Mr.NM Ranka, Sr. Adv. with Mr.NK Jain For Respondent(s) : Mr.Anil Mehta with Ms.Archana HON'BLE MR. JUSTICE M.N. BHANDARI Judgment Date : 9th June, 2017 By this writ petition, challenge is made to order dated 30th September, 2013 so as notice of demand and (2 of 17) [CW-802/2014] income tax computation dated 01st November, 2013. further prayer is to accept undisclosed income of Rs.10 lac or alternatively of Rs.25 lac, as earlier computed. Learned counsel submits that petitioner is carrying business of trading as well as manufacturing of emeralds on small scale level. He is maintaining regular books of account and had been assessed for income between Rs.1 lac to Rs.5 lac. Income Tax Department conducted search at place of Mr.Rajkumar Sharma on 12th November, 1997 wherein some loose papers, note books, currency notes, etc. were found. Department gave notice to petitioner under Section 158BD of Income Tax Act, 1961 (for short Act of 1961 ). reply to notice was given followed by submission of income tax return with NIL amount. petitioner could reveal that Mr.Rajkumar Sharma has approached Income Tax Settlement Commission and his petition has been admitted. To avoid litigation and to have peace in mind, petitioner also submitted application before Commission on 12 th November, 1999 offering undisclosed income of Rs.5 lac with intimation to Assessing Officer. petitioner denied investment of Rs.3,36,50,000/- by way of money lending to earn interest. Settlement Commission computed undisclosed income to be of Rs.17 lac after considering Rule 9 Report. petitioner accepted aforesaid, however, it was quashed by High Court with remand of case on writ petition filed by Revenue. Learned counsel has explained facts of case also. It is submitted that petitioner was having business (3 of 17) [CW-802/2014] relations with Mr.Raj Kumar Sharma, who was getting cut emeralds and sending it to petitioner on approval basis for onwards sale. petitioner was purchasing emeralds and, if not approved, then to return it. aforesaid has been considered to be case of money lending and, therein also, code of one was considered to be one lac. decoding of figure is based on presumption. Revenue presumed money lending to Sohan Lal Sethi and Vimla Surana to extent of Rs.10 crore and Rs.2 crore respectively by taking 1000 as 10 crore and 200 as 2 crore. No counter verification was made from those to whom money was alleged to have landed. At best, Revenue could have taken one equals to 1000. brokers were not examined despite named therein. In view of above, even calculation of amount was made without counter verification and on hypothetical basis. currency note of different denomination was taken as promissory note on surmises and conjectures. No evidence to receive interest was available. Addition in those circumstances can be made on peak credit basis and, as per aforesaid, total comes to Rs.2,36,000/- instead of Rs.3,36,50,000/-. It is further stated that on 20th November, 2012, Settlement Commission directed Revenue to check calculation on peak credit theory but without receiving comment, decoding was made by treating 1 equals to 1 lac. currency notes were containing signatures of petitioner, which could not have been if money is to be advanced, rather it was case of receiving emeralds on approval. In view of (4 of 17) [CW-802/2014] above, Department failed to discharge its burden as per Section 132(4A) as well as under Section 69 of Act of 1961. It is also stated that if amount was advanced since 30th September, 1995 and onwards, there is no evidence to show repayment of it, which cannot happen in case of money lending. All these aspects are relevant but were not considered by Settlement Commission. peak credit theory was also not applied though no objection for it was made by Department. order was passed with pre-determination. Commission made arbitrary, illegal and unsustainable order under Section 245d(4) of Act of 1961. It is mainly based on order against Mr.Raj Kumar Sharma. Department has failed to produce any evidence to show it to be case of money lending thus burden under Section 132(4A) of Act of 1961 has not been discharged. reference of judgments of Apex Court in cases of CIT Vs. SMS Investment Corpn Ltd. reported in (1994) 207 ITR 364 (Raj.), 173 ITR 393 (Raj.), Jayanti Lal Patel Vs. ACIT reported in (1998) 233 ITR 588 (Raj.), CIT Vs. Jayanti Lal Patel and others reported in 144 CTR 305, Kishanchand Chellaram Vs. CIT reported in (1980) 125 ITR 713 and Roshan-Di-Hatti Vs. CIT reported in (1977) 107 ITR 938 has been given. It is submitted that order of Settlement Commission is otherwise based on presumptions. It is presumed that emeralds cannot be given on approval by recording on currency notes but can be on plain paper. It has been referred in (5 of 17) [CW-802/2014] para No. 12.12 of impugned order and later on, in para Nos.15.1, 15.9 and so on. Commission has recorded perverse finding. Revenue failed to establish that it is not case of sending emeralds on Jakad i.e. on approval basis but case of money lending. burden under Section 69 of Act of 1961 has not been discharged by revenue apart from fact that no independent verification was made from person noted in Rule 9 Report. unexplained asset or investment was not noticed apart from fact that no Hundi or any such document was found during course of search. missing links remained un- answered, thereby, not only that factual and legal issues were not properly considered but decoding of figure by simplifying 1=1,00,000 is wholly illegal. reference of judgment in case of Uma Charan Shani & Bros. Co. Vs. CIT reported in (1959) 37-ITR-270 (SC) has been given where it is held that suspicion, however grave, would not be taken place of proof. code of one could not have been taken equivalent to one lac, rather, as per explanation given by Mr.Raj Kumar Sharma, it could have been taken 1 = 100 or 1 = 1000 but not 1 lac. decoding of one = 1 lac is based on presumption thus order needs interference. Learned counsel further submits that telescoping or recycling is made for addition. It is by applying peak credit theory and is practice in State of Rajasthan. In case of money lending, there exists convention of repayment in two (6 of 17) [CW-802/2014] months. It has been duly noticed in Rule 9 Report. amount otherwise rotates. investment is thus to be computed on peak credit theory and it is consistently followed in State of Rajasthan and all over India. aforesaid has not been considered properly by Commission. calculation should have been made by applying peak credit theory . alternate argument in reference to Rule 9 Report has also been given. total amount comes to Rs. 9,71,460/- only by applying decoding of 1 = 1000. As per peak credit theory , amount would be Rs.4,61,000/-against total transaction of Rs.9,71,460/-. peak credit theory was not accepted by Commission as writing was on currency notes and not on document. peak credit theory was ignored despite fact that Assessing Officer had no objection for its application. petitioner was even discriminated with other assessees, who were assessed on peak credit theory . It is also settled law that tax is to be calculated on real income and not on imaginary or on hypothetical basis. Accordingly, impugned orders deserve to be set aside. Learned counsel for petitioner lastly contended that object of Section 245C of Act of 1961 is to give protected proceedings before authorities. It has not been applied, rather, Settlement Commission has made assessment of case thus impugned order is opposed to object of Section 245C of Act of 1961. prayer is accordingly to set aside order. reference of judgments in case of CIT Vs. Ravi Kumar (2007) 294 ITR 78 (P&H), CIT Vs.SC Sethi (2007) (7 of 17) [CW-802/2014] 295 ITR 351(Raj) and CIT Vs.Girish Chaudhary (2008) 296 ITR 619 (Delhi) has been given. Learned counsel for respondents has opposed petition. preliminary objection about maintainability of writ petition has been raised. It is in reference to Section 245 I of Act of 1961. order of Settlement Commission is not subject to challenge by way of appeal or review thus writ is not maintainable. Coming to facts, it is stated that search was conducted at place of Mr.Rajkumar Sharma where loose papers, note books, currency notes, etc. were seized. On examination of seized documents, Department found various transactions with petitioner. currency notes were used with coded figure. On currency notes, name of petitioner was existing apart from other parties with date on it. notice under Section 158BD of Act of 1961 was accordingly issued for block period 01st April, 1987 to 12th November, 1997. petitioner filed return on 11th November, 1999 disclosing his income to be NIL. application before Settlement Commission was submitted with undisclosed income of Rs.5 lac which was later on revised to Rs.10 lac. petitioner was given several opportunities but he did not comply summons issued under Section 131 of Act of 1961. Settlement Commission thereupon heard matter and passed order on 01 st March, 2000. It was challenged before this Court by Revenue. writ petition was allowed with remand of case. case was heard afresh by Settlement Commission. (8 of 17) [CW-802/2014] Rule-9 Report explained modus operandi of assessee. examination of currency notes and accounts slips attached with currency notes disclosed name of person to whom money was advanced, date of advance and period. amount of advance was recorded in code. advances were renewed bi-monthly. It is stated that if Mr.Rajkumar Sharma used to send emeralds on approval basis i.e. Jakad to assessee then transactions should have been recorded in his regular books of account. assessee failed to show single transaction where emeralds has been purchased. If emeralds are send on Jakad, it is recorded on papers and not on currency notes and is to be for short period, whereas, slips attached on currency notes were showing by monthly date of renewal and it was for longer period. assessee has admitted that figure mentioned on seized paper and documents is 1=100. This clearly shows ill- intention of assessee otherwise in case of fair transaction, figures would not have been mentioned in code. Settlement Commission has taken note of all issues. issue of peak credit theory and issue of decoding has been dealt with extensively in impugned order. issue of decoding was considered in case of Parshvanath Sharebrokers Pvt. Ltd. also where search under Section 132 of Act of 1961 was carried out. While answering question No.20, statement was recorded on 12th January, 2006 and it was accepted that code 1=1,00,00. aforesaid strengthens basis of decoding. (9 of 17) [CW-802/2014] On re-analysis of seized materials in form of exhibits, it was noticed that no date of repayment was available for many advances. calculation of peak credit theory is applied for those entries for which dates of advance and repayment are available. advances for which no dates are available are held to be not paid back till date of search. calculation was made accordingly. total of same stands at Rs. 66,23,21,229. Learned counsel further submitted that Mr.Raj Kumar Sharma and Mr.PC Dhadda were having close business dealings. Both of them adopted very rigid attitude. grounds raised in writ petition are otherwise factual in nature and interference in order of Settlement Commission should not be made in view of judgment of Apex Court in case of Union of India & Ors. Vs. IND. Swift Laboratories Ltd. reported in 2011(4) SCC 635. prayer is accordingly made to dismiss writ petition. I have considered rival submissions made by learned counsel for parties and scanned matter carefully. facts of case have been given in detail thus need not to be reiterated other than which are relevant for consideration of issues raised by learned counsel for parties. On search conducted at place of Mr.Raj Kumar Sharma, loose papers, note books and currency notes, etc. were seized. material was containing name of petitioner apart from others thus notice under Section 158BD of Act of 1961 (10 of 17) [CW-802/2014] was given. Mr.Rajkumar sharma approached Settlement Commission. petitioner also approached Settlement Commission after offering undisclosed income of Rs.5 lac which was then raised to Rs.10 lac. Settlement Commission passed order on 01st March, 2000 but it was challenged by Revenue followed by remand of case by this Court vide its order dated 13th August, 2009 and finally it has been decided by impugned order. petitioner has raised many issues and are considered separately. first issue is as to whether Mr.Rajkumar Sharma was giving emeralds to petitioner on approval basis or it is case of money lending. issue aforesaid is factual in nature and has been dealt with by Settlement Commission with detailed finding. petitioner has contested issue aforesaid by stating that emeralds were given on Jakad . It is also stated that money lending could not be proved by Revenue in Rule 9 Report thus burden under Section 132(4A) of Act of 1961 has not been discharged. Reference of many judgments has been given. It is also alleged that burden under Section 69 of Act of 1961 was not discharged by respondents. I find that Settlement Commission has considered all material produced before it and based on aforesaid, finding has been recorded. It is not only after considering fact that material seized from Mr.Rajkumar Sharma were not only loose papers and note books but currency notes. It was showing (11 of 17) [CW-802/2014] calculation of interest on bi-monthly basis and, for that, writing on different papers was showing calculation of interest. It was also found that if emeralds were given on Jakad basis, it cannot be for long period because if emeralds are not approved, it would be returned. seized documents were showing transaction for long duration. books of account of parties do not show single entry of purchase of emeralds said to have been given on approval. It cannot be that after sending emeralds on approval basis, it would not be purchased at any point of time. petitioner has admitted business relation with Mr.Rajkumar Sharma thus material collected during course of search cannot be discarded. Settlement Commissioner had meticulously considered issue to find out as to whether it is case of money lending or sending emeralds on approval. When seized material itself is sufficient to establish case apart from Rule 9 Report, no further evidence was required thus burden under Section 132(4A) as well as Section 69 of Act of 1961 stands satisfied. It is also fact that while denying money lending business, petitioner had decoded figure on documents with help of Chartered Accountant and submitted that total amount involved in money lending is Rs.9,71,400/- with peak amount of Rs.4,61,000/-. This itself proves that it is case of money lending. Taking into consideration fact aforesaid, finding of Settlement Commission needs no interference on issue aforesaid. It has been recorded after minute examination of material where Revenue could prove its case and, thereby, discharged burden. finding of Settlement Commission that (12 of 17) [CW-802/2014] seized material proves money lending needs no interference. It is moreso when finding of fact recorded by Settlement Commission cannot be interfered by this Court. view aforesaid is supported by judgment of Apex Court in case of Union of India & Ors. Vs. IND. Swift Laboratories Ltd. (supra). Relevant part of said judgment is quoted hereunder for ready reference : order passed by Settlement Commission could be interfered with only if said order is found to be contrary to any provisions of Act. So far as findings of fact recorded by Commission or question of facts are concerned, same is not open for examination either by High Court or by Supreme Court. In present case order of Settlement Commission clearly indicates that said order, particularly, with regard to imposition of simple interest @ 10% per annum was passed in accordance with provisions of Rule 14 but High Court wrongly interpreted same Rule and thereby arrived at erroneous finding. So far as second issue with respect to interest on Rs. 50 lakhs is concerned, same being factual issue should not have been gone into by High Court exercising writ jurisdiction and High Court should not have substituted its own opinion against opinion of Settlement Commission when same was not challenged on merits. (13 of 17) [CW-802/2014] Para Nos.11.7 to 11.9 of impugned order are quoted hereunder to show how issue has been considered and reflects that finding has not been recorded based on presumption but is in reference to material available on record : 11.7 Scrutiny of these seized materials discloses that these papers/currency notes are having record of money lending transactions pertaining to Sh. P.C. Dhadda as P.C. Dhadda s name is appearing on several places on these papers particularly on all currency notes. examination of currency notes and account slips attached with these currency notes discloses name of person to whom advance of money has been made, date of advance, period for which advance has been renewed. amount of advance has been recorded in code. advances have been renewed in bimonthly manner which is common feature in field of money leading business. fact that these papers relate to money lending is established from page no. 43 of exhibit A-4 where account of Bela Bansal is noted. On this paper interest to be seen is noted. Similarly on page 1 of exhibit 3 which contains account of Rati Bansal Interest receive back is written. 11.8 It is found that all figures of money lending business have been written in code. For example, on page no 43 (14 of 17) [CW-802/2014] exhibit A-4, account of Bela Bansal shows figure of 15 written in code. Two currency notes of Rs. 10 and Rs 5= Rs. 15 are attached and on both these currency notes and account paper, date of lending is written as 12-10-96. Further there is minus entry of 2.50 out of 15 leaving balance of 12.50. On this page, bi monthly dates have been written as under:- 12-02-1996, 10-12-1996, 08-02-1997, 08- 04-1997, 06-06-1997, 04-08-1997, 02-10- 1997 11.9 It has been also written on this page that from 4-8 to 28-8=24 days, Interest to be seen . This noting shows working of interest for month of August 97. All these facts mentioned above indicate that figure of 15 represent Rs. 15 Lakhs, which was initially lent on 12-10-96 and periodical interest has been charged bi- monthly. Thus, currency notes of Rs. 10 stands for Rs. 10 lakhs and currency note of Rs. 5 stands for Rs. 5 lakhs. This fact is further confirmed from noting mentioned regarding repayment of Rs. 2.50 lakhs leaving balance of Rs. 12.50 lakhs. second issue is as to whether code of one should have been taken equal to 1000 or it is correctly taken equal to 1,00,000. (15 of 17) [CW-802/2014] It is stated by learned counsel for petitioner that Mr.Rajkumar Sharma explained code of 1=100 and 1=1000 but Revenue as well as Settlement Commission has taken it to be 1=1,00,000. It is alleged that decoding of figure is based on presumption. To appreciate issue aforesaid, I have gone through order and material placed on record. Settlement Commission has drawn inference at many places to justify code of 1=1,00,000. It was in reference to advance to S.Kumar, Rajesh Maheshwari, Gendi Devi and Bela Bansal. It was presumed that they would not avail petty loan of Rs.1000/- or even less than it. finding aforesaid is based on presumption. It is also admitted that evidence was not led by Revenue by producing persons concerned to transaction. It is, however, fact that Mr.Rajkumar Sharma has used two codes by indicating 1=100 and other 1=1000. It could not be explained as to how two codes were used but merely for that reason, presumption cannot be drawn for using code 1 = 1,00,000. revenue is required to discharge its burden. perusal of order of Settlement Commission shows decoding based on presumption than material on record. decoding of 1=1,00,000 cannot be made on hypothetical basis thus while holding that documents seized from Mr.Rajkumar Sharma are related to money lending, finding regarding decoding cannot be accepted, rather, matter needs to be remanded for passing fresh order limited to issue of decoding. (16 of 17) [CW-802/2014] third issue is as to whether peak credit theory should have been applied. It is alleged by learned counsel for petitioner that there is custom and convention of repayment of amount on bi- monthly basis and has been noticed in Rule 9 Report thus peak credit theory should have been applied. theory of peak credit has not been applied by Settlement Commission by giving detailed reasons. Under what circumstances, peak credit theory can be applied has also been explained. It has been noticed that apart from loose papers, currency notes were also recovered having writing and co-related to transaction. theory can be applied in case of credit and debits unaccounted to avoid overlapping amount. In instant case, currency notes were recovered having writing and is not case of unaccounted debit and credit simplicitor, thus peak credit theory was not applied. reasons given by Settlement Commission to deny application of peak credit theory are well reasoned thus need not to be interfered. Settlement Commission has referred that Assessing Officer is not against application of peak credit theory , however, order has to be read in totality and, otherwise, Settlement Commission has to record its reason if peak credit theory is to be applied or not be applied, which exists in case. Thus, argument related to application of peak credit theory cannot be accepted in light of detailed finding recorded by Settlement Commission. Learned counsel for respondent/s has raised issue of maintainability of writ petition against order of (17 of 17) [CW-802/2014] settlement commission but I do not find any substance therein. What has been barred is appeal or review but not remedy before this Court under Article 226 of Constitution of India. preliminary objection raised by learned counsel for respondent/s cannot thus be accepted, rather, they had earlier challenge order of Settlement Commission before this Court by maintaining writ. In view of discussion made above, matter is remanded back to Settlement Commission to decide issue of decoding afresh. It is while maintaining finding regarding involvement of petitioner in money lending and other issues, thus interference in order is made limited to issue of decoding. Both parties are directed to appear before Settlement Commission on 03rd July, 2017. Settlement Commission would be expected to decide issue at earliest and, if possible, then within period of three months from date given above. Till fresh order is passed, impugned order would not be given effect, rather, it will remain subject to final outcome of order to be passed by Settlement Commission on limited issue on which case has been remanded. writ petition stands disposed of with aforesaid. (M.N. BHANDARI)J. Preeti, PA Prakash Chand Dhadda v. Income-tax Settlement Commission / Commissioner of Income-tax (Central) Central, Jaipur / Deputy Commissioner of Income-tax, TDS, Jaipur/ ACIT, Jaipur