idco Dyes and Chemicals Pvt. Ltd. and anr. and Haryana Rang Udyog and anr. Vs. Settlement Commission and ors. - Court Judgment

Excerpt:
direct taxation - judicial review - article 226 of constitution of india - penalty imposed by settlement commission - petition against such order - evidence on record proved that settlement commission did not take into consideration relevant facts and did not satisfy itself about necessary ingredients to be established before imposition of penalty - order found to be perverse - high court under article 226 has jurisdiction to judicially review such order - order imposing penalty set aside - matter remitted back to settlement commission for reconsideration after giving opportunity to both parties. - - 14. thereforee, it would be better to find out as to what these cases decide. it is precisely for this reason that the section says that it can be done only with the concurrence of the.....a.k. sikri, j.1. all these writ petitions raise a common question of law. they are accordingly disposed of by a common judgment. however, for the sake of convenience the facts of c w. p. no. 1255 of 1981 are noted.2. this petition is filed by two petitioners. petitioner no. 1 is a private limited company of which petitioner no. 2 is the director. on november 29, 1978, the petitioner-company filed an application under section 245c(1) of the income-tax act, 1961 (hereinafter to be referred to as 'the act' for short) before the settlement commission for settlement of its case under the act. this application is referred to by the petitioners in the petition as the 'main settlement application'. at the time of making this application various proceedings under the act were pending against the.....

Judgment:

A.K. Sikri, J.

1. All these writ petitions raise a common question of law. They are accordingly disposed of by a common judgment. However, for the sake of convenience the facts of C W. P. No. 1255 of 1981 are noted.

2. This petition is filed by two petitioners. Petitioner No. 1 is a private limited company of which petitioner No. 2 is the director. On November 29, 1978, the petitioner-company filed an application under Section 245C(1) of the Income-tax Act, 1961 (hereinafter to be referred to as 'the Act' for short) before the Settlement Commission for settlement of its case under the Act. This application is referred to by the petitioners in the petition as the 'main settlement application'. At the time of making this application various proceedings under the Act were pending against the petitioner-company in respect of the assessment years 1977-78 and 1978-79. Thus in entry No. 5 of this main settlement application the petitioner mentioned these two assessment years only.

3. On December 15, 1978, the petitioner-company requested the Settlement Commission through a petition for amendment of the main settlement application to substitute against entry at Seriall No. 5. In place of the two assessment years 1977-78 and 1978-79, the petitioner-company wanted the following sentence to be substituted '1977-78 and 1978-79 and any other assessment year(s) which the Settlement Commission may desire to reopen'.

4. While this main settlement application was still pending and had not been admitted, the Director of Inspection conducted a search and seizure operation under Section 132 of the Act upon the premises of the petitioners and others connected with the first petitioner-company. This happened on November 13, 1979. It may be mentioned that the individual persons from whom seizure of various properties were made during the search as aforesaid have since admitted through their individual affidavits before the Settlement Commission that the properties seized from them and retained by the Income-tax Department belonged to the first petitioner-company. The Commissioner of Income-tax has also accepted this as a factually correct position.

5. After the aforesaid search and seizure the petitioner-company filed a second application (described as 'second/supplementary application') under Section 245C(1) before the Settlement Commission on January 30, 1980, along with the statement of facts under cover of its letter dated January 24, 1980. In this application the company offered for taxation an additional income of Rs. 34 lakhs spread over different assessment years from 1972-73 to 1979-80. Thus, in this application the petitioner-company wanted the period from 1972-73 to 1978-79 instead of 1977-78 and 1978-79 mentioned in the main settlement application. However, on February 1, 1980, the company wrote a letter to the Settlement Commission requesting it to treat the second supplementary application as infructuous as the main settlement application was still pending for assessment. Further a request was made to treat the statement of facts attached thereto as forming part of the main settlement application in which request was made to reopen the completed proceedings in respect of the assessment years from 1972-73 onwards under Section 245E of the Act.

6. By order dated April 10, 1980, the Settlement Commission admitted the main settlement application in respect of the assessment years 1977-78 and 1978-79 only. The order states as under :

'The assessed filed an application under Sub-section (1) of Section 245C of the Income-tax Act, 1961, to have his proceedings for or in connection with the assessment pending before the Income-tax Officer, Company, Circle VI, New Delhi, for the assessment years 1977-78 and 1978-79, settled. A copy of the application was forwarded to the Commissioner of Income-tax, Delhi II, New Delhi, for his report under Sub-section (1) of Section 245D. In the report received under his letter No. CIT-II/H.O/Q.II/Tech/48/7/78/16046, dated January 6, 1979 and No. CIT/II/Settlement/(1)/79-80/1280, dated February 4, 1980, the Commissioner has raised no objection under Sub-section (1A) of Section 245D to the application being allowed to be proceeded with.

2. Having due regard to the Commissioner's report and the circumstances of the case, the Settlement Commission allows the application to be proceeded with.

3. The Income-tax Officer may issue tax recovery certificate to the Tax Recovery Officer in respect of arrears demands, if any, to save limitation under Section 231 of the Income-tax Act, but any coercive action would be kept in abeyance till order under Section 245D(4) is passed by the Commission.'

7. On August 5, 1980, the first petitioner-company filed its return of income before the Income-tax Officer for the assessment year 1979-80. Thereafter on September 8, 1980, the first petitioner-company filed yet another application under Section 245C(1) of the Act before the Settlement Commission in respect of the assessment year 1979-80. The return of income for the assessment year 1979-80 filed by the first petitioner-company on September 8, 1980, was revised on September 9, 1980, so as to cover the portion of the additional income arising from the said assessment year.

8. On January 31, 1981, the Income-tax Officer issued several notices under Section 148 of the Act for making the reassessment of its income in respect of the assessment years 1972-73, 1973-74, 1975-76 and 1976-77. The legality of these notices is challenged by the petitioners by filing a writ petition which is pending in this court.

9. As far as the application before the Settlement Commission is concerned, it passed a consolidated order on March 10, 1981, under Section 245D(4) of the Act in respect of the main settlement application and also the second and third/supplementary applications. In this order, the Settlement Commission limited the exercise of its jurisdiction to the assessment years 1974-75 and 1977-78 to 1979-80 only in respect of which proceedings under the Act were pending against the first petitioner-company at the time of its making the main settlement application. The effect of this order was that in respect of the assessment years 1972-73, 1973-74, 1975-76 and 1976-77, the Settlement Com-mission refused to pass any order on the ground that the Income-tax Officer had reopened the assessments relating to these years thereby implying that it was the Income-tax Officer who was to proceed further with the assessments in respect of those years.

10. It is this order dated March 10, 1981, passed by the Settlement Commission which is challenged by filing this writ petition on the ground that the Settlement Commission was not correct in excluding the aforesaid years and allowing the Income-tax Officer to proceed under Sections 147 and 148 of the Act.

11. The respondents have filed their counter-affidavit. The main submission of the respondents in this affidavit is that the Settlement Commission rightly admitted the application and passed the order in respect of the assessment years 1974-75 and 1977-78 to 1979-80 as at the time of making these applications proceedings in respect of these years only were pending. It is submitted that the applications in respect of the assessment years 1972-73, 1973-74, 1975-76 and 1976-77 could not be admitted under Section 245C(1) of the Act as no proceedings in respect of those years were pending at the time when these applications were made.

12. From the aforesaid factual matrix, it is clear that the case hinges on the interpretation of Sections 245C(1), 245D(1) and Section 245E of the Act. These sections are reproduced below for the sake of convenience :

'245C Application for settlement of cases.--(1) An assessed 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 assessed 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.'

'245D. Procedure on receipt of an application under Section 245C--(1) On receipt of an application under Section 245C, the Settlement Commission shall call for a report from the Commissioner and on the basis of the materials contained in such report and having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, the Settlement Commission, shall, where it is possible, by order, reject the application or allow the application to be proceeded with within a period of one year from the end of the month in which such application was made under Section 245C :

Provided that an application shall not be rejected under this sub-section unless an opportunity has been given to the applicant of being heard :

Provided further that the Commissioner shall furnish the report within a period of forty-five days of the receipt of communication from the Settlement Commission in case of all applications made under Section 245C on or after the 1st day of July, 1995, and if the Commissioner fails to furnish the report within the said period, the Settlement Commission may make the order without such report.'

'245E. Power of Settlement Commission to reopen completed proceedings,--If the Settlement Commission is of the opinion (the reasons for such opinion to be recorded by it in writing) that, for the proper disposal of the case pending before it, it is necessary or expedient to reopen any proceeding connected with the case but which has been completed under this Act by any income-tax authority before the application under Section 245C was made, it may, with the concurrence of the applicant, reopen such proceeding and pass such order thereon as it thinks fit, as if the case in relation to which the application for settlement had been made by the applicant under that section covered such proceeding also : Provided that no proceeding shall be reopened by the Settlement Commission under this section if the period between the end of the assessment year to which such a proceeding relates and the date of application for settlement under Section 245C exceeds nine years.'

13. We are not required to write on a clean state. For, the aforesaid provisions have already been considered and lucidly interpreted when they came for consideration before the Supreme Court in the cases of R.B. Shreeram Durga Prasad and Fatechand Nursing Das v. Settlement Commission (IT and WT) : [1989]176ITR169(SC) and in the case of CIT v. Paharpur Cooling Towers Pvt. Ltd. : [1996]219ITR618(SC) . In fact counsel for both the sides referred to the aforesaid judgments in support of their respective contentions.

14. thereforee, it would be better to find out as to what these cases decide. In the first case the appellant had made a composite application to the Settlement Commission for settlement of its income-tax assessments for the assessment years 1948-49 to 1975-76 under Section 245C of the Income-tax Act, 1961. On August 12, 1977, the Commissioner agreed to the settlement for the years 1960-61 to 1975-76 but objected to the settlement for the earlier years 1948-49 to 1959-60 on the ground that concealment in relation to those years had been upheld in appeal before the appropriate authorities. Without furnishing to the appellant any opportunity of being heard, the Settlement Commission passed an order on August 24, 1977, rejecting the application for settlement for the years 1948-49 to 1959-60. On September 20, 1977, the appellant applied to the Commission for recalling that order making certain submissions. Pending this application, the Finance Act, 1979, amended Section 245D by inserting Sub-section (1A), which enabled the Settlement Commission to reject the Commissioner's application. Thereafter, the matter was heard on June 18, 1987, and the Commission passed an order holding that the appellant was entitled to a rehearing, since the order dated August 24, 1977, had been made in violation of the principles of natural justice, but rejected the submission that the application for settlement would have to be rejected in its entirety if the Commissioner's objections were not to be interfered with. The Supreme Court allowing the appeal against this order held :

(i) that, an appeal under Article 136 of the Constitution of India lay to the Supreme Court against the order of the Settlement Commission ;

(ii) that, the earlier order passed by the Settlement Commission on August 24, 1977, was a nullity because it was made in violation of the principles of natural justice ;

(iii) that, thereforee, the application for settlement was still pending when the amendment made by the Finance Act, 1979, came into effect ; and that amendment being procedural, the amended Section 245D would govern the proceedings and the Commission would have the power to overrule the objections of the Commissioner ;

(iv) that the appellant was entitled to be heard on the Commissioner's objections ;

(v) that, on the facts, though the appellant had made its submissions on the Commissioner's objections, no clear opportunity had been afforded to it to demonstrate that the Commissioner was not justified in making the objections and that the Commission ought not to accept the objections. It might be that in spite of the fact that concealment for the years 1948-49 to 1959-60 had been upheld in appeal, it would be possible for the appellant to demonstrate that in disclosure of concealment of income for a spread over period, settlement for the entire period should be allowed and not bifurcated in the manner sought by the Commissioner.

15. Thus as far as this case is concerned the matter was merely referred back to the Settlement Commission for adjudication on a different fact situation and primarily on the ground that the principles of natural justice were not adhered to.

16. The exercise of exhaustive interpretation of the aforesaid provisions was undertaken by the apex court in the latter case, namely, Paharpur Cooling Towers Pvt. Ltd. : [1996]219ITR618(SC) . That was a case where the respondent-assessed filed an application for settlement under Section 245C of the Income-tax Act, 1961, in respect of the assessment year 1975-76. In his response/report to the said application, the Commissioner stated that he had no objection to the application for settlement being processed in respect of the assessment year 1975-76. Thereafter the assessed filed a statement, requesting that the enhanced value of the opening stock disclosed by it should not be added in the assessment of the assessment year 1975-76 alone but should be appropriately spread over all the six assessment years, viz., assessment years 1970-71 to 1975-76. For this purpose, the assessed consented to the reopening of the assessments for the assessment years 1970-71 to 1974-75. The Settlement Commission, holding, by a majority, that it had jurisdiction to do so, reopened the assessments for the earlier assessment years and passed order directing that penalty proceedings pending for those years be dropped. The court examined the validity of the order of the Commission whereby it had directed dropping of penalty proceedings relevant to the assessment years 1970-71 to 1974-75 while settling the case relevant to the assessment year 1975-76 and held that this was not a case where the Commission wanted to reopen the concluded assessments because it was found necessary or expedient to do so for the proper disposal of the case pending before it ; it was a case where the assessed was requesting for a benefit and for the purpose of obtaining that benefit, it was requesting the reopening of the earlier assessments. Even this request of the assessed was for a limited purpose, viz., for spreading over the enhanced value of opening stock disclosed by it over the said six assessment years. It was not a request or concurrence to reopen the entire assessment and penalty proceedings relating to the said earlier assessment years. The penalty proceedings not only related to assessment years not before the Commission but they related to alleged concealments during those earlier assessment years which concealments were not before the Commission. The disclosure before the Commission related to two other concealments disclosed for the assessment year 1975-76 which were wholly different and distinct from the concealments on account of which the penalty proceedings had been initiated. The Commission had exceeded its jurisdiction in directing that the penalty proceedings relating to the assessment years 1970-71 to 1974-75 should be dropped or that penalties be waived in respect of the said assessment years. Moreover even assuming that the Commission could exercise the power under Section 147, the said power has to be exercised in accordance with the provisions contained in Sections 147 to 150. Admittedly, they were not complied with, in this case. The order of the Settlement Commission to the extent that it had dropped the penalty proceedings relating to the assessment years 1970-71 to 1974-75 and to the extent it had waived the penalties for the said assessment years was accordingly set aside.

17. In the process while deciding appeal in the aforesaid manner Justice B. P. Jeevan Reddy speaking for the court exhaustively narrated the effect of the aforesaid provisions in the following words (page 627 of 219 ITR) :

'Section 245C(1) provides that an application for settlement shall be filed in the prescribed form containing prescribed particulars ; in this case, the application filed by the assessed pertained only to one assessment year, viz., 1975-76, and to no other assessment year. According to the second proviso toSection 245D(1), as in force at the relevant time, no such application can be proceeded with by the Commission if the Commissioner objects to the application being proceeded with on the ground that concealment of particulars of income on the part of the applicant or perpetration of fraud by him for evading any tax or other sum chargeable has been established or is likely to be established by any income-tax authority in relation to the case ; in this case, the Commissioner objected to the Commission passing any orders with respect to the assessment years other than the assessment year 1975-76 ; so far as the assessment year 1975-76 is concerned, the Commissioner put forward no objection. Sub-section (4) of Section 245D says that after examining the entire material, the Commission shall 'pass such order as it thinks fit on the matters covered by the application and any other material relating to the case not covered by the application', 'in accordance with the provisions of the Act' ; in other words, the Commission has not only to act in accordance with the provisions of the Act but that its jurisdiction is confined to the matters covered by the application before it. The further words 'and any other material relating to the case not covered by the application' show that the Commission can take into consideration any other material not covered by the application but it must be one relating to the case before it. It must be remembered that this Chapter [XIX-A] prescribes a procedure which is a departure from the normal procedure provided by the Act. Once an application is admitted--an application can be made only in respect of a pending case--the Commission takes over all the proceedings relating to that case which may be pending before any authority under the Act, But this power is confined to the case before the Commission, which means the case relating to the assessment year for which the application for settlement is filed and admitted for settlement--to wit, assessment year 1975-76 in this case. Section 245E, which is the sheet anchor of the majority opinion, empowers the Commission to reopen any completed proceedings connected with the case before it but this power is circumscribed by the requirement expressly stated in the section that such reopening of completed proceedings should be necessary or expedient for the proper disposal of the case pending before it. There are two other limitations upon this power, viz., that this reopening of the completed proceedings can be done, even for the aforesaid limited purpose, only with the concurrence of the assessed and secondly that this power cannot extend to a period beyond eight years from the end of the assessment year to which such proceeding relates. These two features make it abundantly clear that the section contemplates reopening of the completed proceedings not for the benefit of the assessed but in the interests of the Revenue. It contemplates a situation where the case before the Commission cannot be satisfactorily settled unless some previously concluded proceedings are reopened which would normally be to the prejudice of the assessed. It is precisely for this reason that the section says that it can be done only with the concurrence of the assessed and that too for a period within eight years. This section cannot be read as empowering the Commission to do indirectly what cannot be done directly.' (emphasis1 added)

18. From the aforesaid observations the following points can be culled out :

(a) When the application under Section 245C(1) is moved before the Settlement Commission its jurisdiction is confined to the matter covered by the application before it,

(b) The Commission can take into consideration any other material not covered by the application but it must be relevant to the case before it,

(c) An application can be made only in respect of a pending case,

(d) Once an application is admitted in respect of a pending case the Commission takes over the proceedings relevant to that case which may be pending before any authority under the Act,

(e) Section 245E empowers the Commission to reopen any completed proceedings connected with the case before it but this power is circumscribed by the requirement expressly stated in the section that such reopening of the completed proceedings should be necessary or expedient for the proper disposal of the case pending before it,

(f) There are two more limitations on this power, namely, the reopening of the completed proceedings can be done, even for the aforesaid limited purpose, only with the concurrence of the assessed and, secondly, that this power cannot extend to a period beyond eight years from the end of the assessment year to which such proceeding relates,

(g) The aforesaid limitations make it clear that the section contemplates reopening of completed proceedings not for the benefit of the assessed but in the interests of the Revenue.

19. Thus the court held, in no uncertain terms, that the jurisdiction of the Settlement Commission was limited to settling the case in respect of which the application was admitted and it could not settle the matter relating to other assessment years which are not before it. This rule however, was relaxed by Section 245E to a limited extent and only if the following conditions are satisfied (page 628 of 219 ITR) :

'(a) such reopening is necessary or expedient for the proper disposal of the case before it,

(b) the reasons for such opinion are recorded in writing by the Commission,

(c) the applicant-assessed must give his concurrence thereforee, and

(d) the proceeding which is being reopened must relate to an assessment year which is within eight years from the end of the assessment year to which the case before the Commission relates.'

20. We may mention that even as per the proceedings of Section 245A of the Income-tax Act, an application before the Settlement Commission can be made in respect of a 'case' which means that the case must be pending which would imply that such an application cannot be filed in respect of those assessment years where no case was pending and assessment had already been completed. It is thus clear that in the instant case when the application was filed cases in respect of the assessment years 1972-73, 1973-74, 1975-76 and 1976-77 were not pending. An application in respect of these years could not have been admitted. The Settlement Commission could reopen the assessment in respect of these cases only if it found it necessary or expedient for the purpose of disposal of the case pending before it. This too could be done only if it was in the interest of the Revenue and in such case concurrence of the assessed was required. However, the reverse is not the true. The Settlement Commission has no power to reopen the completed proceedings at the instance of the assessed.

21. Learned counsel for the petitioner contended that the additional income of Rs. 34 lakhs offered by it for taxation in his second/supplementary application was spread over different assessment years, i.e., 1972-73 to 1979-80, and, thereforee, for settling the case it was necessary to reopen the assessment in respect of preceding years. However, his request based on such a self-formed opinion would not be of any help. It was for the Settlement Commission to satisfy itself that it was necessary to reopen the assessment in the interest of the Revenue.

22. We have also noticed that the petitioner when it filed the main settlement application in the first instance, the same was confined only to the assessment years 1977-78 and 1978-79. It is only when on November 13, 1979, its premises as well as those of its directors, etc., were raided and search and seizure was undertaken under Section 132 of the Act that the petitioner-company filed a second application offering additional income and wanted the Settlement Commission to cover the period from 1972-73 to 1979-80. Obviously, after this search and seizure the petitioner-company knew fully well that the Income-tax Officer may initiate reassessment proceedings. Obviously to avoid the same the petitioner had chosen the aforesaid course of action. Though it had withdrawn this application it still wanted the statement of facts filed therewith to be part of the first application.

23. For the aforesaid reasons, we do not find any merit in this writ petition. It is accordingly dismissed.

C. W. P. No. 990 of 1981 :

24. In this petition the order dated February 21, 1981, of the Settlement Commission is challenged on two grounds, namely,

(a) not admitting the settlement application for the assessment years 1971-72 to 1974-75 and ;

(b) levy of penalties for concealment of income for the assessment years 1975-76 to 1978-79. In so far as the first part is concerned, this prayer has to be dismissed in view of our conclusion in C. W. P. No. 1255 of 1981 as aforesaid. The writ petition only in respect of the second relief is to be entertained which aspect would be dealt with later.

C W. P. No. 991 of 1981 :

25. In so far as C. W. P. No. 991 of 1981 is concerned, the petitioner has prayed for a writ of certiorari quashing the three notices for reassessment for the assessment years 1972-73 to 1974-75 all dated January 31, 1981, under Section 148 of the Act. This relief is based on the presumption that the Settlement Commission had to admit the application for settlement in respect of these assessment years also for which prayer was made in C. W. P. No. 990 of 1981. As noted above, as that prayer is rejected, as a sequitur thereto this writ petition also has to be dismissed. It is dismissed accordingly.

C. W. P. No. 990 of 1981 :

26. Reverting to the second relief claimed in C. W. P. No. 990 of 1981, it may be mentioned that the Settlement Commission in the impugned order levied penalties under Section 271(1)(c) of the Act for concealment of income/furnishing inaccurate particulars of income. The Commission observed that the assessed in the statement of facts filed on September 29, 1979, had disclosed concealed income of Rs. 7.16 lakhs. However, after search on November 13, 1979, when many incriminating documents (including fixed deposit receipts of Rs. 38 lakhs) were seized, it filed a fresh statement of facts declaring concealed income of Rs. 102.50 lakhs. This clearly showed that the second statement of facts was not voluntary. thereforee, on this ground penalty under Section 271(1)(c) was levied. Mr. C.S. Aggarwal, learned counsel appearing for the petitioner in this case, submitted that merely because after the search income was revised but with request to spread income over the years, i.e., 1971-72 to 1978-79, that would not lead to the conclusion that there was deliberate concealment of income. He submitted that the Settlement Commission imposed penalty in relation to the assessment years 1975-76 to 1978-79 without an iota of evidence about concealment of income in relation to these years. He further submitted that for the years 1979-80 and 1980-81 no penalty was imposed only on the ground that now income disclosed was not relatable to any year and thereforee for the assessment year in question as well no such penalty could be imposed. His further submission was that although the seizure was from the partners of the petitioner firm and thereforee the assets did not belong to the petitioner in such a situation there was no question of levying penalty on the petitioner. Mere disclosure of income voluntarily would not attract penalty provisions unless concealment was also proved, learned counsel submitted. He also referred to three orders of the Commission passed in some other cases wherein no penalty was levied and on that basis submitted that on the parity of reasoning the penalty should not have been levied in respect of these years as well. In a nutshell his submissions were :

(a) Merely from the fact that income was revised upward voluntarily, no penalty could be levied. It could not be presumed that there was a concealment. thereforee, no penalty could be levied for this. He referred to the judgment of CIT v. Suresh Chandra Mittal : [2001]251ITR9(SC) .

(b) Where there is no concealment, no penalty could be levied (refer to CIT v. Aggarwal Pipe Co. : [1999]240ITR880(Delhi) ).

(c) The disclosure could not be related to any specific year and on this ground also penalty could not be levied in respect of one particular year. He submitted that it was the basic principle of income-tax that income is to be assessed in the right hands and for the right year referring to the case of ITO v. Ch. Atchaiah : [1996]218ITR239(SC) ,

(d) Referring to the order passed by the Income-tax Appellate Tribunal in respect of the earlier years where assessment was reopened, he pointed out that no penalty was levied and the Income-tax Appellate Tribunal applied the correct principle which should have been applied by the Commission also.

27. Mr. Pandey, on the other hand, referred in extenso to the order passed by the Settlement Commission and submitted that the penalty was rightly levied. His contention was that nobody would go to the Settlement Commission unless there was a concealment and further that once the Settlement Commission passes an order it is final. The power of judicial review was very limited referring to the cases of Nirmal and Navin P. Ltd. v. D. Ravindran : [2002]255ITR514(SC) and C A. Abraham v. Asst. CIT : [2002]255ITR540(Mad) .

28. We may state at the outset that in respect of the assessment years 1971-72 to 1974-75 where the Income-tax Officer had reassessed, he also imposed penalty under Section 271(1)(c) of the Act for these assessment years. The petitioner herein challenged the said orders. Ultimately, the matter came before the Income-tax Appellate Tribunal (the ITAT). It disposed of the appeal vide order dated August 30, 1991, and allowed it in part. This order is filed in this writ petition which is at page 246 to which reference was made by learned counsel for the petitioner. Accepting the contention of the petitioner and quashing the penalty, the Income-tax Appellate Tribunal observed as under : 'We have given our very careful consideration to the rival submissions. The undisputed fact which is applicable to all these years is that the search which took place on November 30, 1979, did not result in seizure of any incriminating documents pointing directly or indirectly to the assessed-firm having earned income over these years, which income had not been entered in its books of account but concealed. The assets seized were in the name of various persons, some of whom were partners. The admitted position which was advanced during the course of hearing was that no penalty proceedings were initiated in the hands of partners for any of these assessment years. The other undisputed and admitted position is that the assessed had given bifurcation of the income which had arrived at and sought for settlement was based on various assets which were seized from the partners and their relatives and also in respect of certain items like miscellaneous expenses, repairs, investment in factory building and plant and machinery, etc. The total amount of Rs. 1,02,50,000 which was so offered to be settled, the assessed bifurcated the same over the assessment year 1971-72 to the assessment year 1980-81. The amounts so sought to be treated as income for the assessment years under appeal are Rs. 6 lakhs, Rs. 2 lakhs, Rs. 3.05 lakhs and Rs. 7.50 lakhs for the assessment years 1971-72, 1972-73, 1973-74 and 1974-75, respectively. If any of these assessments were pending at the time when the assessed moved its amended petition before the Settlement Commissioner some time in January, 1980, as it had happened in respect of the assessment year 1975-76 to the assessment years 1980-81. The result would have been that the amount so offered might have been accepted. All the same, the undisputed fact that remains is that neither the assessed nor the Revenue could pin-pointedly say that the amount so declared/surrendered and so accepted by the Revenue for these years really represented income of these years. When it could not be identified, or when it could not be said with firmness based on any evidence that these were really incomes earned and concealed by the assessed in these years, the concept of the assessed having concealed particulars of income falls to the ground. The basic concept of income having been concealed to (sic) if it could be said to have been earned by the assessed and in respect of a particular assessment year. If an income is found to have been earned by an assessed for a particular assessment year for which neither the assessment could be made nor penalty proceedings could be initiated, but the assessed with a view to buy peace offered the same as income of the assessment which is pending, is indicative only of the fact of absence, of any material which could pin-pointedly indicate that the income was earned in the assessment year in which the assessed surrendered the same. The Madras High Court in the case of Gordhandass Moolchand : [1979]116ITR893(Mad) , had very clearly observed that the assessed who had made a disclosure of a particular sum which was evaluated by the Assessing Officer, some portion of it was held as referable as income of a particular assessment year and included as such, on the basis of which penalty proceedings were initiated, the decision was that since the assessed agreed for such an assessment did not conclusively establish that the amount which was brought to tax could be said to have reference to any particular assessment year and that there was no evidence to show that the amount so added in a particular assessment year could be related to that assessment year alone. It would not be out of place to bring in the ratio laid down by the Supreme Court in Sir Shadilal Sugar and General Mills' case : [1987]168ITR705(SC) that mere surrender of an income and agreeing it to be treated as its income did not necessarily follow that the amount so agreed to be added was concealed income merely because the assessed does not dispute the addition or agreeing to that addition does not absolve the Revenue from proving the means read of quasi-criminal offence.

29. The Gujarat High Court in Vinay Chand Hari Lal : [1979]120ITR752(Guj) is also clearly on the point where there was an admission of the assessed before the Appellate Assistant Commissioner that the amount belonged to him did not necessarily mean that the admission was to the effect that it was really the income that was earned in the relevant assessment year and thereforee, was not sufficient for levying of penalty. In the earlier paragraphs during the course of bringing any arguments of counsel for the assessed, Mr. Agarwal, the observation made by the Assessing Officer in imposing the penalty has been brought out. The Assessing Officer had observed while imposing penalty that it would have been a mere matter of time before the Department would have established concealment of substantial income by the applicant firm. In other words, this scale the facts of the Revenue and also establishes that the Revenue had no evidence on record which would suggest that the income that was surrendered by the assessed really represented the incomes that were earned, the sources from which they were earned, etc. In other words, the penalty was imposed merely for the reasons that the assessed had surrendered these amounts which was so accepted by the Revenue. We are, thereforee, of the opinion that the assessed had been able to offer its Explanationn which could not be said to be unreasonable to the effect that it had no way of pin-pointedly saying to which year the income pertains and how much pertains to which year and simultaneously the Department had no way of establishing that the income so surrendered by the assessed was really the income earned by it in those assessment years. We are thereforee of the opinion that the penalty in these circumstances for concealment of income could not be justified in view of the authorities and the facts in the instant case and we quash the penalty so imposed.'

30. Thus disclosure of this very income was not treated as concealed income in relation to the earlier years by the Income-tax Appellate Tribunal which came to the conclusion that disclosure was not relatable to any particular assessment year. On the other hand, the only reason given by the Settlement Commission in the impugned order is that the second petition for statement of facts was made by the petitioner after the search and seizure operation. It was as a result of this successful search carried out by the income-tax authorities which brought to surface the concealed income. The Commission was, thereforee, of the opinion that the petitioner was compelled to disclose the income after the search. It was, thereforee, not a voluntary disclosure. It is clear from this reasoning given by the Settlement Commission that the Settlement Commission did not take into consideration other aspects of the matter which were subsequently considered by the Income-tax Appellate Tribunal in respect of the same subject matter.

31. No doubt as contended by Mr. Pandey the judicial review in such cases is limited in view of the nature of the orders passed by the Settlement Commission. However, if we come to the conclusion that the Settlement Commission did not take into consideration the relevant facts and did not satisfy itself about the necessary ingredients which are to be established before penalty is to be imposed, the order would clearly be perverse and this court in exercise of Article 226 of the Constitution of India has the jurisdiction to judicially review the same. This part of the order, imposing the penalty, thereforee, is set aside while maintaining the rest of the order and the matter is remitted back to the Settlement Commission for consideration of the matter afresh, after giving opportunity to both the parties. Writ Petition No. 990 of 1981 is, thereforee, partly allowed.

C. W. P. No. 992 of 1981 :

32. In this petition the petitioner has challenged notices issued to it under Section 156 of the Act pursuant to the orders passed by the Settlement Commission under Section 245D(1) of the Act by serving upon the petitioner notices ofdemand claiming the tax, penalty, etc., payable by virtue of the order of the Settlement Commission. Since we have set aside the order of the SettlementCommission relating to penalty, the demand in these notices cannot be enforced till the decision by the Settlement Commission is taken afresh. Thiswrit petition is, thereforee, also disposed of with the direction to the Income-tax Officer to keep the matter in abeyance till the decision of the SettlementCommission. No costs.