D. N. Patel, J.- This Tax Appeal has been preferred against the order, passed by the Income Tax Appellate Tribunal, Circuit Bench, Ranchi in Income Tax Appeal No. 15/Pat/2005 for the Block Assessment Period 1996-97 to 2001-02 and from 01.04.2001 to 26.09.2001 with Cross Objection No. 18/Pat/2005 for the very same block assessment period and for the broken period of 2001. The order was passed by the Income Tax Appellate Tribunal (hereinafter referred to as 'the ITAT' for the sake of brevity) dated 23rd June, 2006 against which this appeal has been preferred wherein the following substantial questions have been raised:
"a. Whether on the facts and in the circumstances of the case the ITAT was rights in deleting the addition of Rs. 22,84,923/without considering that the assessee has not disclosed the aforesaid addition before the Settlement Commission as provided under section 245D(4).
b. Whether ITAT was right in deleting the addition of Rs. 22,84,923/- added as undisclosed stock of gold & diamond jewellery on the strength of difference in physical verification of the stock found and its booked value by ignoring the physical verification which was available on record.
c. Whether on the facts and in the circumstances of the case, the ITAT right in deleting the addition of Rs. 41,51,301/- added as undisclosed income for A.Y. 200203 on the strength of the seized document marked as A/JJ/6 with ITAT overlooked, ignoring the provisions of Evidence Act.
d. Whether on the facts and in the circumstances of the case, ITAT without considering section 132(4A) read with section 158BB of the I.T. Act, right in deleting the addition of Rs. 41,51,301/- for the A.Y. 2002-03."
2. We have heard counsel for the appellant, who has submitted that deleting the addition of Rs. 22,84,923/by the ITAT was without appreciating the fact that the respondentassessee has not disclosed the said addition before the Settlement Commission as provided under Section 245D(4) of the Income Tax Act, 1961 and this amount was added because of undisclosed stock of gold and diamond jewellery on the strength of difference in physical verification of the stock found and its book value. It is also submitted by the counsel for the appellant that similarly, the ITAT has committed an error in deleting the addition of Rs. 41,51,301/-. This addition was made by Assessing Officer. This was undisclosed income for the year 2002-03 on the basis of seized documents marked as A/JJ/6 which II-AT has overlooked or ignored. Counsel for the appellant submitted that search and seizure operation under Section 132 of the Income Tax Act,1961 was conducted on 26th September, 2001 at various premises of the respondent. Thereafter, application was preferred by Sri Prem Prakash Arya, who is main partner of M/s Jever Jewellers, Bangalore, under Section 245C of the Income Tax Act before the Settlement Commission. Settlement Commission took sometimes meanwhile Assessing Officer passed an order dated 23rd October,2003 and two major additions were made which is at Rs. 22,84,923/- on the basis of physical verification of the stock firm and the book value and the 2nd major addition was Rs. 41,51,301/- on the basis of the seized documents which ITAT has ignored. Appeal was preferred by the respondent before Commissioner of Income Tax (Appeals), who passed an order dated 15th July, 2004 in favour of the respondent and therefore, appellant preferred Appeal before the ITAT which was dismissed vide order dated 23rd June,2006 and therefore, this Tax Appeal has been preferred with the aforesaid substantial questions of law and as this Settlement Commission passed an order on 8th January, 2014, Commissioner of Income Tax (Appeals) as well as ITAT has placed heavy reliance upon the order, passed by the Settlement Commission and more particularly, upon the disclosure of income by Mr. P.P. Arya. Thus, it is mainly submitted by the counsel for the appellant that ITAT has not properly appreciated that additions of income at Rs. 22,84,923/- which is based upon a difference in physical verification of stock and its book value and this was never disclosed before the Settlement Commission by Mr. P.P. Arya and 2nd addition of Rs. 41,51,301/- was on the basis of the seized documents marked as A/JJ/6 which the ITAT has overlooked or ignored and therefore, deletion of both these additions may be quashed and set aside by an order of this Hon'ble Court.
3. We have heard counsel for the respondent who has submitted that no error has been committed by the Commissioner of Income Tax (Appeals) nor by the ITAT in deleting both the aforesaid additions. Firstly on the ground that voluntarily disclosure made by Mr. P.P. Arya includes the aforesaid amount which is at Rs. 22,84,923/- and so far as addition of Rs. 41,51,301/- is concerned, it is submitted that the basic principles of accountancy have been properly appreciated by the Commissioner of Income Tax (Appeals) and the ITAT. There is no variance of stocks. Nonetheless, the closing stock was made as per cost price by the assessee and the said plea cannot be altered by the department. Since the assessee is valuing the closing stock on the basis of the cost price or market price whichever is lower and therefore, assessee has valued his stock at cost price which is also supported by the auditors report and therefore, this addition of Rs. 41,51,301/- has been rightly dealt by both the authorities under the Income Tax Act namely, Commissioner of Income Tax (Appeals) and ITAT and no illegality has been committed by both the authorities below and hence, this appeal may not be entertained by this Court.
4. Counsel for the respondent has also relied upon the decision rendered by Hon'ble Supreme Court as well as Hon'ble Delhi High Court as:
(a) (2005) 2 SCC 324 (Para 11 to 15). To point out what is the substantive question of law and on the basis of this decision, it is submitted that there is no substantive question of law involved in this Tax Appeal.
(b) (2004) 189 CTR (Del) 103 (Para 26, 30, 32 to 36). On the point that the order passed by the Settlement Commission may not be interfered with, except in exceptional cases.
(c) (2010) 8 SCC 739 (Para 27, 35 and 37). This judgment has been relied upon by the respondent mainly for the reason that once true, correct and legal procedure has been followed before the Settlement Commission, the order passed by the Settlement Commission may not be called in question nor it can be reopened by the Court.
(d) (1999) 8 SCC 338 (Para 24, 25 and 26). This judgment has been relied upon to point out the methodology of following of closing stock and the principle propounded by the Hon'ble Supreme Court as stated in para 26
On the basis of the aforesaid submissions, it is submitted by the counsel for the respondent that this appeal may not be entertained by this Court.
Reasons:
5. Having heard counsels for both the sides and looking to the facts and circumstances of the case, we see no reason to entertain this Tax Appeal mainly on the following facts and reasons:
(i) Search was carried out under Section 132 of the Income Tax Act, 1961 at various premises of the respondent on 26th September, 2001. Several materials and the documents were seized including books of account, gold etc.
(ii) The main partner of the respondent namely, Mr. Prem Prakash Arya applied under Section 245C of the Act, 1961 as a true and full disclosure of the income before the Settlement Commission.
(iii) Settlement Commission took sometimes meanwhile, the Assessing Officer passed an order dated 23rd October, 2003 and has mainly added Rs. 22,84,923/- to the income of the respondent because it was not disclosed by the respondent before the Settlement Commission in the application under Section 245C and also for the reason that there was a difference in a physical verification of the stock found and its book value. Similarly, there is a major addition made by the Assessing Officer at Rs. 41,51,301/- as undisclosed income for the assessment year 2002-03 on the strength of seized documents marked as A/JJ/6.
(iv) This order was challenged by the respondent before the Commissioner of Income Tax (Appeals) who decided the appeal in favour of the respondent vide his order dated 15th July, 2004. Both the aforesaid additions were deleted mainly relying upon the order passed by the Settlement Commission dated 8th January, 2004 based upon the disclosure made by Mr. P.P. Arya and on the ground of methodology of the account adopted by the respondent assessee or value of closing stock.
(v) Against this order of Commissioner of Income Tax (Appeals) an appeal was preferred by this appellant-Department before the ITAT. There was also Cross Objection filed by the respondent before the ITAT and the appeal preferred by this appellant was dismissed by the ITAT vide order dated 23rd June, 2006 and therefore, the present Tax appeal has been preferred by this appellant raising the aforesaid substantial questions of law. (vi) The block assessment period involved in this matter is for the period running from 199697 to 200102 and for the period 01.04.2001 to 26.09.2001.
(vii) So far as deletion of addition of income at Rs. 22,84,923/- is concerned, no error has been committed by the Commissioner of Income Tax(Appeals) as well as no error has been committed by the ITAT looking to the order passed by the Settlement Commission dated 8th January, 2004. Looking to the declaration of income made by Mr. P.P. Arya before the Settlement Commission under Section 245C of the ITAT Act, which is true and full disclosure, has been accepted by the Settlement Commission while passing order under Sub Section 4 of Section 245D of the Act, 1961. The disclosure made by Mr. P.P. Arya of his income which is aggregating at Rs. 81,18,770/- includes two components of income which is at Rs. 21,42,460/- and Rs. 59,76,313/-. This has been accepted by the Settlement Commission. He has accepted all his liabilities except of Jever Jewellery situated at Ranchi. The order passed by the Settlement Commission cannot be called in question at this stage as has been held by Hon'ble Supreme Court in Ajmera Housing Corporation & Another Vs. Commissioner of Income Tax reported in (2010) 8 SCC 739. Para 27, 35 and 37 thereof read as under:
"27. It is clear that disclosure of "full and true" particulars of undisclosed income and "the manner" in which such income had been derived are the prerequisites for a valid application under Section 245C(1) of the Act. Additionally, the amount of income tax payable on such undisclosed income is to be computed and mentioned in the application. It needs little emphasis that Section 245C(1) of the Act mandates "full and true" disclosure of the particulars of undisclosed income and "the manner" in which such income was derived and, therefore, unless the Settlement Commission records its satisfaction on this aspect, it will not have the jurisdiction to pass any order on the matter covered by the application.
35. It is plain from the language of subsection (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 subsection (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 precondition 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 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 subsection (1) of the said section is instructive inasmuch 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 which 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.
37. As aforestated, 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 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."
(Emphasis Supplied)
(viii) It has been held by Hon'ble Delhi High Court in Sukhmani Associates (P) Ltd. Vs. Income Tax Settlement Commission and Ors. reported in (2004) 189 CTR (Del) 103. Para 26, 30, 32 to 36 thereof read as under:
"26. In view of the apex Court decision in the case of Anjum M.H. Ghaswala & Ors. (Supra) that the order made by the Settlement Commission under Section 245-I of the Act is conclusive and final, Therefore, the same cannot be reopened in any proceedings under the Act or any other law. Section 154 could not have been invoked as Settlement Commission ceases to be an authority under the Act after the order is made and can exercise such power only if authorised under the Act and under the chapter only.
30. In the case of CIT v. Express Newspapers Ltd. MANU/SC/0314/1994: [1994] 206 ITR 443 (SC), the effect of the order under Section 245D(4) is indicated. It was held:
"Sub-section (4) of Section 245D provides for passing of final orders by the Commission. It is not necessary to refer to the other provisions in the chapter except to mention that the Commission is empowered to direct the waiver of penalty as well as interest and to direct that the tax payable shall be paid ‘in prescribed’ installments. It is further empowered to direct that the assessed whose case has been decided by it shall not be proceeded with or prosecuted under the Income Tax Act or under the Indian Penal Code or under any other Central Act for the time being in force with respect to the case covered by the settlement. The orders of the Commission are final, subject of course to constitutional remedies."
32. Settlement Commission was approached by the assessed and in accordance with law, the order was made by the Settlement Commission and the terms of settlement provided mode of payment etc. The Revenue accepted the same and did not challenge the correctness of the order made by the Settlement Commission. Thus, between the assessed and the AO or the CIT, when the decision was rendered by the Settlement Commission, the matter was settled and came to be disposed of finally and it could be reopened in the manner provided in that chapter itself or can be reviewed as provided in the chapter. Having not challenged the said decision and having accepted the same, because of some decision in some other case, is it open for the Revenue to approach the Settlement Commission, iner alia, requesting that the order is required to be rectified because of apparent error of law?
33. If the order was bad, it was open for the Revenue to challenge the same in the High Court. One may not discuss the scope of res judicata and the extent of its application to the tax proceedings. As pointed out by the apex Court in Express Newspapers Ltd.'s and Aujum Gashwala's case (supra), the order of the Settlement Commission being final, subject of course to constitutional remedies, and having not been challenged, in the opinion of this Court it would not be open for the Revenue to make an application under Section 154 of the Act. Despite the error of law, for a pretty long period of about four years, the decision was accepted. Having not challenged the decision and considering that the same is not prejudicial to the Revenue, grievance cannot be allowed to be raised in the manner in which it is raised. It was open for the Revenue to challenge the legality of the order made by the Commission. Where a party had not appealed or had not challenged the order of the Settlement Commission, it would not be open to modify the order under the shelter of rectification.
34. What is important is that the Settlement Commission was competent to pass an order and the Revenue as well as the assessed both accepted the correctness of the decision and they refrained from challenging the order made by the Settlement Commission and after reasonable period having expired, one would be preluded from touching the order as it has become final and conclusive. As pointed out by the apex Court in Express Newspapers Ltd.'s case (supra), such an order could be challenged before the constitutional forum only. The decision rendered by a competent forum having jurisdiction to decide the disputes, its efficacy would not be impaired unless the same is challenged and the order is annulled, modified, reversed, etc.
35. When the Act provides that the order shall be final and conclusive, the final judgment or the final decision of the Settlement Commission does not loose its force and as such, because in a different case subsequently a view is taken indicating that the view expressed are wrong. A final decision, however wrong, is still final and its binding force does not depend upon its correctness.
36. There must be an end of litigation. The Settlement Commission is provided under the IT Act for the said purpose. Where the terms are settled and after having accepted the same merely because in some other decision it is pointed out as to what the law is, it is not open to move an application under Section 154 of the Act. When the order made by the Settlement Commission is made final and conclusive and cannot be reopened under any provisions of this Act or under any other law, save as otherwise provided in Chapter XIXA, the same is not subject to Section 154 of the Act.
(Emphasis Supplied)
In view of the aforesaid decisions also the order passed by the Settlement Commission, in the facts of the present case, dated 8th January, 2004 cannot be called in question. The true and full disclosure made by Mr. P.P. Arya under Section 245C of the Income Tax Act, 1961 has been accepted while passing order under Section 245D(4) of the Act, 1961 especially about his income aggregating Rs. 81,18,770/- which includes the addition made by the Assessing Officer and therefore, rightly it is deleted by the Commissioner of Income Tax (Appeals) as well as the ITAT.
(ix) So far as addition of income which is at Rs. 41,51,301/- is concerned this is mainly for the reason that the Assessing Officer has not properly appreciated the accounting system followed by the respondent and about the valuation of stock. The assessee has calculated the valuation of the closing stock on the basis of the cost price or market price, whichever is lessor, which is always permissible as per the principle of accountancy. The documents which are exhibited A/JJ/6 contains the balance sheet, trading and profit and loss account, inventory of stock and valuation of stock for the period 01.04.2001 to 25.09.2001 showing net profit of the assessee at Rs. 41,81,301/- In fact, this is an error committed by Assessing Officer without appreciating the fact that what is the basic principles of valuation of the closing stock. Already guidance has been given by the Hon'ble Supreme Court in the case of United Commercial Bank, Calcutta Vs Commissioner of Income Tax, W.B.III, Calcutta reported in (1999) 8 SCC 338. Para 24, 25 and 26 thereof read as under:
"24. From the decisions discussed above, it can be held:
(1) That for valuing the closing stock, it is open to the assessee to value it at the cost or market value, whichever is lower.
(2) In the balancesheet, if the securities and shares are valued at cost but from that no firm conclusion can be drawn, a taxpayer is free to employ for the purpose of his trade, his own method of keeping accounts, and for that purpose, to value stock-in-trade either at cost or market price.
(3) A method of accounting adopted by the taxpayer consistently and regularly cannot be discarded by the departmental authorities on the view that he should have adopted a different method of keeping accounts or of valuation.
(4) The concept of real income is certainly applicable in judging whether there has been income or not, but, in every case, it must be applied with care and within their recognised limits.
(5) Whether the income has really accrued or arisen to the assessee must be judged in the light of the reality of the situation.
(6) Under Section 145 of the Act, in a case where accounts are correct and complete but the method employed is such that in the opinion of the Income Tax Officer, the income cannot be properly deduced therefrom, the computation shall be made in such manner and on such basis as the Income Tax Officer may determine.
25. In the present case, the High Court has disallowed the claim of the appellant after holding thus:
(a) The entries made by the assessee in its books of account is not determinative of the question whether the assessee has earned any profit or suffered any loss.
(b) The method of accounting namely "at cost or market value, whichever is lower" followed by the appellant for valuing its stock-in-trade (investment) for income tax purpose is the correct and the permissible method in law. If this method is not followed in writing and preparing accounts consistently, the assessee cannot claim a notional method of stock valuation only for computation of income by the tax authorities without following the same method in writing and preparing accounts.
(c) Since stock valuation is admittedly a method of accounting the assessee Bank can claim the benefit of stock valuation "at cost or market value, whichever is lower" only if such method is actually followed and adopted by him in preparing the final accounts. Without following this method in preparing the accounts, which are required to be prepared and presented under Section 29 of the Banking Regulation Act, 1949 in the form set out in the Third Schedule thereto, the assessee Bank cannot be permitted to claim a loss on revaluation by claiming different method of stock valuation notionally for income tax purposes only.
26. In our view, as stated above, consistently for 30 years, the assessee was valuing the stock-in-trade at cost for the purpose of statutory balance-sheet, and for the income tax return, valuation was at cost or market value, whichever was lower. That practice was accepted by the Department and there was no justifiable reason for not accepting the same. Preparation of the balancesheet in accordance with the statutory provision would not disentitle the assessee in submitting income tax return on the real taxable income in accordance with a method of accounting adopted by the assessee consistently and regularly. That cannot be discarded by the departmental authorities on the ground that the assessee was maintaining balance-sheet in the statutory form on the basis of the cost of the investments. In such cases, there is no question of following two different methods for valuing its stock-sin-trade (investments) because the Bank was required to prepare balance-sheet in the prescribed form and it had no option to change it. For the purpose of income tax as stated earlier, what is to be taxed is the real income which is to be deduced on the basis of the accounting system regularly maintained by the assessee and that was done by the assessee in the present case.
(Emphasis Supplied)
In view of the aforesaid principles propounded by the Hon'ble Supreme Court the valuation of closing stock, may be "as per the stock price or as per the market price, whichever is lower," and therefore, the additions made by the Assessing Officer was wrong. This principles have been properly appreciated by the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal while passing the order dated 15th July, 2004 as well as the order dated 23rd June, 2006, respectively.
(x) Infact, the questions raised by the appellant are not substantive questions of law at all more they are based upon the facts of this case and the facts have already been answered by the order passed by the Settlement Commission.
6. As a cumulative effect of the aforesaid aforesaid facts, reasons and judicial pronouncements, there is no substance in this Tax Appeal and hence, the same is hereby, dismissed.