M. S. Sanklecha,J:-
This Petition under Article 226 of the Constitution of India, challenges the order dated 28th November, 2014 passed under Section 245D(4) of Income Tax Act, 1961 (the Act) passed by the Income Tax Settlement Commission (Commission). By the impugned order dated 28th November, 2014, the Commission has allowed the Settlement Application filed by the Lodha Group i.e. Respondent Nos.2 to 43.
2 It is a settled position in law that while exercising jurisdiction of judicial review of final orders passed by the Settlement Commission under Section 254D ( 4) of the Act, the Writ Court, would normally interfere only in the following classes of orders:
(a) Order revealing flaws in the decision making process by the Commission; or
(b) Order contrary to the provisions of the Act ; or
(c) Order revealing bias or malice on the part of the Commission; or
(d) Order which is perverse.
This is a self imposed restraint and does not prohibit the Court from exercising its jurisdiction in a fit case to interfere with orders of the Commission passed under Chapter XIXA of the Act, of which section 245D(4) of the Act, is a part. Therefore, only on the above broad parameters, we would exercise our Writ Jurisdiction. Further, it must be noted that if the view of the Commission in the impugned order on facts, is not perverse, then merely because on closer examination of facts, a different view is likely/ possible, the Court would not interfere. We are not an Appellate Court to examine and weigh the evidence before the Commission to reach a different conclusion, so long as the order of the Commission is not perverse.
3 The grievance of the Petitioner before us to the impugned order of the Commission is two fold as under:
(a) The impugned order ignored the fact that the Respondent had not made a full and true disclosure of its income, while filing its application for settlement; and
(b) The impugned order has ignored the statutory provisions viz: Section 37 and Section 40 (A) (3) of the Act while allowing the estimated expenditure, to determine the income.
The challenge of the Petitioner to the impugned order is based upon lack of jurisdiction in the Commission to decide the Settlement Application in view of the Respondent-Assessee’s failure to make full and true disclosure as required under Section 245C(1) of the Act. Further, the impugned order is challenged in view of the alleged failure of the Commission, to consider the statutory provisions viz: Sections 245C(1), 37 and 40A( 3) of the Act, while allowing the settlement application. Therefore, the impugned order, it is submitted, ignores the provisions of the Act and is in defiance of the mandate, as provided in Section 245D(4) of the Act. In view of the above, we are of the view that the Petition does require consideration for admission.
4 Briefly, the facts giving rise to this Petition, are as under:
(a) On 30th January, 2013, the Respondent filed their application for settlement under Section 245(C)(1) of the Act. The applications were filed for the period ranging from Assessment Years 2005-06 to 2012-13;
(b) On 12th February, 2013, the Commission accepted the Respondents' applications for settlement under Section 245D( 1) of the Act. Thus allowing the settlement applications to be proceeded with;
(c) On 8th April, 2013, the Commission passed an order under Section 245D( 2C) of the Act, holding that the applications were not invalid and allowing the applications to be proceeded with further;
(d) Being aggrieved by the order dated 8th April, 2013 passed under Section 245D (2C) of the Act, the Petitioner filed a writ being Writ Petition No.2135 of 2013 in this Court. This on the ground that the Commission had not given a clear finding on the issue of true and full disclosure of its income in the settlement applications before concluding at the stage of Section 245D( 2C) of the Act that the applications are not invalid and allowing it to be proceeded with;
(e) On 28th February, 2014, this Court allowed the Writ Petition No.2135 of 2013 by setting aside the order dated 8th April, 2013 of the Commission. It further restored the issue to the Commission at the stage of Section 245D(2C) of the Act, to give a clear finding about the full and true disclosure made by the Respondent;
(f) On 16th May, 2014, the Commission passed an order under Section 245D( 2C) of the Act, holding that there was a full and true disclosure and the applications for settlement were not invalid. It, therefore, allowed the settlement applications to be proceeded with;
(g) Being aggrieved with the order dated 16th May, 2014, the Petitioner filed a writ being a Writ Petition No.2096 of 2014, challenging the same. This again on the ground that the Respondent had not made true and full disclosure of its income and, therefore, an order under Section 245D(2C) of the Act allowing the applications to be proceeded with, is bad in law;
(h) On 9th October, 2014, this Court disposed of the Writ Petition No.2096 of 2014 declining to entertain the Petition by observing that the time limit for the Commission to pass an order as stipulated in Section 245D( 4A) (iii) of the Act, was to expire on 30th November, 2014. However, the order dated 9th October, 2014 of this Court made it clear that the disposal of Writ Petition No.2096 of 2014, would not come in the way of the Petitioner, raising the contention of failure to make true and full disclosure of the income on the part of the Respondents at the hearing of the application at the stage of Section 245D( 4) of the Act. It was further clarified that the Petitioner would not be estopped from challenging the finding of the Commission on all issues including the issue of true and full disclosure of income and the manner in which the income was earned from an order of the Commission at the stage of Section 245D( 4) of the Act. It was also recorded that in case the Petitioner does challenge the order of the Commission under Section 245D(4) of the Act, at that stage, the Court would consider whether the Petitioner should also be allowed to challenge the order dated 16th May, 2014 passed under Section 245D (2C) of the Act; and
(i) Thereafter, the application for settlement filed by the Respondents, were heard by the Commission on various dates i.e. on 13th October,2014, 21st October, 2014 and 5th November, 2014, leading to the impugned order dated 28th November, 2014 under Section 245D( 4) of the Act.
5 Mr. Kevic Setalvad, learned Senior Counsel appearing for the Petitioner in support of the Petition, submits as under:
(a) The impugned order of the Commission has settled the dispute, determining the additional income at Rs. 340 Crores as against the disclosed income of Rs. 245 Crores. This determination of undisclosed income far in excess of the income disclosed by the Petitioner, would by itself be conclusive of the failure on the part of the Respondent-Assessees to make a full and true disclosure of its income;
(b) No full and true disclosure of income in respect of parking charges recovered by Respondent-Assessee, has been made. The Respondent-Assessee had in its application for settlement, pointed out that the amount receivable on account of parking charges, was Rs. 258 Crores. However, a 10% deduction/ exemption from the entire amount recoverable on account of parking charges, was reduced as nonrecoverable leading to disclosure of income of Rs. 232 Crores. This disclosure was not full and true as 10% of the gross receipts claimed by the Respondents as a deduction had been disallowed and added back by Commission. This was so as no satisfactory evidence with regard to the deduction claimed was produced by the Respondent-Assessees;
(c) No full and true disclosure was made in respect of 'on money' received by Respondent-Assessee. The Respondent-Assessee had claimed out of the total “on money' received an amount of 8% is income, as 92% of the 'on money' had been spent/expended. As against that, the impugned order found that the 78% out of the 'on money' received could only be allowed as estimated expenditure. Therefore, bringing to tax 22% of the total 'on money' received and not 8% as claimed by the Respondent-Assessee in its application; and
(d) The impugned order has been passed in breach of the specific provisions of the Act as is evident from the following:
(i) Section 40A( 3) of the Act provides that all payments made in cash in excess of Rs. 20,000/have to be paid through the banking channel/route. On the above basis, it must be held that the entire cash expenditure, was to be disallowed under the aforesaid Section;
(ii) After recording the fact that some amount of estimated expenditure claimed by the RespondentAssesssee, was payment made to mafia, yet Explanation-I to Section 37 was not invoked to disallow the estimated expenditure on the above account; and
(iii) After recording that the Respondent-Assessee is not entitled to immunity from penalty under Sections 271D and 271E of the Act, yet had granted a partial immunity from penalty. This penalty was imposable for having received loans in cash and paid back the same in cash, thereby inviting penalty under Sections 271D and 271E of the Act.
6 Mr. Setalvad, learned Senior Counsel in support of the Petition states that admittedly, the Commission has determined higher amount of income disclosed in the application for settlement under Section 245C( 1) of the Act. From the above, it is submitted that it follows that there has been a failure on the part of the Applicant to make a true and full disclosure, warranting the rejection of the application for settlement. In support, reliance is placed upon the decision of the Madras High Court in Kanara Jewellers and Others v/s. Settlement Commission reported in 315 ITR 328. It is submitted by the Petitioner that the aforesaid decision of the Madras High Court has proceeded on the basis that once the Commission revises the income disclosed by the Applicant before it, to a higher figure, then it must ipso facto follow that no true and full disclosure of income has been made by the Applicant in its settlement application. Consequently, the application for settlement itself becomes not maintainable under Section 245C of the Act.
7 This, reading of the Madras High Court's decision in Kanara Jewellers (supra) on the part of the Petitioner does not appear to be correct as evident from the facts arising before it. The Assessee therein had filed an application for settlement, declaring undisclosed income. The Commission allowed the application for settlement by an order under Section 245D(4) of the Act while enhancing the amount declared as undisclosed income in its application for settlement. This order was challenged by the Assessee before the learned Single Judge of the Madras High Court on the ground that Commission has no jurisdiction to enhance the amounts disclosed/ declared in the settlement application while settling the dispute under Chapter XIXA of the Act. The Assessee then submitted that the Commission has either to accept the amounts declared in the settlement application or reject it, but it cannot increase it. The learned Single Judge of the Madras High Court rejected the Petition on the ground that there is no provision in the Act, prohibiting the Commission from arriving at an income higher then that declared in the application for settlement. Being aggrieved, the Assesssee carried the issue in appeal before the Division Bench, which allowed its appeal. This by holding that the Commission had come to a finding that there is no full and true disclosure of the Assessee's income in its application for settlement. Therefore, on the basis of the above finding that there is no true and full disclosure, the Court held that the application for settlement had to be rejected. The rejection of the application for settlement by the Division Bench was not on the basis that the amounts disclosed in settlement proceedings is a ceiling for the quantum of settlement. Therefore, the basis of the Madras High Court's decision is not premised on the fact that the income of the Petitioner determined for settlement is higher then that disclosed. The submission of the Petitioner that the above decision leads to an inescapable conclusion that settlement of income at a higher figure than that disclosed in settlement application, is evidence of failure to make a full and true disclosure in the settlement application made by the Applicants, cannot be accepted.
8 In any case, if we read the Madras High Court's order in Kanara Jewellers (supra) as suggested by the Petitioner, then it appears to us to have been rendered subsilento. This is so as attention of the Court was not invited to subsection 6A of Section 245D of the Act. This subsection specifically provides that where any tax payable in pursuance of an order passed under Section 245D( 4) of the Act, is not paid within 35 days from receipt of the order of the Commission, than interest on the tax so determined, would become payable by the Applicant. Thus, the aforesaid provisions clearly bring out the fact that the Commission could settle the dispute between the parties at a higher income than the income disclosed by the Assessee in its application for settlement. It is only in such a case that tax become payable in pursuance of the order passed under Section 245D(4) of the Act, as otherwise, the Applicant has to pay tax payable on the income disclosed in its application for settlement along with interest before filing its application under Section 245C( 1) of the Act with the Commission. Thus, the decision of the Madras High Court in Kanara Jewellers (supra) having not considered the above statutory provisions is rendered subsilento.
9 One more reason why the contention of the Petitioner is not acceptable, is that if one imposes a ceiling for settlement to the income disclosed in the application, take a case where an amount of income is not disclosed/offered as undeclared income on the basis of a decision of a Tribunal or Court holding it to be exempted/ non-taxable. By the time, the Commission disposes of the application at 245D(4) stage, the earlier decision of the Tribunal or Court has been reversed by a higher forum. If the contention of the Petitioner is to be accepted, then even in such a case, where higher income is determined, the application would have to be rejected for failure to make full and true disclosure of its income. Therefore, it would not be correct to conclude that merely because the Commission has enhanced the amount disclosed in the application, after hearing the parties and examining the evidence that there has been a failure to make true and full disclosure of its income on the part of the Applicant. It must be kept in mind that so long as the claim made by the Applicant, is true, full and bona fide, on disclosure of all primary facts, then merely because the claim made after disclosure of all facts is rejected, would not by itself result in a disclosure, not being being true and full. In this case, the Respondent-Assessee has not offered any additional income to that disclosed in its application, it is only the Commission which disallowed a part of the Respondent's claim for expenditure to determine the income for settlement. Therefore, prima facie, we found no merit in the above submission of the Petitioner.
10 We, therefore, called upon the Petitioner to respond to our prima facie view and reconcile the decision of Madras High Court in Kanara Jewellers (supra) with subsection 6A of Section 245D of the Act and granted time for the same.
11 On the next date, Mr. Setalvad, learned Senior Counsel appearing for the Petitioner accepted the fact that the decision of the Madras High Court in Kanara Jewellers (supra), would not lead to the conclusion that mere settlement of an income at a figure higher than that declared by the Applicant, would ipso facto mean a failure to make a full and true disclosure of income. However, Mr. Setalvad then changed track to submit that in the present facts, the manner in which income has been derived, has not been disclosed appropriately, thus it amounts to a failure to make full and true disclosure of the income.
12 On first principle, the above submission cannot be accepted. This for the reason that the requirements/ conditions precedent under Section 245C of the Act for making an application for Settlement are as under:
(a) Full and true disclosure of income which has not been disclosed before the Assessing Officer;
(b) The manner in which such income has been derived;
(c) The additional amount of income tax payable on such income; and
(d) Such other particular as may be prescribed.
Each of the above requirements have to be independently satisfied. Not disclosing the manner in which such income has been derived, is a condition to be satisfied independent of full and true disclosure of income which has not been disclosed. In case, the manner in which such disclosed income has been derived has not been set out in the application, then the application is to be rejected on that ground alone. In this case, the Petitioner contends that the necessary evidence of the manner in which income has been derived, was not contained in the application. Therefore, failure to make full and true disclosure. It is submitted that in the absence of any explanation or the lack of evidence in support of the application would make the application bad for failure to make a full and true disclosure. We asked Mr. Setalvad – whether such a contention was raised by Petitioner before the Commission. In response, he points out although such an objection was not specifically raised, the onus to disclose the same is on the Applicant. Therefore, not having submitted the necessary evidence in support of the manner in which income which is subject to tax has been derived, would mean failure to make a true and full disclosure in its application for settlement.
13 In our view, this nondisclosure of the manner in which income is derived, is a completely different ground from failure to make full and true disclosure of the income, not disclosed. In any case, we called upon Mr. Setalvad, to indicate any evidence available with the Petitioner, which would establish even prima facie, that the disclosure of the manner in which income has been derived, was false and/or incorrect. This non-submission of available evidence by the Respondent-Assessee contrary to the disclosure made of the manner in which such income is derived would make it false and/or incorrect. However, the Petitioner was not able to point out any evidence in support of the above submission. In fact, when no evidence is available in support of the expenditure incurred while disclosing the manner in which the income is derived and it is so stated in the application, how can the allegation of failure to make full and true disclosure of income, of the manner of deriving income can be made, much less sustained.
14 Mr. Setalvad, learned Senor Counsel appearing for the Petitioner in support of its submission relied upon the decision of this Court in Vijaykumar Bagadia v/s. Income Tax Settlement Commission 2009 (SCC) On line (Bom.) 1514. The aforesaid decision does make reference to the decision of the Madras High Court and states that it approves the observation in Kanara Jewellers (supra) that there must be a disclosure of income which has not been disclosed earlier for the application to be maintainable before the Settlement Commission. There is no dispute with regard to the above proposition. However, it does not touch the issue at hand namely – failure to truly and fully disclose the manner in which the income was derived.
15 Next, he next relied upon the decision of the Delhi High Court in Agson Global Pvt. Ltd., v/s. Income Tax Settlement Commission 380 ITR 343 . In the above case, the Delhi High Court held that the Commission while settling the dispute between the parties cannot direct a special audit under Section 142(2A) of the Act by placing reliance upon Section 245(F) of the Act. Thus, upholding the Assessee's contention before it that Section 245(F) of the Act provides that the Commission is vested with all powers vested in an authority acting under the Act. The Delhi High Court held that the Commission while settling the dispute cannot enter into the arena of an Assessment, which the Assessing Officer would do under Chapter XIV of the Act. The Delhi High Court in fact observed that the Assessment which the Commission has to do, is by way of settlement as observed by the Supreme Court's decision in Brijlal v/s. CIT 2011 (1) SCC 1.
16 Lastly, he placed reliance upon the decision of the Division Bench of Jharkhand High Court in Pavan Kumar v/s. Union of India 326 ELT 493 – wherein the Division Bench held that the Settlement Commission cannot exercise substantive power of income tax authorities but only a procedural power vested in the authorities under the Act. We are unable to understand how does it support the contention that there is a failure to disclose truly and fully the manner in which the income was derived.
17 In the above view, we do not find any merit in the submissions on part of the Petitioner, that in the present facts, there was failure on the part of Respondent-Assesssee to make a true and full disclosure of the manner in which income was derived.
18 So far as second and third submissions on behalf of the Petitioner is concerned, in respect of failure to make full and true disclosure of the amount recovered on account of car parking charges and 'on money' received, mere non-acceptance of the claim made will not make the application lacking in full and true disclosure. This full and true disclosure should be of primary facts. The allowance or disallowance, of a claim made thereon, by the Commission, will not determine the issue of full and true disclosure.
19 So far as the failure to make full and true disclosure of parking charges is concerned, we find that Applicants in its applications for settlement had very clearly stated that the car parking charges are received in cheque by the Applicants though not in their names. These cheques are, thereafter discounted and the cash so obtained after discounting, is used for business purposes. The Applicants also point out that there are certain classes of sale on which no car parking charges are recoverable. However, the Applicants declared in its application that it is seeking a deduction of 10% from the amount of Rs. 258 Crores received on account of car parking charges as attributable to car parking charges not recoverable. The Revenue filed its report under Rule 9 of the Settlement Commission Rules (Commission Rules) – wherein it was submitted that the Applicants have continued to receive car parking charges even after 10th January, 2011 and the same has not been disclosed as car parking charges recovered. If the same is taken into account, according to the Revenue, the car parking charges recovered should be quantified as Rs. 332 Crores. However, it is to be noted that the Commission records that the Petitioner had not been able to point out a single instance of the Respondent-Assessees having received any car parking charges post 10th January, 2011 either in its Rule 9 Report or even in his report filed thereafter. Therefore, the Commission on consideration of the record before it, noted that the Revenue has not submitted any evidence before it in support of its case that the Respondent-Assessees continued to receive car parking charges in the name of third parties post search i.e. 10th January, 2011.
20 However, it is true that the Commission had not accepted the Petitioner's claim that 10% of deduction on the car parking charges should be allowed and brought to tax the entire amount of Rs. 256 Crores as income received for settlement of the dispute. This declaration of 10% was claimed by the Petitioner on an adhoc estimated basis. The same was so disclosed in its application for settlement. This adhoc/ estimated claim of deduction was not found by the Commission to be false. Nor does the Petitioner in his report before the Commission offer any evidence of the claim for deductions being false. Therefore, merely because the claim of the Respondent for 10% deduction from the parking charges receivable, admittedly made on estimated basis, is rejected, it would not follow that there has been a failure to fully and truly disclose its income in the applications for settlement. It must be borne in mind that normally a statement made in an application for settlement that it is based full and true disclosure is to be accepted, unless there is evidence found contrary to the disclosure made.
21 The statement made on oath by the Applicant, cannot be disbelieved on mere whim and fancy. As the Petitioner has not been able to show that the finding of the Commission on the impugned issue is perverse, no occasion to interfere arises, as it is a possible view.
22 So far as the next submission of Mr. Setalvad is concerned, it is in respect of no full and true disclosure of taxable income on the 'on money' received. The contention is that expenditure claimed out of 'on money' received at 92% as made in the application for settlement, offering as income only 8% of the 'on money' received was not accepted. This as the impugned order settles the income at 22% of the 'on money' received, itself evidences, according to the Petitioner failure to make a true and full disclosure.
23 On examination of the above contention, we find that in its application, the Applicants had stated that the 'on money' is utilized for business purposes. These are expenses incurred for payment to encroachers, brokerages and commission, acquisition of land, land aggregation cost etc., to the extent of 92% of the 'on money' received. During the course of the hearing, the Commission granted permission to the Petitioner on selective basis to verify whether the expenses claimed, had actually been incurred. However, the Petitioner did not bring to the notice of the Commission any information contrary to that claimed by the Respondent as its expenses. However, the Commission on the basis of profit before tax in various group companies, settled the net income at 22%. Therefore, allowing expenditure only up to 78% of 'on money' received. This finding of the Commission is not shown to be perverse. It is a possible view taken on the facts before it.
24 Similarly, during the course of submissions, Mr. Setalvad also sought to challenge the determination of 'on money' received by the Commission. This on the ground that it examined three alternative method of computing 'on money' received and adopted the highest of the three alternative to determine the estimated 'on money' received. However, nothing was shown to us to establish that the same was perverse and/or contrary to the Act. Therefore, no interference is warranted.
25 The next submission urged on behalf of the Petitioner by Mr. Setalvad is that the impugned order is not in accordance with the provisions of the Act. The Petitioner has proceeded on a presumption that the amount which have been paid in cash and claimed as expenditure by the Respondent-Assessee, are in excess of Rs. 20,000/and, therefore, the said payments are hit by Section 40A( 3) of the Act and cannot be allowed as deduction. Section 40A( 3) of the Act, states that no deduction will be allowed on expenditure where an amount in excess of Rs. 20,000/is made to a person or aggregate of payment to a person in a day, otherwise than by way of account payee cheque or bank draft. There is no evidence on record to show that the Respondent-Assessee had made any payment to one single person in a day in excess of Rs. 20,000/. Therefore, there is no basis for disallowing expenditure by invoking Section 40A( 3) of the Act. The Revenue cannot proceed on presumptions and assumptions without any evidence to even remotely support the allegation that payment in excess of Rs. 20,000/was made to one person in a day to disallow expenditure under Section 40A( 3) of the Act. Therefore, the submission made on behalf of the Petitioner is without any substance and the grievance that this submission has not been considered by the Commission in the impugned order, would not in any manner carry the issue further. In fact when we asked the Counsel for the Petitioner whether the Revenue had led any evidence in support of its submission that payment have been made in excess of Rs. 20,000/in cash per day to a person, it was replied in the negative. Thus, we see no reason to interfere.
26 The next objection on behalf of the Petitioner is that the settlement is vitiated on account of an amount paid to the mafia, amongst other people as recorded in paragraph 19 of the impugned order. This payment, the Petitioner submits is an offence and/ or payment prohibited by law. Therefore, the estimated amount attributable to the mafia, cannot be allowed as an expenditure incurred in course of business being hit by Explanation-I to Section 37 of the Act. There cannot be any dispute that the order of the Commission has to be in accordance with the Act and matters cannot be settled by it dehors the provisions of the Act.
27 We, therefore, called upon Mr. Dwarkadas, learned Senior Counsel appearing for the Respondents to respond to the same. He points out that the impugned order of the Commission dated 28th November, 2014 was accepted by all the parties. The Petitioner had also accepted the payment of Rs. 23.09 Crores made by the Respondent-Assessee on various dates, the last of which was on 21st March, 2015, in pursuance of the impugned order. In fact, consequent to the impugned order dated 28th November, 2014 of the Tribunal, the Petitioner had addressed various letters to the Respondent-Assessee, demanding the amount due. This is a clear evidence of acceptance of the order on the part of the Petitioner. This Petition was filed only on 21st August, 2015 i.e. a good eight months after the passing of the impugned order dated 28th November, 2014. It was always the understanding of all the parties that the word 'mafia' used in the impugned order was used in a loose sense and in any case, the payment to the so-called 'mafia' was not for illegal activity but only for protection of men and property. In fact, this issue of payment to mafia being hit by Explanation-I to Section 37 of the Act, is urged only at the hearing. In fact, Mr. Dwarkadas, took us through the grounds to establish that this was not the Revenue's case when it came to Court. It was further pointed out that the time for making an application for rectification to the impugned order dated 28th November, 2014 is only six months from the date of the impugned order in terms of Section 245D(6B) of the Act. Therefore, if this grievance was raised immediately on passing of the impugned order by filing a Petition or resisting the payment consequent to settlement, then the mistake, if any, could have been corrected by filing a rectification application. Therefore, the Petitioner had no grievance or deliberately waited for the six months to expire before mounting this challenge at the hearing as it was not a ground in the Petition. This conduct on the part of the Petitioner itself disentitles the Petitioner from seeking any relief under Article 226 of the Constitution of India. It was submitted that remand, as suggested on this issue, would also serve no purpose as the composition of the Commission would have undergone a change and the members who passed the orders may not now be in office. It was further pointed out that the word payments to 'mafia' is not used by the applicant in its application or in any of the submissions made by it before the Commission. We asked the Petitioner to confirm if this so and whether they dispute the same. For the above purpose, the hearing was again adjourned to enable the above exercise on part of the Petitioner.
28 On the next date Mr. Setalvad stated that on going through all pleadings, he accepts the fact that there has been no statement made on behalf of the Respondent-Assessee or even on behalf of the Petitioner that the Respondent-Assessee had made any payments to local 'mafia'. Nevertheless, he contends that admission of illegal payments is inherent in the reply of the Respondent-Assessee to the report dated 14th August, 2013 of the Commissioner of Income Tax under Rule 9 of the Settlement Rules. In particular, our attention was invited to paragraph 123 thereof – wherein it is stated as follows:
“ ….. It is submitted that extrapolation for expenditure should also be made when it is equally common practice in real estate business to borrow money in cash to incur various business expenses including getting clear title and remove encumbrances, unauthorized occupants, settling claimants etc. and there is clear indication that such expenditure is incurred. Therefore, the expenditure also should be extrapolated without insisting on evidence for making such claim.”
Further, reliance is placed upon paragraph 124 of the said reply which reads as under:
“ … It is wellknown that in Mumbai, the properties are really difficult to get without any disputes and settling the disputes in the court consumes almost a life period of a person which certainly is not affordable or feasible for business entities engaged in execution of projects intended to give to the buyers a title which is free from any claims.”
According to Mr. Setalvad, the aforesaid statements made on behalf of the Respondent-Assessee is a clear indication that the expenditure was incurred for settling their disputes or for removing encumbrances and acquiring title. It is this aforesaid expenditure, according to Mr. Setalvad, is the amount paid to the 'mafia'.
29 We are unable to understand from where the Revenue concludes that the Respondents made payments to the 'mafia' when the same is not found in the paragraphs referred to and relied upon by Revenue. Further, in any event, the payment which have been referred to in paragraphs 123 and 124 of the reply to the Commission's report only indicates expenditure incurred for settling disputes for removing encumbrances and unauthorized occupants by reaching out of Court Settlements, as according to the Respondent-Assessee, Court proceedings take a long time. Therefore, the above expenditure to settle the dispute out of the Court, cannot by itself amount to expenditure which is an offence or which is prohibited by law.
30 Mr. Setalvad was unable to point out how the aforesaid expenses are an offence or/are prohibited by law. All he did was to rely upon Section 23 of the Contract Act to state that these expenses are against public policy and, therefore, prohibited by law. We are unable to accept his contention on the above account. It is clear that none of the expenses which have been referred to in paragraphs 123 and 124 of the reply to the Commissioner's report under Rule 9 of the Settlement Procedure Rules even remotely suggest that the payments made for out of Court settlement is an offence or the same is prohibited by law.
31 It was next contended by Mr. Setalvad that in any view of matter, the Commission has recorded in paragraph 19 of the impugned order that amounts have been paid to local mafia for smooth functioning and timely execution of projects as well as to protect the interest of business. The aforesaid recording by the Tribunal, Mr. Setalvad submits is conclusive of payment being made to mafia and the same cannot be allowed as a deduction under Section 37(1) of the Act. Further, it is not open to the Respondent-Assessee to challenge this finding/ recording of fact by the Commission in the impugned order. In support, reliance is placed upon decision of the Apex Court in State of Maharashtra v/s. Ramdas Shrinivas Nayak & Another 1982 (2) SCC 463 – wherein the Apex Court has stated that it is not open to the superior forum to enquire into what transpired during the hearing before the lower forum. The higher forum is bound to accept the statement of the Judges recorded in their judgment as to what transpired in the Court. The same cannot be contradicted at the bar by affidavit or by any other evidence.
32 The above principle is well settled that the statement with regard to facts as transpired at the hearing, recorded in the judgment/ order of the Court is conclusive of the facts stated therein. No one can contradict same by filing affidavit evidence or any other evidence. If the party thinks that the happening in the Court during the hearing, is wrongly recorded, then it is incumbent upon the party to move the Judges to have the record rectified to indicate the correct facts.
33 However, in the present facts, we find that the impugned order records that the amount is paid to mafia to protect the interest of the Applicant's business. This seems to summarize/ reproduce in the Applicant's submission in the Statement of Facts (SOF). Mr. Setalvad, Counsel for the Petitioner does not dispute that the word 'mafia' finds no mention in the SOF. However, according to him, reading of paragraph 19 of the impugned order does not support our understanding, but he is unable to specify the source of this fact being recorded in the impugned order. The impugned order clearly does not record it as a submission made during hearing on behalf of the Respondent Assessee. Therefore, in the above circumstances, it is open to Respondent-Assessee to point out that the mentioning of 'local mafia' in paragraph 19 of the impugned order is not in accord to the facts recorded in the SOF and, therefore, ought to be ignored. It is not a case of the Court recording something which transpired at the hearing before it. Therefore, on the basis of the record, it is always open to a litigant to point out that the aforesaid reference to 'local mafia' is incorrect as it is not based on any evidence relied upon by the impugned order to record such a statement of fact. Thus, the Apex Court ruling in Ramdas Nayak (supra) would have no application to the present facts.
34 We also find substance in the submission made by Mr. Dwarkadas that entire issue of payment to 'mafia' having some sinister significance is made only at the hearing before us, as no such ground is found in its writ petition. The Petitioner would have in such a case challenged the impugned order immediately or moved to Commission for rectification or atleast not written letters to the Respondent to pay the amounts in terms of Settlement arrived at by the impugned order of the Commission.
35 Further, we notice that the time to file a rectification application before the Commission under Section 245D(6B) of the Act, has already expired. Further, we have been informed that the members who passed the impugned order have retired. This coupled with the fact that the Petitioner had himself accepted the impugned order dated 28th November, 2014 and also demanded payments from the Respondent-Assessee in terms of the impugned order, would again be evidence of the fact that the Petitioner also accepted the fact that the word 'mafia' has been used in a loose sense and would not by itself be hit by ExplanationI to Section 37 of the Act.
36 We also note that the entire expenditure of 92% claimed by the RespondentRevenue has not been allowed, but only 78% expenditure was allowed to arrive at its income. Therefore, it is safe to assume that during the settlement, the Commission would have factored in all payments allegedly made to mafia while adding to the income of the Respondent-Assessees. Moreover, what has to be seen is not the person to whom the amount has been paid but the reasons for making the payment. If the payment is made for illegal purposes, then the payment is to be disallowed. The disallowance is on account of the purpose for which the payment is made and not upon the person to whom the payment is made. Therefore even if the payment is made to an alleged criminal, to do legal work,it is allowable. The disallowance is not person specific but expenditure specific i.e. the expenditure must be prohibited by law or must be an offence. Moreover, the scope of enquiry is as pointed out above, is very limited from the orders of the Settlement Commission. If the view taken is a possible view, we would not interfere. Therefore, no interference on this account, is warranted. Further, the payment made to mafia by itself is not shown to be an offence under any law or is prohibited by law.
37 Lastly, it was submitted on behalf of the Petitioner that the impugned order granted partial immunity from penalty under Sections 271D and 271E of the Act. The grievance is that it did so after itself recording that under Section 245H(1) of the Act, the Respondent-Assessee will be entitled to grant of immunity from penalty under Section 271(1) (c) and any other penalty leviable under the Act except Sections viz: 271D and 271E of the Act. In the above view, Mr. Setalvad, Counsel for the Petitioner submits that the impugned order be set aside.
38 We find that the impugned order dated 28th November, 2014 records the fact that partial immunity was granted under Section 245H of the Act. The Commission was satisfied that the Respondent-Assessee had fully cooperated in the proceedings before it and, therefore, are entitled to grant an immunity. It is only after recording the fact that penalty is imposable under Section 271D and 271E of the Act, that partial immunity from penalty, was granted. We asked Mr. Setalvad, learned Senior Counsel for the Petitioner whether Section 245H of the Act excludes Sections 271D and 271E of the Act from the benefit of immunity by the Commission. Mr. Setalvad very fairly states that Section 245H of the Act does not exclude the aforesaid two Sections namely – Sections 271D and 271E of the Act from the province of the Commission to grant immunity under Section 245H of the Act. In the above view, the mere fact that the Tribunal mistakenly records that the Respondent-Assessee is not entitled to grant immunity from levy of penalty under Sections 271D and 271E of the Act will not make the impugned order vulnerable on the above ground. This is a mistake on the face of it, as there is no such exclusion from Section 245H of the Act of Sections 271D and 271E of the Act, for grant of immunity. It is possibly for this reason that the Petitioner had not filed any rectification application on the above account, seeking withdrawal of immunity from penalty, in view of the above recording by the Commission.
39 In fact, if the entire paragraph 39 of the impugned order which deals with the issue of waiver of penalty is read, it is very clear that the Commission sought to grant partial immunity in respect of penalty imposed under Sections 271D and 271E of the Act. Therefore, the exercise of restoring the issue to the Commission to freshly determine the issue of penalty, would in the present facts be an academic exercise. In the above view, the aforesaid objections on the part of the Petitioner also does not warrant any interference.
40 For the aforesaid reasons, Petition is dismissed. No order as to costs.