Principal Commissioner Of Income ... vs Union Of India Through Secy. ...
2023 Latest Caselaw 3602 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH
 
 

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
(LUCKNOW)
 
***
 
WRIT TAX No. -208 of 2017
 
Pronounced on : February 6, 2023
 
Principal Commissioner of Income Tax (Central) ...Petitioner
 
Through : Sri Manish Mishra, Advocate
 
v/s
 
Union of India and others ...Respondents
 
Through : Sri D.D. Chopra and Sri S.B.
 
Pandey Senior Advocates with
 
Sri Shishir Chandra and Sri
 
Shailesh Verma, Advocates
 
CORAM : HON'BLE RAJESH BINDAL, CHIEF JUSTICE
 
HON'BLE ALOK MATHUR, JUDGE
 
ORDER

ALOK MATHUR, J.

1. The Principal Commissioner of Income Tax (Central),

Lucknow has approached this Court by means of the present Writ

Petition assailing the orders of the Income Tax Settlement

Commission (hereinafter referred to as Commission) dated

19/22.08.2016 and 17.02.2017.

2. The brief facts of the case are that a search and seizure

was conducted on 31.07.2013 on different premises of 5 persons,

namely, (1) Dr A. K. Sachan, (2) Ms. Richa Mishra, (3) Shekhar

Chief Justice's Court

Hospital (P) Ltd, (4) Shri Balaji Charitable Trust and (5) M/s Hind

Charitable Trust. During the search cash of ₹1,76,94,500/- was seized1,76,94,500/- was seized

from the residential premises and from the office rooms of the Dr

A.K.Sachan and Ms Richa Mishra. At the time of the search one of the

assessee Ms. Richa Mishra surrendered ₹1,76,94,500/- was seized8.00 crores as undisclosed

income as under: -

Table- I

1. Ms. Richa Mishra ₹1,76,94,500/- was seized5.00 crores

2. Shri Balaji Charitable Trust ₹1,76,94,500/- was seized1.50 crores

3. Shekhar Hospital (P) Ltd. ₹1,76,94,500/- was seized1.50 crores

3. Out of the 5 entities which were subject to search on

31/07/2013, three of them made separate applications on 27.02.2015

before the Settlement Commission under Section 245 of the Income Tax

Act, disclosing their unaccounted income as under:-

Table- II

1. Ms. Richa Mishra ₹1,76,94,500/- was seized1,93,16,254/-

2. Shri Balaji Charitable Trust ₹1,76,94,500/- was seized1,69,04,560/-

3. Shekhar Hospital (P) Ltd ₹1,76,94,500/- was seized4,84,46,020/-

4. The Settlement Commission on receipt of the application,

decided to proceed further with the application, and sent a copy to the

concerned Principal Commissioner of Income Tax seeking his response

as per Rule 9 of the Income Tax Settlement (Procedure) Rules, 1997 and

finally settled the matter rejecting the objections raised by Income Tax

Department vide impugned order dated 19/22.8.2016.

5. Present Writ Petition was filed challenging the order of the

Settlement Commission. During pendency of the present petition the

Settlement Commission further proceeded at the behest of only two of the

applicants to rectify the order in exercise of the powers under Section

245D(6B) of the Income Tax Act, 1961(hereinafter referred to as ''Act of

1961') and gave further benefit to the applicants by order dated

17.02.2017 which has also been assailed in the present petition, after

amendment to the writ was carried out.

THE PARTIES BEFORE THE SETTLEMENT COMMISSION :

6. Applications before the Settlement Commission were filed

by following entities/persons, the description of which are as follows:-

A:- Ms. Richa Mishra:- The applicant has described herself

in the application as the Director controlling the

administration of M/s Shekhar Hospital (Pvt. Ltd.) which is

running a hospital and rendering nursing and health services.

Further, she is also controlling and managing the affairs of

M/s Shri Balaji Charitable Trust as a trustee, which is

running a nursing college and rendering health services. She

has further submitted that apart from managing these two

institutions she is also running other institutions, wife of Dr.

A.K. Sachan, who is working as regular employee and a

Professor of Clinical Pharmacology in King George Medical

University, Lucknow.

B:- Shekhar Hospital (Pvt.) Ltd.:- The applicant Shekhar

Hospital (Pvt.) Ltd. was incorporated on 26.12.1995 and is

engaged in running a hospital at Indira Nagar, Lucknow,

Uttar Pradesh. The Directors of the hospital are: (I) Dr. Rich

Mishra; (2) Mr. K.K. Sachan; (3) Dr. Harish Chandra and

(4) Dr. A. K. Sachan.

C:- M/s Balaji Charitable Trust :- Ms. Richa Mishra is the

managing trustee and Dr. A. K. Sachan is also a trustee of the

said trust. The trust is running a nursing college and

rendering health services. Dr A.K.Sachan is a regular

employee and a Professor of Clinical Pharmacology in King

George Medical University, Lucknow.

7. In the application filed before the Settlement Commission on

behalf of aforesaid three applicants, the amount of disclosure was recomputed

and re-distributed as stated in Table II.

ARGUMENTS

8. Sri Manish Mishra, learned counsel appearing for the

petitioner has assailed the orders of Settlement Commission

A. Firstly on the ground that the disclosure made by the

applicants in their applications for settlement was not a full

and true disclosure of the unaccounted income as mandated

by Section 245(C) of the Act of 1961. It was submitted that

it is a precondition for making an application before the

Settlement Commission that the declaration of unaccounted

income should be full and true, hence on this ground alone

the application should have been dismissed by the

Settlement Commission.

B. The second ground urged by the Counsel for petitioner

was that Dr A. K. Sachan was subjected to search operation

and number of undisclosed bank accounts were discovered,

but receipts in the said bank accounts were sought to be

attributed as income of M/s Hind Charitable Trust. It was

submitted that Dr A. K. Sachan was not a party before the

Commission, nor did he appear before the Commission. He

did not give any evidence, hence, the Commission could not

have returned finding in this regard in favour of respondents.

C. It was further submitted that Dr A. K. Sachan was

subjected to regular assessment, and the Income Tax

department had assessed the receipts found in the

undisclosed account as his income, which could not have

been subject matter for Settlement before the Commission

as it no longer remained "undisclosed income". Further it

was never the stand of Dr. A. K. Sachan that the income

belongs to someone else and not him. Therefore the

impugned order is illegal and without jurisdiction.

D. The order of Commission dated 17.02.2017 has also

been assailed on the ground that while allowing the

rectification application the Commission has materially

altered and reviewed its initial order dated 19/22.08.2016, on

the basis of newly pleaded facts, which was without

jurisdiction as the Commission does not have any power of

review.

E. The Commission has waived off the interest in favour

of the respondents, which according to the learned Counsel

for the petitioner could not have been done in light of the

judgment of the Supreme Court in the case of

Commissioner of Income Tax vs Anjum M. H. Ghaswala

& others1. He submitted that the Commission has not given

any reasons or considered the guidelines of the Board.

F. Lastly it was contended that the manner in which the

Commission has proceeded and settled the matter is on the

face of it arbitrary in as much as the objections of the

Income Tax department have not even been considered or

dealt with, which shows that the impugned order is violative

of principles of natural justice.

9. Sri D.D. Chopra, Senior Advocate appearing for the

respondents supported the impugned order passed by the Settlement

Commission. He submitted that during the search operations the details

1 (2002) 1 SCC 633

of accounts were not available with the private respondents. Subsequently

accounts were examined and looked into while filing application before

the Commission. He further submitted that the jurisdiction of the

Settlement Commission was confined only to settle a matter rather than

to adjudicate on all the grounds raised by the department, hence,

submitted that there was no illegality in the order passed by the

Commission.

DISCUSSIONS

10. To consider the questions raised in the present petition one

has to have regard to the scheme of Chapter XIX-A of the Income Tax

Act,1961. The Apex Court in the case of Jyotendrasinhji v. S.I.

Tripathi and others2, has delineated the scope and jurisdiction of the

Commission, which is as follows:

"15. The first question we have to answer is the scope of

these appeals preferred under Article 136 of the Constitution

against the orders of the Settlement Commission. The

question is whether all the questions of fact and law as may

have been decided by the Commission are open to review in

this appeal. For answering this question one has to have

regard to the scheme of Chapter XIX-A. The said chapter

was inserted by the Taxation Laws (Amendment) Act, 1975

with effect from April 1, 1976. A somewhat similar

provision was contained in sub-sections(1-A) to (1-D) of

Section 34 of the Income Tax Act, 1922, introduced in the

year 1954. The provisions of Chapter XIX-A are, however,

qualitatively different and more elaborate than the said

provisions in the 1922 Act. The proceedings under this

chapter commence by an application made by the assessee as

contemplated by Section 245-C. Section 245-D prescribes

2 1993 Supp.(3) SCC 389 at page 399

the procedure to be followed by the Commission on receipt

of an application under Section 245-C. Sub-section (4) says:

"After examination of the records and the report of the

Commissioner, received under sub-section(1), and the

report, if any, of the Commissioner received under

sub-section(3), and after giving an opportunity to the

applicant and to the Commissioner to be heard, either

in person or through a representative duly authorised

in this behalf, and after examining such further

evidence as may be placed before it or obtained by it,

the Settlement Commission may, in accordance with

the provisions of this Act, pass such order as it thinks

fit on the matters covered by the application and any

other matter relating to the case not covered by the

application, but referred to in the report of the

Commissioner under sub-section (1) or sub-section

(3)."

Section 245-E empowers the Commission to re-open the

completed proceedings in appropriate cases, while Section

245-F confers all the powers of an Income Tax authority

upon the Commission. Section 245-H empowers the

Commission to grant immunity from penalty and

prosecution, with or without conditions, in cases where it is

satisfied that the assessee has made a full disclosure of his

income and its sources. Under Section 245-HA, the

Commission can send back the matter to the assessing

officer, where it finds that the applicant is not cooperating

with it. Section 245-I declares that every order of settlement

passed under sub-section (4) of Section 245-D shall be

conclusive as to the matters stated therein and no matter

covered by such order shall, save as otherwise provided in

Chapter XIX-A, be re-opened in any proceeding under the

Act or under any other law for the time being in force.

Section 245-L declares that any proceedings under Chapter

XIX-A before the Settlement Commission shall be deemed

to be a judicial proceeding within the meaning of Sections

193 and 228 and for the purposes of Section 196 of the Penal

Code, 1860.

16. It is true that the finality clause contained in Section

245-I does not and cannot bar the jurisdiction of the High

Court under Article 226 or the jurisdiction of this Court

under Article 32 or under Article 136, as the case may be.

But that does not mean that the jurisdiction of this Court in

the appeal preferred directly in this Court is any different

than what it would be if the assessee had first approached the

High Court under Article 226 and then come up in appeal to

this Court under Article 136. A party does not and cannot

gain any advantage by approaching this Court directly under

Article 136, instead of approaching the High Court under

Article 226. This is not a limitation inherent in Article 136;

it is a limitation which this Court imposes on itself having

regard to the nature of the function performed by the

Commission and keeping in view the principles of judicial

review. Maybe, there is also some force in what Dr Gauri

Shankar says viz., that the order of the Commission is in the

nature of a package deal and that it may not be possible,

ordinarily speaking, to dissect its order and that the assessee

should not be permitted to accept what is favourable to him

and reject what is not. According to learned counsel, the

Commission is not even required or obligated to pass a

reasoned order. Be that as it may, the fact remains that it is

open to the Commission to accept an amount of tax by way

of settlement and to prescribe the manner in which the said

amount shall be paid. It may condone the defaults and lapses

on the part of the assessee and may waive interest, penalties

or prosecution, where it thinks appropriate. Indeed, it would

be difficult to predicate the reasons and considerations

which induce the Commission to make a particular order,

unless of course the Commission itself chooses to give

reasons for its order. Even if it gives reasons in a given case,

the scope of enquiry in the appeal remains the same as

indicated above viz., whether it is contrary to any of the

provisions of the Act. In this context, it is relevant to note

that the principle of natural justice (audi alteram partem) has

been incorporated in Section 245-D itself. The sole overall

limitation upon the Commission thus appears to be that it

should act in accordance with the provisions of the Act. The

scope of enquiry, whether by High Court under Article 226

or by this Court under Article 136 is also the same--whether

the order of the Commission is contrary to any of the

provisions of the Act and if so, has it prejudiced the

petitioner/appellant apart from ground of bias, fraud and

malice which, of course, constitute a separate and

independent category. Reference in this behalf may be had

to the decision of this Court in R.B. Shreeram Durga Prasad

and Fatechand Nursing Das v. Settlement Commission (IT

and WT) [(1989) 1 SCC 628 : 1989 SCC (Tax) 124 : (1989)

176 ITR 169] which too was an appeal against the orders of

the Settlement Commission. Sabyasachi Mukharji, J.,

speaking for the Bench comprising himself and S.R.

Pandian, J. observed that in such a case this Court is

"concerned with the legality of procedure followed and not

with the validity of the order". The learned Judge added

"judicial review is concerned not with the decision but with

the decision-making process". Reliance was placed upon the

decision of the House of Lords in Chief Constable of the

N.W. Police v. Evans [(1982) 1 WLR 1155 : (1982) 3 All

ER 141]. Thus, the appellate power under Article 136 was

equated to power of judicial review, where the appeal is

directed against the orders of the Settlement Commission.

For all the above reasons, we are of the opinion that the only

ground upon which this Court can interfere in these appeals

is that the order of the Commission is contrary to the

provisions of the Act and that such contravention has

prejudiced the appellant. The main controversy in these

appeals relates to the interpretation of the settlement deeds

-- though it is true, some contentions of law are also raised.

The Commission has interpreted the trust deeds in a

particular manner. Even if the interpretation placed by the

Commission on the said deeds is not correct, it would not be

a ground for interference in these appeals, since a wrong

interpretation of a deed of trust cannot be a violation of the

provisions of the Income Tax Act. It is equally clear that the

interpretation placed upon the said deeds by the Commission

does not bind the authorities under the Act in proceedings

relating to other assessment years."

TRUE AND FULL DISCLOSURE OF INCOME :

11. The first contentions raised by learned counsel for the

petitioner was that the respondents had not made full and true disclosure

of income while making application under Section 245(C) of the Act of

1961 and consequently the Commission on noticing the facts should have

dismissed the application. In support of his argument, it was submitted

that during search proceedings the assessee had voluntarily surrendered

8.00 crores as undisclosed income in the ₹1,76,94,500/- was seized following manner. ₹1,76,94,500/- was seized5.00 crore

was said to be undisclosed income by Ms. Richa Mishra, ₹1,76,94,500/- was seized1.50 crores by

Sri Balaji Charitable Trust and ₹1,76,94,500/- was seized1.50 crores by Shekhar Hospitals Private

Limited but in the applications made before the Commission the said

figures were changed. The income and disclosure was made of

₹1,76,94,500/- was seized1,93,16,254/- by Dr. Richa Mishra, ₹1,76,94,500/- was seized1,69,04,560/- and ₹1,76,94,500/- was seized4,84,46,020/-

by M/s Balaji Charitable Trust and Shekhar Hospital, respectively. It was

further stated that the applications were filed by the department on

7.7.2015 to conduct further inquiries but no orders were passed by the

Commission. Finally, it was also argued that a sum of ₹1,76,94,500/- was seized1.20 crores the

alleged receipts from Sri B. D. Agarwal with Allahabad Bank, was for the

first time disclosed and considered in rectification application. This was

sufficient to place the matter beyond any doubt that the respondents had

not made true and full disclosures of the income and, hence, blatantly

violated the statutory requirement of Section 245(C) of the Act. The

receipt of ₹1,76,94,500/- was seized1.20 crores was deliberately and willfully not disclosed when

the application of Statement of Facts (S.O.F.) was filed before the

Settlement Commission. Rather it was an explanation given introducing

new facts in the rectification application. The Settlement Commission

ought to have rejected the application for settlement as invalid for not

truly and fully disclosing the undisclosed income.

12. During search, ₹1,76,94,500/- was seized8.00 crores were declared by Ms. Richa

Mishra as undisclosed income pertaining to the three entities as

mentioned in Table I. The application was filed before Settlement

Commission with substantial variation, adjusting the income between the

3 entities who were applicants before the Settlement Commission in such

a manner so as to not depict the true and full disclosure of their income.

After passing of the final order by the Settlement Commission on

27.2.2015, an application for rectification was moved thereby disclosing

a further undisclosed amount of ₹1,76,94,500/- was seized1.20 crores which has been accepted

and adjusted by the Settlement Commission in its order dated 17.02.2017.

The aforesaid facts clearly indicate that the respondents did not truly and

fully disclose their undisclosed income.

13. All these facts were brought to the knowledge of the

Settlement Commission at the time when the petitioners had filed their

objections to the settlement application which are as follows:

OBJECTION OF THE INCOME TAX DEPARTMENT TO THE

APPLICATION FOR SETTLEMENT :

14. The Principal Commissioner of Income Tax submitted his

report under Rule 9 of the Rules of 1997 to the application of Sri Balaji

Charitable Trust stating that the additional income disclosed by the

applicant was inadequate considering the material seized during the

search proceedings. It was further placed on record that considering the

fact that during the course of the search Dr. Richa Mishra had admitted

cash deposits of 1.50 crores in the Axis Bank ₹1,76,94,500/- was seized account of the trust in the

financial year 2009-10, while only an amount of ₹1,76,94,500/- was seized25,40,030/- has been

disclosed for the financial year 2009-10 and no evidence has been

submitted in support of the disclosed income. It was also submitted that

the account maintained with the Axis Bank in the name of Shekhar

School of Nursing which is run under the management of M/s Balaji

Charitable Trust, unaccounted cash and non-cash deposit were found in

various accounts. On the basis of the material collected by the department

it was of the considered view that M/s Balaji Charitable trust was not

entitled for any deduction under section 10 (23-C) of the Act of 1961 as it

does not fulfill the twin conditions prescribed for the application for

eligibility for deduction under the said provision, in as much as, the

educational institution does not exist solely for the purposes of education

but for profit considering the huge amount of cash deposits received by it,

and also that it's aggregate annual receipt exceeded the limit prescribed as

per Rule 2 (B-C) of the Income Tax Rules. According to the records it

was stated that the group is being managed and controlled by Ms. Richa

Mishra and Dr A.K Sachan.

15. After examining the accounts of the M/s Balaji Charitable

Trust, it was further submitted that the trust is not only engaged in

profitable activities but had also diverted the funds for personal benefits

of the trustees, as per the statement made by the trustee herself during the

proceedings under section 132(4) of the Income Tax Act. It was urged

that the entire deposits in the account should be treated as the income of

the assessee and should not be limited to 15% of the receipts since no

document or evidence was submitted for allowing the expenses to the

tune of 85%. During the search, evidence was also found that ₹1,76,94,500/- was seized65,000/-

was received from a particular student towards building fund, and

therefore it was assumed that similar amounts in cash were received from

all the other students. On the basis of material discovered during the

search operation, it was submitted that the undisclosed income of the M/s

Balaji Charitable Trust for assessment years 2007-08 to 2014-15 would

be ₹1,76,94,500/- was seized 16,05,97,986/-. In light of the aforesaid calculations and findings it

was stated that a true and full disclosure had not been made of all its

income by the trust.

16. With regard to the application submitted by Ms. Richa

Mishra, the report under Rule 9 of the Procedure Rules 1997 mentioned

that the applicant had surrendered only ₹1,76,94,500/- was seized1,93,16,254/-. The applicant is

the director and controls M/s Shekhar Hospital (P) Ltd which is running a

hospital and rendering nursing and health services and is also controlling

and managing the affairs of M/s Balaji charitable trust as a trustee which

is also running nursing college and rendering health services. Various

bank accounts were used to service the receipt and expenses, most of

which were in the name of Dr A. K. Sachan. The disclosure made before

the Settlement Commission amounting to ₹1,76,94,500/- was seized255.30 lakhs was inadequate

considering the documents seized and the statements made during the

search proceedings.

17. During the search Ms. Richa Mishra had given a statement

on oath under section 132(4) of the Act of 1961 and had surrendered

5.00 crores for the financial year ₹1,76,94,500/- was seized 2009-10 to 2010-11. Before the

Commission, an amount of only ₹1,76,94,500/- was seized1,30,40,256/- was disclosed as

additional and total income for assessment year 2010-11 and 2011-12.

During and post search operations, the applicant stated that she had

surrendered ₹1,76,94,500/- was seized5.00 crores out of which she had given ₹1,76,94,500/- was seized4.00 crores to Dr

A.K. Sachan. No satisfactory explanation was given by the applicant for

the receipts and on the other hand, different versions were given by her,

and no details were provided to department. Before the Commission she

further set up a case that the money found in the undisclosed accounts of

Dr A. K. Sachan was in fact given by her. She surrendered the deposits in

the account of Axis Bank, Indira Nagar in the name of Dr A. K. Sachan

amounting to ₹1,76,94,500/- was seized3,57,92,000/- but has gone back on her version offered

only ₹1,76,94,500/- was seized 1,30,40,256/- as additional and total income for the assessment

years 2010-11 & 2011-12.

18. During the search proceedings ₹1,76,94,500/- was seized79.00 lakhs in cash was

found at the residence of Ms Richa Mishra and Dr A. K. Sachan and

according to the statement made during search it was informed that the

said amount was received as admission fee from the guardian of the

students, but before the Settlement Commission it was stated that the said

amount belongs to Hind charitable trust and the same is as per their books

of accounts. It was the stand of the department that the books were

prepared post the search and no evidence could be produced in support of

this said cash found at the residence.

19. In the report the department had proposed income of Dr

Richa Mishra to be ₹1,76,94,500/- was seized13,87,96,615/- while she had offered only

₹1,76,94,500/- was seized1,93,16,254/- and on this basis it was stated that the applicant has not

made a full and true disclosure of the income for all the years, hence, the

application was liable to be rejected.

20. Another application which was considered by the Settlement

Commission was preferred by M/s Shekhar Hospital (P) Ltd. In the

application for settlement M/s Shekhar Hospital Pvt. Ltd. had offered

4,84,46,020/- as additional income. The ₹1,76,94,500/- was seized Income Tax Department while

responding to the notice of the Commission had submitted that the tax

was paid only on ₹1,76,94,500/- was seized3,85,80,097/- and not on the whole income which was

declared as additional income. It was further stated that the disclosure

made by the applicant was inadequate considering the recovery made

during search. The applicant had surrendered only ₹1,76,94,500/- was seized91,33,857/- for

assessment year 2013-14 while it should have been ₹1,76,94,500/- was seized1,63,12,242/- and

therefore, submitted that there was no true disclosure of income.

Similarly, for the assessment year 2014-15 the applicant surrendered

₹1,76,94,500/- was seized2,38,14,005/- while it's additional income should have been

₹1,76,94,500/- was seized2,65,01,543/- and there was a difference in the surrender of

₹1,76,94,500/- was seized26,87,538/- for the assessment year 2014-15. It was submitted that over

and above the amount surrendered before the settlement Commission, the

application should have surrendered an amount of ₹1,76,94,500/- was seized1,26,60,923/- and it

demonstrated before the Commission that there was no true and actual

disclosure of unaccounted/additional income by the applicant.

21. With regard to the first ground raised by the learned Counsel

for the petitioner that the respondents who were the applicants before the

Commission were dutybound to make a full and true disclosure of the

undisclosed assets before the Commission. The law in this regard, has

been settled by the judgment of Supreme Court in the case of Ajmera

Housing Corporation and another Vs. Commissioner of Income Tax3.

The relevant paragraphs 26 and 28 read as under :

"26. The procedure laid down in Section 245D of the

Act, contemplates that on receipt of the application under

Section 245C(1) of the Act, the Settlement Commission is

3 (2010) 8 SCC 739

required to forward a copy of the application filed in the

prescribed form (No. 34B), containing full details of issues

for which application for settlement is made, the nature and

circumstances of the case and complexities of the

investigation involved, save and except the annexures,

referred to in item No. 11 of the form and to call for report

from the Commissioner. The Commissioner is obliged to

furnish such report within a period of 45 days from the date

of communication by the Settlement Commission.

Thereafter, the Settlement Commission, on the basis of the

material contained in the said report and having regard to the

facts and circumstances of the case and/or complexity of the

investigation involved therein may by an order, allow the

application to be proceeded with or reject the application.

After an order under Section 245D(1) is made, by the

Settlement Commission, Rule 8 of the 1987 Rules mandates

that a copy of the annexure to the application, together with

a copy of each of the statements and other documents

accompanying such annexure shall be forwarded to the

Commissioner and further report shall be called from the

Commissioner. The Settlement Commission can also direct

the Commissioner to make further enquiry and

investigations in the matter and furnish his report.

Thereafter, after examining the record, Commissioner's

report and such further evidence that may be laid before it or

obtained by it, the Settlement Commission is required to

pass an order as it thinks fit on the matter covered by the

application and in every matter relating to the case not

covered by the application and referred to in the report of the

Commissioner under sub-section (1) or sub-section (3) of the

said Section. It bears repetition that as per the scheme of the

Chapter, in the first instance, the report of the Commissioner

is based on the bare information furnished by the assessee

against item No. 10 of the prescribed form, and the material

gathered by the revenue by way of its own investigation. It is

evident from the language of Section 245C(1) of the Act that

the report of the Commissioner is primarily on the nature of

the case and the complexities of the investigation, as the

annexure filed in support of the disclosure of undisclosed

income against item No. 11 of the form and the manner in

which such income had been derived are treated as

confidential and are not supplied to the Commissioner. It is

only after the Settlement Commission has decided to

proceed with the application that a copy of the annexure to

the said application and other statements and documents

accompanying such annexure, containing the aforesaid

information are required to be furnished to the

Commissioner. In our opinion even when the Settlement

Commission decides to proceed with the application, it will

not be denuded of its power to examine as to whether in his

application under Section 245C(1) of the Act, the assessee

has made a full and true disclosure of his undisclosed

income. We feel that the report(s) of the Commissioner and

other documents coming on record at different stages of the

consideration of the case, before or after the Settlement

Commission has decided to proceed with the application

would be most germane to determination of the said

question. It is plain from the language of sub-section (4) of

Section 245D of the Act that the jurisdiction of the

Settlement Commission to pass such orders as it may think

fit is confined to the matters covered by the application and

it can extend only to such matters which are referred to in

the report of the Commissioner under sub-section (1) or subsection

(3) of the said Section. A "full and true" disclosure of

income, which had not been previously disclosed by the

assessee, being a pre-condition for a valid application under

Section 245C(1) of the Act, the scheme of Chapter XIX-A

does not contemplate revision of the income so disclosed in

the application against item No. 11 of the form. Moreover, if

an assessee is permitted to revise his disclosure, in essence,

he would be making a fresh application in relation to the

same case by withdrawing the earlier application. In this

regard, Section 245C(3) of the Act which prohibits the

withdrawal of an application once made under sub-section

(1) of the said Section is instructive in as much as it

manifests that an assessee cannot be permitted to resile from

his stand at any stage during the proceedings. Therefore, by

revising the application, the applicant would be achieving

something indirectly what he cannot otherwise achieve

directly and, in the process, rendering the provision of subsection

(3) of Section 245C of the Act otiose and

meaningless. In our opinion, the scheme of said Chapter is

clear and admits no ambiguity.

x x x x

28. As afore-stated, in the scheme of Chapter XIXA,

there is no stipulation for revision of an application filed

under Section 245C(1) of the Act and thus the natural

corollary is that determination of (1921) 1 KB 64 (2000) 6

SCC 550 1961 (2) SCR 189 income by the Settlement

Commission has necessarily to be with reference to the

income disclosed in the application filed under the said

Section in the prescribed form."

22. Applying the principles enunciated by the Supreme Court in

the aforementioned case to the facts of the present case, it is noticed that

the applicant had substantially deviated in disclosure of the income from

the affidavit submitted under Section 132(4) of the Act of 1961 before the

Settlement Commission. During search Richa Mishra had surrendered

8.00 crores which included her receipts ₹1,76,94,500/- was seized to the tune of ₹1,76,94,500/- was seized5.00 crores.

Before the Commission she has disclosed an amount of ₹1,76,94,500/- was seized1,93,16,254/-,

which is substantially less than the disclosure made during the search.

The impugned order reveals that the objection of the

petitioner/department have merely been mentioned as a passing

reference. They have neither been considered and summarily rejected.

23. Apart from the above, at the stage of filing the rectification

application the respondents further revealed undisclosed receipts

amounting to ₹1,76,94,500/- was seized1.20 crores for the first time. In the rectification

application, the undisclosed income was sought to be re-computed and

even the receipt of ₹1,76,94,500/- was seized1.20 crores which was never disclosed in the

application (SOF) before the Settlement Commission and disclosed at

such a belated stage after passing of the final order by the Commission.

The department had estimated the income of M/s Balaji Charitable Trust

to be ₹1,76,94,500/- was seized16.05 crores for the assessment years 2007-08 to 2014-15, while

that of Ms. Richa Mishra to be ₹1,76,94,500/- was seized13.87 crores, but only ₹1,76,94,500/- was seized1.69 crores was

surrendered by M/s Balaji Charitable Trust and ₹1,76,94,500/- was seized1.93 crores by Ms.

Richa Mishra which was substantially less. Faced with the said facts, it

was incumbent upon the Commission to at least looked into the

submissions of the department before proceeding with the matter.

Without delving into the issue, the Commission accepted the undisclosed

income surrendered by the applicants.

24. At this stage, we may hasten to add that it has to be kept in

mind that the applicant before the Commission is an entity which has not

disclosed its total income before the income tax authorities and on

adoption of coercive methods under Section 132 of the Income Tax Act or

otherwise has declared the same before the Settlement Commission. In

any view of the matter, such entity cannot be granted undue benefit in

contrast to an honest taxpayer, who has voluntarily disclosed all his

income and assets. In the present case, it is evident that the applicant has

made certain disclosures before the income tax authorities during the

search operations and has also submitted an affidavit to this effect. The

income tax authorities in their report before the Commission have duly

informed the Commission that the assets and receipts of the applicant are

much more than what has been disclosed before the Settlement

Commission. There is a huge variation in the amounts disclosed by the

applicant Ms. Richa Mishra while filling the application before the

Settlement Commission and all these facts were duly bought to the

knowledge of the Commission. The Settlement Commission was bound to

consider the material recovered during search and placed before the

Commission in the reply filed by the department, and could have rejected

the stand of the department, but not taking cognizance of the reply of the

department and not dealing with the issue the Commission has acted

arbitrarily.

25. It is further seen from the language of sub-section (4) of

Section 245D of the Act that the jurisdiction of the Settlement

Commission to pass such orders as it may think fit is confined to the

matters covered by the application and it can extend only to such matters

which are referred to in the report of the Commissioner under sub-section

(1) or sub-section (3) of the said Section. A "full and true" disclosure of

income, which had not been previously disclosed by the assessee, being a

precondition for a valid application under Section 245(C-1) of the Act,

the scheme of Chapter XIX-A does not contemplate revision of the

income so disclosed in the application against item No. 11 of the form.

Moreover, if an assessee is permitted to revise his disclosure, in essence,

he would be making a fresh application in relation to the same case by

withdrawing the earlier application. In this regard, Section 245(C-3) of

the Act which prohibits the withdrawal of an application once made

under sub-section (1) of the said Section is instructive in as much as it

manifests that an assessee cannot be permitted to resile from his stand at

any stage during the proceedings. Therefore, by revising the application,

the applicant would be achieving something indirectly what he cannot

otherwise achieve directly and, in the process, rendering the provision of

sub-section (3) of Section 245C of the Act otiose and meaningless. Apart

from inadequate disclosure made in the application (SOF), in our

opinion, the mere fact that the applicant had sought to revise his income

by means of rectification application is demonstrative of the fact that he

had not made a full and true disclosure of income, hence the application

was bound to be rejected on this ground alone.

26. The above facts clearly demonstrate that the respondents had

not made a full and true disclosure before the Settlement Commission.

The Settlement Commission should have noticed and examined the fact

itself, as it is a pre-condition for an application under section 245C of the

Act of 1961 that the applicant makes a "true and full disclosure" of their

income which has not previously been disclosed, or at subsequent stage

when further disclosure was brought to their notice at the time of filing of

the application for rectification. Accordingly, we are of considered view

that the application before the Commission deserved to be rejected as the

respondents had not made true and full disclosure of their undisclosed

income. This issue is decided in favour of the petitioner.

VALIDITY OF THE ORDER OF THE SETTLEMENT

COMMISSION ADJUSTING THE RECEIPTS IN THE ACCOUNT

OF DR. A. K. SACHAN TOWARD THE INCOME OF THE

APPLICANTS:

27. The argument of the petitioner was that the jurisdiction of

the Settlement Commission limits only to passing the orders with regard

to "undisclosed income" of the applicants. Number of undisclosed

income of Dr. A. K. Sachan was duly taken into consideration by the

Assessing Officer in his assessment for the assessment year 2012-13.

Once the receipts in the said accounts had been assessed as income of Dr.

A. K. Sachan during regular assessment proceedings then the same could

not have been considered by the Settlement Commission as undisclosed

income of the respondents and such an issue could not have been

considered by the Commission. There was no material before the

commission for holding that the receipts in the said bank accounts held

by Dr A. K. Sachan were income of M/s Shekhar Hospital (Pvt.) Ltd.

28. Submission of Sri D.D. Chopra, Senior Advocate, learned

counsel for the respondents is that the Commission was within its

competence to return a finding with regard to the receipts in the account

of Dr. A.K. Sachan. His argument was that the said income was being

claimed by the applicant to be his income, hence the said issue could

have been duly considered and decided by the Commission. He had not

disputed the fact that Dr. A.K. Sachan was not a party to the proceedings

before the Commission and also that he did not participate in the same.

29. Considering the rival contentions it is clear that Dr. A. K.

Sachan, who is the account holder of several accounts in Axis Bank,

Indiranagar, Lucknow never approached the Commission either by filing

an application for settlement, or as a witness before the Commission in

the proceedings initiated by the respondents. It was never his stand before

the Assessing Officer that the receipts in his bank account are in fact

income of M/s Shekhar Hospital(Pvt.) Ltd.

30. It has come on record that M/s Balaji Charitable Trust under

the control of Ms. Richa Mishra was using 11 undisclosed bank accounts

with the Axis Bank, Indira Nagar Lucknow which were in the name of

Dr. Richa Mishra and Dr. A.K. Sachan. In the said bank accounts the

receipt from activity were deposited and expenditure was made after

making withdrawals from these accounts from time to time. The Income

Tax Department having objected to the claims made by the applicant

stating that the income disclosed in the bank accounts in the name of Dr.

A.K Sachan was added to his income in the regular assessment, and he

never took the stand that the income pertains to M/s. Balaji Charitable

Trust and also that he was not an applicant before the Settlement

Commission, still the Settlement Commission proceeded to decide the

issue in favour of the respondents which clearly establishes that it had

exceeded their jurisdiction.

31. The Income Tax Department had duly intimated to the

Settlement Commission in its report submitted on 17.5.2016 the fact that

"Assessing Officer" has also reported in this connection that unexplained

deposits found in six bank accounts belonging to Dr. A. K. Sachan have

been added in the hands of Dr. A. K. Sachan while completing his

assessment under Section 153A and 143(3) of the Act of 1961 for the

relevant assessment year in March, 2016, still the Commission proceeded

to decide this issue in favour of the respondents and did not give any

reason nor did it even consider the objections raised by the petitioner,

which on the face of it is an arbitrary exercise of power. The Commission

is under a duty to at least consider the objection raised by the department.

But by not taking into consideration such objections, the Commission has

acted arbitrarily and against the statutory provisions which mandate the

Commission to adhere to the principles of natural justice while exercising

its jurisdiction. Once the income has already been assessed at the hands

of Dr. A.K. Sachan it no longer remained undisclosed income and in that

regard to such an issue the Settlement Commission could not have passed

any order as it was beyond its jurisdiction as per clear provisions of

Section 245 of the Income Tax Act. Deciding the said issue merely at the

behest and assertion of the respondents by the Commission and holding

that the receipts in his bank account was income of M/s Shekhar Hospital

Pvt. Ltd. is arbitrary and abuse of power vested in it. Such a procedure,

and findings are clearly perverse and contrary to the settled judicial

norms and beyond jurisdiction of the Commission. The impugned order is

liable to the set aside on this ground alone.

32. When the matter has been duly contested by the department

and material was adduced, it was incumbent upon the Commission to

have examined the objections raised by the department and return a

specific finding either accepting or rejecting their objections but not

considering the objections amounts to non application of mind which

clearly points towards the arbitrary manner in which the Settlement

Commission has proceeded to settle the matter in favour of the applicant.

The Settlement Commission being a judicial body, having powers to

determine the issues raised before it, it has to discharge its obligation and

decided the issues in accordance with law and also to give reasons for the

same.

33. Manipulation by the respondents and the two assessees who

were not before the Commission but were part of search seizure operation

is evident from the fact that appeal was filed by Dr A. K. Sachan before

the Commissioner (Appeal) against the assessment order. The

Commissioner (Appeals) set aside the assessment order relying on the

impugned order passed by the Settlement Commission. This clearly

demonstrates that benefit was granted to entities from the impugned order

who were not even before the Commission. Further the order passed by

the Commission was still under challenge before this Court. Therefore the

manner in which the Commission has proceeded is questionable and is

accordingly the impugned order is liable to be set aside.

34. Transparency, fairness, giving reasonable opportunity and

adherence to the prescribed procedure are some of the hallmarks of a

judicial determination. Absence of any one of them will render an order

nullity and invite interference of the High Court exercising its jurisdiction

under Article 226 of the Constitution of India. The Commission by not

considering the reply of the petitioner/department, by considering and

dealing with regards to income of an individual who is not before it and

redistributing the same, not considering the objection of the department

that the said income has already been assessed during regular

proceedings, has clearly proceeded in violation of statutory provisions

and has misdirected itself and we have no hesitation is holding the

impugned orders to be illegal and arbitrary.

REGARDING RECTIFICATION ORDER

35. The next ground raised by the petitioners is with regard to the

power of the Commission to rectify its orders as per section 245D(6B) of

the Act of 1961. After passing of the impugned 19/22.08.2016 order an

application for rectification under Section 245(6B) of the Act was

preferred by the applicants on the ground that for the assessment year

2012-13 there was deposit of ₹1,76,94,500/- was seized1.20 crores which was received from the

bank accounts of M/s B. D. Agarwal. As discussed, earlier A "full and

true" disclosure of income, which had not been previously disclosed by

the assessee, being a precondition for a valid application under Section

245(C-1) of the Act, the scheme of Chapter XIX-A does not contemplate

revision of the income so disclosed in the application against item No.

11 of the form. Moreover, if an assessee is permitted to revise his

disclosure, in essence, he would be making a fresh application in

relation to the same case by withdrawing the earlier application. In this

regard, Section 245(C-3) of the Act which prohibits the withdrawal

of an application once made under sub-section (1) of the said Section

is instructive in as much as it manifests that an assessee cannot be

permitted to resile from his stand at any stage during the proceedings.

Hence, the revision of income sought to be made in the application for

rectification was not permissible, and the Commission has exceeded its

jurisdiction by entertaining such an application and allowing the same.

36. A perusal of the order dated 17.02.2017 allowing the

rectification application would clearly indicate that the Commission has

revisited, reviewed, and materially altered all the aspects decided by it. In

the garb of a rectification application, entire liabilities of the applicants

were redetermined by the Commission. The income which was not

disclosed in the statement of facts (S.O.F.) was sought to be explained

and admitted to the benefits of the same. The liability of Ms. Richa

Mishra was reduced from ₹1,76,94,500/- was seized4,43,56,930/- to ₹1,76,94,500/- was seized2,81,26,297/-. The

Commission, contrary to the settled legal position has illegally and

arbitrarily reviewed its earlier order. It was further submitted that a

perusal of the rectification application would clearly demonstrate that

there was no full and true disclosure of income receipts of the applicants.

37. Having noticed the manner in which the Commission has

proceeded in the present case without following the basic principles of

judicial determination like affording proper opportunity of hearing, duly

considering the submissions of parties, we deem it proper to observe that

the Settlement Commission in exercise of its powers to settle a matter

brought before it is endowed with the jurisdiction of the authority under

the Income Tax Act. The purpose of conferment of these powers is to

settle the matters concerning undisclosed income expeditiously and

finally. Such an application should truthfully and fully disclose the

undisclosed income. In such a situation where the applicant is granted

exemption on account of the business expenses or takes benefit of any

provisions of the Income Tax Act to compute total income then the

Settlement Commission would be exercising the powers of the assessing

authority and is duty bound to examine the claim of the applicant on the

basis of evidence and material before it. The Commission while

exercising power of the assessing officer will have to make necessary

inquiry or it can also direct the Commissioner of Income Tax to make

necessary inquiry and inform the Commission of the outcome of such

inquiry. Therefore, it is abundantly clear that the Commission while

settling any matter has to do the same in accordance with the provisions

of the Act and where required will have to pass necessary orders giving

reasons for allowing any release or exemption in favour of the applicants.

W A IVE R OF I N TE R EST

38. The Commission has waived off interest in favour of the

respondents. This issue has been settled by the Hon'ble Supreme Court

in Anjum M.H. Ghaswala and others' case (supra) and the other

High Court in Brij Lal and others vs. Commissioner of Income Tax,

Jalandhar4. In Anjum M.H. Ghaswala and others' case (supra) it

was held :

"35. For the reasons stated above, we hold that the

Commission in exercise of its power under Sections

245D(4) and (6) does not have the power to reduce

or waive interest statutorily payable under Sections

234A, 234B and 234C except to the extent of

granting relief under the circulars issued by the

Board under Section 119 of the Act."

39. The Settlement Commission, in a mechanical manner,

waived off the interest without considering whether the matter of the

respondents was covered by the circulars of the Board, and waiving off

the interest in such a manner, which may indicate that statutory interest

payable under sections 234A, 234B and 234C has also been waived

which is clearly beyond the competence and jurisdiction of the

Commission. Accordingly, this issue is decided in favour of the

petitioner.

40. The judicial review of the orders of the Settlement

Commission by the High Court in exercise of its power under Article

226 of the Constitution of India is limited to examine whether proper

procedure and the prescription laid down in the statutory provisions

has been followed. It is in the limited sphere that we have examined the

order of the Settlement Commission and found that they have not

4 (2011) 1 SCC 1

considered the inputs/objections submitted by the department in their

reply to the Commission. By not taking into account or dealing with

the reply of the department there is a manifest error in the decisionmaking

process by the S ettlement Commission and hence such an

order suffers from the vice of arbitrariness and is accordingly liable to

be set aside. The golden rules of audi alteram partem inheres the

principles that a person cannot be condemned unheard. Any judicial or

quasi-judicial authority is bound to hear the party before it, the plea

raised by the parties are to be duly considered otherwise the "right of

hearing" will become meaningless and an empty formality. The Income

Tax department submitted various details of assets recovered during the

search, including the receipts in undisclosed bank accounts and

documents, but the same does not find mention in the order passed by

the Commission. Such non consideration by the Commission of the

submission of the department is arbitrary and is in violation of

principles of natural justice vitiating the impugned order and hence we

have no hesitation in setting aside the impugned orders dated

19/22.08.2016 and 17.02.2017 as being violative of Article 14 of the

Constitution of India. The writ petition is allowed. The impugned orders

dated 19/22.08.2016 and 17.02.2017 are set aside. Dr. A.K. Sachan had

got the benefit of orders passed by the Settlement Commission, which

have been set aside by this Court, by filing appeal against the assessment

orders passed against him. What transpired at the time of hearing was that

at that stage, the department did not prefer any appeal against the order

passed by the Commissioner of Income Tax (Appeals) as the tax effect,

after giving benefit of the orders passed by the Settlement Commission,

was less than the limit prescribed for filing and pursuing the appeals

before the Tribunal. As the orders passed by the Settlement Commission

have been set aside, to do complete justice, we grant liberty to the

department to avail of appropriate remedy against the order passed by the

Commissioner of Income Tax (Appeals) dated January 17, 2019 in the

appeal filed by Dr. A.K. Sachan. If any such remedy is availed of within a

period of one month from the date of receipt of copy of the order, the

same shall not be rejected only on account of delay and shall be

considered on merits.

41. We also feel to observe that the conditions as contained in

the circular issued by Central Board of Direct Taxes regarding filing or

pursing the appeals at different levels may have to be revisited and

certain exceptions may have to be carved out to take care of cases like the

one in hand.

42. It has also been brought on record that Dr. A. K. Sachan is

a Doctor working as Professor in King Georges Medical University,

Lucknow. This fact has come on record as well as in the report

submitted by the Commissioner of Income Tax. It is surprising that a

person working in a State University is a Director of a private entity

and despite huge amounts of money have been found in his personal

account including cash during search operations, no action has been

taken by his employer which is a State entity. The conduct rules

pertaining to government servant and even those employed in public

corporation/utilities are not permitted to indulge in private practice

unless there is specific rule or provisions in this regard. This Court has

been informed that the Doctors of King Georges Medical University

are entitled to non-practicing allowance and further that there is bar

from private practice which clearly indicates that they cannot work

anywhere except for the University where they are appointed.

43. This Court takes a very serious view of the facts

placed before it and it is expected that the university concerned and

the State Government shall make due inquiries and proceed

appropriately against such individuals who are found indulged in

blatant private practice and making profits in private companies and

also being on their Boards as Directors. Let a copy of this

judgment be forwarded to the Principal Secretary, Medical Education,

Government of U.P and the Vice Chancellor of King George Medical

University, Lucknow by the Senior Registrar of this Court for

compliance.

(Alok Mathur) (Rajesh Bindal)

Judge Chief Justice

Lucknow

February 6, 2023

RKM

Whether the order is speaking : Yes/No

Whether the order is reportable : Yes/No