Gupta Perfumers (P) Ltd. vs Income Tax Settlement Commission ...
2012 Latest Caselaw 3343 Del

*               IN THE HIGH COURT OF DELHI AT NEW DELHI

+                   Writ Petition (Civil) No. 4368 of 2010

                                          Reserved on: 24thApril, 2012
%                                      Date of Decision: 18th May, 2012

Gupta Perfumers (P) Ltd.                           ....Petitioner
           Through       Mr. O.S. Bajpai, Sr. Advocate with
                         Mr. V.N. Jha, Advocate.

                     Versus

Income Tax Settlement Commission & Ors.         ...Respondents
            Through    Ms. Rashmi Chopra, Sr. Standing Counsel.


CORAM:
HON'BLEMR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE R.V. EASWAR

SANJIV KHANNA, J.

In Merchant of Venice, Portia disguised as young law clerk had

propounded that the bond only allowed Shylock to remove the flesh,

not the blood of Antonio. Further damning Shylock's case, she said that

he must cut one pound of flesh, no more, no less; she asserted "if the

scale do turn/But in the estimation of a hair/though diest and all thy

goods are confiscate." The impugned order passed by the Settlement

Commission deserves to be upheld for the petitioner herein- Gupta

Perfumers (P) Ltd. it is apparent is caught in their own web, which they

stoutly and strongly deny. Even now in the writ petition they have

urged and argued that their conduct and actions were bonafide and

solely guided by the noble and honourable desire to come clean with

their inglorious past. The petitioner claims that they without any motive

or intention to help a third person, declared undisclosed taxable income

of Rs. 1,36,08,897/-. We record that the undisclosed income has been

partly accepted and immunity from penalty and prosecution stands

granted, but the "wrong" is checkmated and corrected by the

Settlement Commission.

2. To appreciate the controversy, necessary basic facts may be

noticed.

3. Gupta Perfumers (P) Ltd., the petitioner is a company that was

incorporated on 15th February, 1973. It was engaged in the business of

manufacture of perfumery compounds and flavoured essence

concentrate also known as industrial fragrance and flavoured

concentrates etc. The manufacture and sale as admitted and stated by

the petitioner was closed in the year 1987. The petitioner claims that

they retained the corporate structure and its business activities

remained confined to investment of funds.

4. On 15th May, 2009, the petitioner filed an application for

settlement and vide order dated 30th July, 2009 under Section 245D, the

application was held to be valid for the assessment years 2005-06,

2007-08, 2008-09 and 2009-2010. The application for assessment year

2006-07 was declared to be invalid. In the application, it was stated

that after interval of 14 years, during 2001-02, the petitioner had again

resumed their manufacturing activities. The income from manufacture

and sale remained at a very low key till 2008-09.Cash book, ledger etc.

kept on day to day basis, were misplaced and not available. A summary

of sales and figures of receivable was recorded in a memorandum and

other loose papers etc., which were in the custody of Virender Kumar

Gupta. The profits/income as declared was on the basis of 'net of sales'

in the financial year 2008-09. Advances from customers against the

sale of goods, were included. Owing to non-availability of necessary

proof of acceptability of such advances, an aggregate of Rs.25,38,969/-

was surrendered and stated as a part of the undisclosed income

declared of Rs.1,36,08,897/-. Receivables of Rs.61,72,021/- (net) were

accounted for in the undisclosed income. The total net taxable income

declared including the amount declared in the return for the

assessment years in question was Rs.2,41,70,205/-.

5. The Settlement Commission by the impugned order dated 28th

May, 2010, has accepted the settlement application in part and

computed the income of the petitioner as under: -

Asstt. Yr. Income returned Income offered Income

as per Return of before ITSC Decided by Income (Rs.) (Rs.) the ITSC (Rs.) 2005-06 3,54,700 1,84,154 5,38,854 2007-08 3,46,289 70,464 4,16,753 2008-09 3,50,450 12,31,709 15,82,159 2009-10 *1,19,57,396 **66,93,849 1,86,51,245

*As shown in the Computation sheet filed with the return before deduction u/s 80I.

** As shown in the SOF before claim of deduction u/s 80I."

6. The grievance of the petitioner is against the following

observations and findings recorded by the Settlement Commission:-

"No immunity is granted in respect of income contained in the seized papers on the basis of which computation of income has been made in the settlement application and which has been held not to belong to the applicant company by us. The department will be free to initiate penalty and prosecution proceedings in respect of these papers in appropriate hands as per law."

7. The contention of the petitioner before us is that the aforesaid

directions/observations should be set aside as they are destructive of

the very object, letter and spirit behind settlement provisions and the

statutory and salutary purpose enshrined and elucidated in Section

245D(4) and 245-I of the Act. The settlement is contrary to law as the

order ceases to be conclusive and final and is uncertain. It was urged

that the petitioner does not want that the entire order of the

Settlement Commission should be set aside but it was interested and

wanted that the aforesaid quoted observations should be struck down

and deleted. In the alternative, it was submitted that if the petitioner

had failed to make full and true disclosure,it was the duty of the

Settlement Commission to dismiss the settlement application and not

accept the undisclosed income declared.

8. We have considered, the contentions raised by the petitioner but

as observed above, do not find any merit in the same.

9. On 10th & 11th February, 2009, search and seizure operations

were conducted in the case of M/s Gupta & Co. (P) Limited, M/s C.H.

Steel (India) Pvt. Ltd., MJI Tech (P) Ltd., VKG Electronics (P) Ltd. and Rita

Devi Shanti Sagar Family Welfare Trust. In these operations, several

documents were seized from the custody of Virender Kumar Gupta,

Gupta and Co. (P) Ltd. etc. Search, however, was not conducted in the

case of the petitioner, though a group company. As per amendments

made by the Finance Act, 2007 w.e.f. 1stJune, 2007, that no settlement

application can be filed by the person subjected to search and seizure

action. Thus, as on 15th May, 2009, the persons searched could not have

moved or filed an application for settlement. The petitioner, however,

not being a person subjected to search was competent and had filed

the application on 15th May, 2009 for settlement.

10. As per the application, the petitioner was managed by promoter/

Directors; Sudhir Jain, Sharad Jain and Sudha Gupta, w/o of Virender

Kumar Gupta. In the application, the petitioner had stated that the

companies/entities subjected to search/survey operations were

carrying on their business independently, wholly unconnected with the

petitioner. There were no dealings amongst them inter-se, except that

other companies/entities had provided financial assistance on interest

to Gupta & Co. (P) Ltd. The application referred to several documents

seized from the business/ residential premises at the time of search.

11. It was stated and the Settlement Commission has quoted extracts

from the application that the petitioner was maintaining financial

records in regular course in the form of cash book, ledger with proper

supporting material/evidence. The major component of the cost was

the labour charges which were by supported by wage sheets

maintained on regular basis. Virender Kumar Gupta being an elderly

person was acting as an ombudsman of the family and was maintaining

a memorandum of record, containing summary of sales etc. The

transactions were entered in the cash book and the surplus generated

was kept in a pool maintained by the Directors. Due to lack of care on

the part of the staff members, accounts relating to the manufacturing

activities, cash books etc, were misplaced. However, the summary of

sales recorded on day to day basis in the memorandum which were

kept in the custody of Virender Kumar Gupta were available and these

were made the basis of computation of the undisclosed income.

12. The Commissioner of Income Tax in his response under Rule 9,

had raised the following objections:-

a. Undisclosed income offered for tax did not belong to the

petitioner and belonged to the companies/others who had been

subjected to search.

b. Documents marked Annexures A-3, A-5 and A-6, found at

the residence of Virender Kumar Gupta and other documents

found and seized from the office of Gupta & Co. (P) Ltd. do not

pertain to the petitioner but pertain to undisclosed income of

third parties who had been subjected to search. These

documents form the basis of income offered for settlement, do

not reflect to the income earned by the petitioner.

c. Books of accounts of petitioner for the period 1st April,

2004 to 31st March, 2008, seized from one of the computers do

not reflect or show any transaction relating to

manufacturing/trading activities. Materials seized do not show

or indicate that the petitioner had explicitly or implicitly carried

on business activities.

d. Statement of Virender Kumar Gupta, Director of Gupta &

Co. (P) Ltd. recorded under Section 132 (4) of the Act, did not

support the claim of the petitioner that the seized documents

relate to the business transactions of the petitioner.

e. Virender Kumar Gupta had not stated or claimed that the

petitioner was carrying on manufacturing activities.

f. Ashok Kumar Gupta, an employee of Gupta & Co.(P) Ltd.

for the last 36 years had categorically stated that the petitioner

was in the business of manufacture odoriferous substances upto

1986 but after that no business activities were carried on. Other

Directors had also not stated that the petitioner had carried on

any business.

g. The alleged manufacturing address namely I-8 DSIIDC

Industrial Complex, Nangloi, Delhi did not have water connection

or electricity connection. Statements of neighbours do support

the contention that manufacturing activities were undertaken at

the said address.

h. Benefit under Section 80-I, as claimed should be denied as

the auditors had not been able to certify that the conditions

stipulated in the said Section had been satisfied by the petitioner.

i. Declaration made with the Assistant Commissioner of

Central Excise, Anti Evasion on 23rd September, 2008, did not find

place in the records i.e. inward/diary register.

13. The petitioner strongly and assertively contested the said

contentions. It was submitted that none of the Directors were asked as

to the recent activities of the petitioner company. Ashok Kumar Gupta

was an executive of Gupta & Co.(P) Ltd. and had nothing to do with the

petitioner. The petitioner enclosed photocopies of some cash memos,

affidavits of Mukesh Chand Misra and Anukesh Kapur. It was stated

that the manufacturing activities were assiduously kept away from

public sight and were carried on at odd hours so as to avoid detection.

In these circumstances, enquiries conducted in the neighbourhood

should be ignored. The fact that in the material seized there was no

indication of business activities of the petitioner was inconsequential as

the petitioner was admitting the same, stating that it goes to show that

the petitioner was carrying on its activities outside the declared

accounts and the same were kept away from the knowledge of public at

large. It was asserted that ;-

"no prudent person would like to own and discharge such a huge liability only for the sake of 'fictional after thought' (quote) as has been alleged by the learned CIT in his report. Further, the plea that the application should be rejected by the Hon'ble Income Tax Settlement Commission, itself is erroneous and the same militates not only against the express provisions of chapter XIXA but also the spirit thereof."

14. The Settlement Commission after considering the various facets,

evidence on record including statements of Virendra Kumar Gupta,

Ashok Gupta, in a detailed and well reasoned order has reached the

following findings:-

a. Statements of Sharad Jain recorded on 19th May, 2009 and

10th May, 2010, do not support the claim of the petitioner that

they were carrying on manufacturing activities. The books of

accounts stated to be available were not produced, though it

was adverted that they shall be furnished. Similarly, the

statement of Virendra Kumar Gupta recorded on 21stMay, 2009,

did not support the claim of the petitioner that due to lack of

care on the part of the staff members, accounts relating to

manufacturing activities like cash book, ledger etc. were

misplaced. The accounts were in fact were never available as

there was no manufacturing activity. The above findings were

corroborated by the fact that no material or evidence was found

in the search that the petitioner was engaged in

manufacture/trading.

b. The plea that the books of accounts have been misplaced

was specious and should be rejected.

c. Affidavits of Anukesh Kapoor and Mukesh Chand Mishra

were not reliable and do not support the contention that the

petitioner was engaged in manufacturing activities.

d. It was strange that the petitioner had claimed huge

turnover but could not mention and give details of purchasers

and sellers except the two persons.

e. Ashok Gupta, an employee for last 36 years, who had

categorically stated that no business activity was carried on

since 1986 or 1987 merits credence and acceptance.

f. Intimation given to the Central Excise authorities on 23rd

May, 2008, did not find place in the records maintained by the

Central Excise authorities.

g. Evidence relied by the petitioner that it was carrying on

manufacturing activities pertains to the period after the date of

search and did not relate to the pre-search period.

h. Field inquiry report of the Inspector enclosed with the

report of the Commissioner under Section 245D(3) proves that

no manufacturing activities as claimed were undertaken.

i. Few documents relied upon by the petitioner to justify its

claim, mention the name of Gupta & Co. (P) Ltd. The link

between Gupta & Co. (P) Ltd. and some of the seized papers

was shown. When the documents claimed by the petitioner

showed up in the books of the accounts of the Gupta & Co.(P)

Ltd. The petitioner stated that the bills issued by Gupta & Co. (P)

Ltd. were just used as a cover. The explanation was doubted as

in such a case, why would these bills find mention in the books

of Gupta & Co.(P) Ltd.

j. As per the amendment brought by Finance Act, 2007 w.e.f.

1.6.2007, no settlement application can be filed by a person

subjected to search and seizure action. The apparent reason

for the petitioner company owning up the seized papers

appears to be to prevent consideration of the seized papers in

the rightful hands during the regular search and seizure

assessment of that person.

15. The Settlement Commission accordingly held as under:-

"90. We are, therefore, unable to accept the applicant's contention that the seized papers belong to it. Without enterting into the correctness or otherwise of the income offered on the basis of these papers, we hold that the department will be free to take appropriate action in appropriate hands for taxing the income contained in the seized papers referred to in the SOF. We also add that the department will be free to work out the correct income contained in these documents.

91. Section 245C(3) states that an applicant made under sub-section (i) shall not be allowed to be withdrawn by the applicant. Thus, the settlement application filed cannot be allowed to be withdrawn even when it is held that the seized papers on which the applicant has based its computation of income do not belong to it.

92. Section 245D(4) empowers the Commission to pass order in accordance with the provisions of the Income Tax Act as it thinks fit. The applicant has persisted till the very end with its claim of carrying on manufacturing activities and specifically stating in para 14 of reply filed on 27.4.10 "the applicant assiduously tried to keep its activities under a cover away from the public sight." It has also been specifically stated that the activities were being carried on at odd hours. In support of his contention the applicant has emphasized payment of Excise duty totaling to Rs.40,72,210/-. Considering all those facts, we accept the income shown by the applicant as such.

93. The applicant has prayed for immunity from penalty and prosecution. No immunity is granted in respect of income contained in the seized papers on the basis of which computation of income has been made in the settlement application and which has been held not to belong to the applicant company by us. The department will be free to initiate penalty and prosecution proceedings in respect of these papers in appropriate hands as per law."

16. As noticed above immunity was granted from penalty and

prosecution in respect of income declared for Assessment Years 2005-

06, 2007-08 to 2009-10. Deduction u/s 80-IB of the Act was not

granted after recording the above facts and also noticing that the

petitioner company's own auditors were unable to certify that all

conditions prescribed u/s 80IB have been fulfilled. The petitioner had

requested that for the AY 2009- 10, deduction of Rs. 28,36,098/- u/s

43B of the Act should be allowed as the excise duty had been paid

before filing of the return. The Settlement Commission did not accept

the claim on the ground that payment of excise duty was not relatable

to the income offered before the Commission (this aspect has not been

argued before us). The immunity granted, it was clarified, may be

withdrawn at anytime if the Settlement Commission was satisfied that

the petitioner has concealed or given false evidence during the course

of the settlement proceedings.

17. It is apparent from the impugned order that confronted with the

above situation, the Settlement Commission has substantially accepted

the surrender of income made by the petitioner and also granted them

immunity from penalty and prosecution. In our opinion, the Settlement

Commission had rightly observed that no third person can gain from the

immunity in case the seized papers relate to the third person. The

seized papers can be used and utilized against third persons. The

computation of taxable income in the case of the petitioner does not

mean that the said papers or seized materials cannot be used if they

disclose or relate to income of a third person. The petitioner has

substantially succeeded as far as their declaration of the undisclosed

income is concerned. In case the seized documents/ material relate to

a third person and disclose undeclared income of the third person, the

Revenue is certainly entitled to rely and use the evidence and material

against the said person. The petitioner is not entitled to and cannot

claim immunity for and on behalf a third person. If and when the

Revenue relies upon and refers to a document in the case of a third

person, the said person can contest the charge and explain. The

impugned order only clarifies and puts the record straight that the

order of the Settlement Commission shall not be a shield in proceedings

against a third person. The third person must rely upon and meet the

charge on merits. The petitioner has repeatedly stated on oath and

asserted that the settlement application was not filed to benefit or

secure advantage to a third person, whether related or not. Therefore,

the petitioner should not have any grievance and objection to the said

observation because they are not affected or prejudiced. The said

direction can at best be used against a third person and not against the

petitioner.We may, in this regard, reproduce what has been held by the

Supreme Court in ITO v. Atchaiah, (1996) 1 SCC 417 :

"7. In our opinion, the contention urged by Dr Gauri Shankar merits acceptance. We are of the opinion that under the present Act, the Income Tax Officer has no option like the one he had under the 1922 Act. He can, and he must, tax the right person and the right person alone. By "right person", we mean the person who is liable to be taxed, according to law, with respect to a particular income. The expression "wrong person" is obviously used as the opposite of the expression "right person". Merely because a wrong person is taxed with respect to a particular income, the Assessing Officer is not precluded from taking the right person with respect to that income. This is so irrespective of the fact which course is more beneficial to the Revenue. In our opinion, the language of the relevant provisions of the present Act is quite clear and unambiguous. Section 183 shows that where

Parliament intended to provide an option, it provided so expressly. Where a person is taxed wrongfully, he is no doubt entitled to be relieved of it in accordance with law* but that is a different matter altogether. The person lawfully liable to be taxed can claim no immunity because the Assessing Officer (Income Tax Officer) has taxed the said income in the hands of another person contrary to law. We may proceed to elaborate."

18. The contention of the petitioner that this leaves the order of the

Settlement Commission incomplete and non-conclusive is without

merit. The order of the Settlement Commission is certainly complete

and conclusive as far as petitioner is concerned. The said third persons

were not before the Settlement Commission and the Settlement

Commission was not examining their application. The impugned order

does not become unconclusive or bad for the said reason. Section 245 I

is also not violated for there cannot be any reopening in the case of the

petitioner, unless fraud etc. has been played. Section 245-I reads as

under:-

"245-I Every order of settlement passed under sub-section (4) of section 245D shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in this Chapter, be reopened in any proceeding under this Act or under any other law for the time being in force."

The said Section states that the order of the Settlement

Commission under Section 245D(4) shall be conclusive as to the matters

stated therein and save and otherwise provided no matter in the said

order shall be reopened in any proceedings. The use of words 'save &

otherwise provided' in this Chapter refers to the reopening of the

matters, which are conclusively decided. The conclusiveness attached

to the orders of the Settlement Commission relates to the matters

stated in the orders of the Settlement Commission. Thus, this does not

mean that the Settlement Commission was required to and it was

mandatory to decide and go into the question of undisclosed income

earned by third parties. It is this aspect which is not decided by the

Settlement Commission. The order meets the requirement of Section

245-I and is not contrary to the mandate of the said Section. The

conclusiveness is attached to the averments and the findings recorded

in the order of the Settlement Commission and Section 245I does not

restrict the power and scope of what order should be passed by the

Settlement Commission. What order or direction should be given by

the Settlement Commission depends upon the facts and circumstances

of each case and what is fair, just, equitable and warranted.

19. The argument of the petitioner that the settlement application

should have been rejected as the petitioner had not made full and true

disclosure, has to be rejected on the principle of approbate and

reprobate. It is not the case of the petitioner that they did not make

the full and true disclosure and in fact they still insist that they had

made full and true disclosure. The Settlement Commission has accepted

that the undisclosed income declared by the petitioner. Immunity has

also been granted to the petitioner. The petitioner does not claim that

it had tried to protect or had disclosed undeclared income of a third

person. It is the case of the petitioner that the papers do not belong to

a third person. The Settlement Commission has left that issue open to

be decided, if required by the Income Tax authorities in a case of a third

person. However, as far as petitioner is concerned,the Settlement

Commission has accepted the disclosure made by them and accordingly

brought it to tax.

20. Section 254C(1) of the Act reads:-

"245C. APPLICATION FOR SETTLEMENT OF CASES. (1) An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing a full and true disclosure of his income which has not been disclosed before the Assessing Officer, the manner in which such income has been derived, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled and any such application shall be disposed of in the manner hereinafter provided :

Provided that no such application shall be made unless, -

(a) The assessee has furnished the return of income which he is or was required to furnish under any of the provisions of this Act; and

(b) The additional amount of income-tax payable on the income disclosed in the application exceeds one hundred thousand rupees."

What the Section requires is that the applicant before the

Settlement Commission must disclose in the prescribed form "full and

true disclosure of his income" and the manner in which the income is

derived. The Settlement Commission has accepted the full and true

disclosure made by the petitioner, though there is dispute about the

manner in which the undisclosed income was earned. The petitioner

cannot insist and claim that their application should have been

dismissed as they had failed to make disclosure on the manner in which

the said income was earned. The Settlement Commission has taken on

record the reasoning given by the petitioner for earning the said income

and expressed dissatisfaction. Even before us the petitioner insists that

it had made fully and true disclosure and also stated the manner in

which the said income was earned.The petitioner cannot challenge and

question the order of the Settlement Commission being the beneficiary

of the order. Revenue has accepted the order. The petitioner should

not be permitted to plead and make self destructive submissions. A

litigant cannot and should not be allowed to urge reverse of what was

pleaded before the statutory form/court (See Electronics Corporation

of India V/s. Secy. Revenue Dept., Govt. of A.P. (1999) 4 SCC 458).In

Prestige Lights Ltd. v. State Bank of India, (2007) 8 SCC 449, it has been

observed that "It is well settled that a prerogative remedy is not a

matter of course. In exercising extraordinary power, therefore, a writ

court will indeed bear in mind the conduct of the party who is invoking

such jurisdiction." Moreover as held above, with regard to the seized

documents, it has been averred and held by the Settlement

Commission that it will be open to the department/Revenue to rely

upon same and if they relate to a third person use them to compute

undisclosed income of the third person. The petitioner we do not think

can question and challenge such finding.

21. In view of the aforesaid, we do not find any merit in the present

writ petition and the same is dismissed with costs of Rs.20,000/-.

-sd-

(SANJIV KHANNA) JUDGE

-sd-

(R.V. EASWAR) JUDGE May 18th, 2012 kkb