Source: https://taxcaselaw.com/income_tax_case_laws/section-245/section-245d/kerala-h-c-settlement-commission-was-bound-by-method-adopted-by-assessing-officer-as-to-reliance-upon-voluntary-statement-of-assessee/
Timestamp: 2019-04-21 18:56:37+00:00

Document:
1. This writ petition is filed by the Revenue challenging the proceedings of the Settlement Commission.
2. Heard learned Standing Counsel for the Revenue and the learned counsel appearing for the second respondent.
3. The second respondent who is an assessee to Income-tax, is associated with a number of IMFL bars and restaurants either as partner or proprietor. On 6-5-1999 a search operation was conducted at the residential and business premises of the assessee. The assessment was completed under section 158BC of the Income-tax Act, as evidenced by Ext.P1.
4. The undisclosed income has been determined for the block period at Rs. 43,92,960. It was challenged in appeal by the assessee. While the same was pending consideration, he filed a petition under section 245(1) of the Act before the Settlement Commission. Ext.P4 is the order passed by the Settlement Commission admitting the application. Ext.P2 is the order passed by the Commission which is under challenge in this original petition.
5. The Settlement Commission estimated the net profit on the total turnover for the block period at Rs. 12,09,120. The net income from food sale at 20 per cent of the turnover is taken at Rs. 4,47,385.
6. Learned Standing Counsel for the Revenue submitted that the Settlement Commission, in Ext.P2, did not consider the effect of the sworn statement made by the assessee. The same has been produced as Ext.P3 in this writ petition. It is pointed out that the net income has been fixed at 3.75 per cent of the turnover, by the Commission which is not supportable. It is further pointed out that the method adopted by the Commission in the final order, Ext.P2, varies from the principle proposed to be adopted, going by Ext.P4 order. These contentions have been argued in detail by the learned Standing Counsel.
7. Learned counsel appearing for the second respondent submitted that reasons have been pointed out in Ext.P4 itself as to why the sworn statement is not being relied upon. Actually, the second respondent had retracted the admission later on, which fact is recorded in para 6 of Ext.P4 order. It is pointed out that the Commission has adopted the very same method as in the case of M/s. Hotel Vysali & Mayur Bar, situated within the same town and therefore it cannot be said that the method adopted is illegal. It is further pointed out that the method adopted cannot be said to be arbitrary and in violation of any statutory provisions warranting interference by this Court, in this writ petition.
8. Learned Standing Counsel for the Revenue relied upon the decision of a Division Bench of this Court in V. Kunhambu & Sons v. CIT  219 ITR 235 with regard to the legality of the assessment made on the basis of voluntary statement given by the assessee. Learned counsel for the second respondent relied upon the following decisions : N. Krishnan v. Settlement Commission  180 ITR 585/ 47 Taxman 294 (Kar.), Shriyans Prasad Jain v. ITO  204 ITR 616/ 70 Taxman 290 (SC) and CIT v. ITSC  246 ITR 63 / 112 Taxman 523 (Bom.), in support of his pleas.
9. A reading of Ext.P4 order passed by the Settlement Commission while admitting the application shows that the Assessing Officer had estimated the gross profit in the liquor division at 45 per cent. With regard to the voluntary statement, in para 6 it is clearly mentioned that the basis for estimate of the gross profit was mainly the admission made by the second respondent which was seen retracted later on. Significantly, it is mentioned that the instances of suppression of sales unearthed by the department as a result of the search under section 132 of the Act were only two or three in the year 1998. It is on the basis of these instances, the Assessing Officer had resorted to estimate the gross profit for all the three assessment years. While considering the pleas raised by the Revenue, these observations are significant. A reading of Ext.P2 order shows that with regard to the sale of liquor, the Settlement Commission had determined the net profit at 3.75 per cent on the total turnover in the case of M/s. Hotel Vysali & Mayur Bar and the same method was adopted in the case of the second respondent also. There is no case for the petitioner that they had challenged the method adopted in respect of Hotel Vysali & Mayur Bar or the same has been set aside in any proceedings. It is therefore clear that the method adopted cannot be said to be arbitrary. Actually, as far as the sales of food articles are concerned, the profit rate is estimated at 20 per cent as adopted by the Assessing Officer.
10. Herein, the argument raised by the learned Standing Counsel for the Revenue is that the voluntary statement ought to have been accepted, the reliability of which was upheld by this Court in V. Kunhambu & Sons’s case (supra) of course, the Division Bench in the said case, had upheld the assessment on the basis of the voluntary statement, treating it as valid. Herein, the question is quite different. The Settlement Commission, in exercise of its power, has adopted a method which cannot be said to be arbitrary. It cannot be said that the Settlement Commission is bound by the method adopted by the Assessing Officer itself, relying upon the voluntary statement. Significantly, materials, if any, have not been relied on by the petitioner before the Settlement Commission in support of the disclosure made in the voluntary statement. There is a finding in that regard, in Ext.P2 in para 4. Therefore, it cannot be said that the Settlement Commission had acted illegally in not exclusively relying upon the voluntary statement. As mentioned already, in Ext.P4 it was mentioned that the second respondent had retracted the admission later on. The finding that the instances of suppression of sales unearthed by the Department as a result of the search under section 132 of the Act were only two or three in the year 1998, is a finding of fact which cannot, normally, be upset in a writ petition under Article 226 of the Constitution of India. Interference is justified only if irrelevant materials have been relied on by the authority concerned and the view taken is so perverse.
11. Learned Standing Counsel for the Revenue further argued that while admitting the application, in para 6 it was observed that the proper method for determining the total income of the applicant in the block period would be the net wealth accretion over the years in the block period and the Commission has totally deviated from the same, while passing Ext.P2. It is explained by the learned counsel for the second respondent that the same is not correct. It is clear that Ext.P2 order has been passed after hearing both sides and after assessing various aspects. As observed already, the net profit has been determined at 3.75 per cent of the total turnover as adopted in the case of another Bar. It cannot therefore be said that the order is palpably wrong. Therefore, I find no reason to accept the said argument also.
12. In the argument notes submitted by the learned counsel for the second respondent, it is mentioned that the assessee has filed the Wealth Statement for the period 31-3-1990 to 6-5-1999; increase in wealth to each year to 6-5-1999, and the cash flow statement for each year, details of investment in business in each firm, withdrawals, additions, investment in shares and bank deposits and immovable property have been furnished for each year and the department has no objection regarding the correctness of the above statement and has not raised any item of the asset which is not included in the wealth statement or any liability which is not correct. It cannot therefore be found that the order Ext.P2 suffers from any legal infirmities warranting interference.
It was also observed at page 82 thus: “As pointed out in Jyotendrasinhji v. S.I. Tripathi  201 ITR 611 / 68 Taxman 59 (SC), this Court can interfere with the order if it is found to be contrary to the provisions of the Act.” The above principles are therefore relevant to consider the scope of interference on Ext.P2 by this Court in these proceedings. There is no violation of the provisions of the Act and there is no error apparent on the proceedings also.
The writ petition is therefore dismissed. No costs.
This entry was posted in Sec. 245D and tagged 344 ITR, In favour of Assessee, Kerala High Court, settlement commission.

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