Full Judgment Text
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
22.
+ W.P.(C) 5424/2016 & CM 22583/2016 (for stay)
BINDLAS DUPLUX LTD. ..... Petitioner
Through: Mr. Ajay Vohra, Senior Advocate with
Mr. Rohit Jain and Mr. Vaibhav Kulkarni,
Advocates.
versus
PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL)
DELHI-3 & ORS. ..... Respondents
Through: Mr. Zoheb Hossain, Senior Standing
Counsel with Mr. Deepak Anand, Advocate.
WITH
23.
+ W.P.(C) 5425/2016 & CM 22585/2016 (for stay)
SWABHIMAN VYAPAAR PVT LTD. ..... Petitioner
Through: Mr. Ajay Vohra, Senior Advocate with
Mr. Rohit Jain and Mr.Vaibhav Kulkarni,
Advocates.
versus
PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL)
DELHI-3 & ORS. ..... Respondents
Through: Mr. Zoheb Hossain, Senior Standing
Counsel with Mr. Deepak Anand, Advocate.
WITH
24.
+ W.P.(C) 5427/2016 & CM 22589/2016 (for stay)
BRINA GOPAL TRADERS PVT. LTD. ..... Petitioner
Through: Mr. Ajay Vohra, Senior Advocate with
Mr. Rohit Jain and Mr.Vaibhav Kulkarni,
WP (C) Nos.5424; 5425; 5427 & 5428/2016 Page 1 of 15
Advocates.
versus
PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL)
DELHI-3 & ORS. ..... Respondents
Through: Mr. Zoheb Hossain, Senior Standing
Counsel with Mr. Deepak Anand, Advocate.
AND
25.
+ W.P.(C) 5428/2016 & CM 22591/2016 (for stay)
TEHRI PULP & PAPER LTD. ..... Petitioner
Through: Mr. Ajay Vohra, Senior Advocate with
Mr. Rohit Jain and Mr.Vaibhav Kulkarni,
Advocates.
versus
PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL)
DELHI-3 & ORS. ..... Respondents
Through: Mr. Zoheb Hossain, Senior Standing
Counsel with Mr. Deepak Anand, Advocate.
CORAM:
JUSTICE S. MURALIDHAR
JUSTICE CHANDER SHEKHAR
O R D E R
% 17.05.2017
Dr. S. Muralidhar, J. :
1. These are four writ petitions filed by four entities whose applications
before the Income Tax Settlement Commission („ITSC‟) were not allowed
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to be proceeded with by the impugned order dated 13 May2016 passed by
the ITSC under Section 245D(2C) for the Assessment Years („AYs‟) 2008-
09 to 2015-16.
WP (C) Nos.5424; 5425; 5427 & 5428/2016 Page 2 of 15
2. The four Petitioners belong to the „Bindal Group‟, which comprises of ten
such companies. The Petitioner in WP(C) No.5424/2016, Bindals Duplex
Limited („BDL‟) and the Petitioner in WP (C) No.5428/2016, Tehri Pulp &
Paper Limited, are engaged in the business of manufacturing of craft paper.
The other two Petitioners i.e., Swabhiman Vyapaar Private Limited,
Petitioner in WP(C) No.5425/2016 and Brina Gopal Traders Private
Limited, Petitioner in WP(C) No.5427/2016 are entities created by the
Bindal Group for providing entries to facilitate unaccounted income/funds
generated by the group for unaccounted business transactions and inflation
of expenses.
3. A search was undertaken on various premises of the Bindal Group under
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Section 132 of the Income Tax Act, 1961 („Act‟) on 7 March, 2014.
Proceedings under Section 153A and 143(3) of the Act were initiated for
AYs 2008-09 to 2014-15, and for AY 2015-16. Returns were filed and the
assessment was pending. Pursuant to the notices issued to each of the ten
companies including the present four Petitioners under Section 153A of the
Act for AYs 2008-09 to 2013-14, the Petitioners filed their respective
returns.
4. While the assessments were pending, applications were filed by the
Petitioners and the six other companies comprising the Bindal Group before
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the ITSC on 17 March 2016 under Section 245 C (1) of the Act for AYs
2008-09 to 2015-16. The income which was not disclosed before the AO
and which was offered by Bindals Duplex Limited for tax was Rs. 4.10 crore
comprising of unsecured loans for AY 2013-14, Rs. 3.50 crore comprising
WP (C) Nos.5424; 5425; 5427 & 5428/2016 Page 3 of 15
of unsecured loans and sum for AY 2014-15 and Rs. 10 lakhs towards
unaccounted stock. Likewise, Swabhiman Vyapaar Private Limited, Brina
Gopal Traders Pvt. Ltd. and Tehri Pulp & Paper Limited offered for tax
sums that were not earlier disclosed aggregating to Rs. 32.50 lakhs, Rs.
33.51 lakhs and Rs. 8.25 crores respectively.
5. Enclosed with the applications was the “full and true statement of facts.”
Inter alia it was stated therein that the main promoter of Bindal Group of
companies, Shri Rakesh Kumar, had been in business since 1976; that he
started with the family business of sugar, gur etc; he set up a couple of mini
sugar plants in Muzaffarnagar, Saharanpur and in adjoining areas; Bindals
Duplux Ltd. was promoted by him in 1989 for manufacturing Kraft Paper;
thereafter, for purposes of trading, Neeraj Paper Marketing Ltd, was set up
in 1995; in 1998, the company, Teri Pulp and Paper Limited („TPPL‟) was
taken over by the Bindal Group for manufacturing high quality kraft paper
in 2001, the company, Agarwal Duplex Board Mills Limited („ADBML‟)
was taken over for the purpose of duplex board. In the year 2002,
Uttaranchal Iron and Ispat Limited in Kotdwar for manufacturing MS Bars,
Flats, rounds etc., and in 2003, Bindals Sponge Limited (for manufacturing
Sponge Iron) were set up in the Angul District in Orissa. The group has also
set up a writing printing paper manufacturing unit named Bindal Paper Mills
Limited. It is stated that the interest in Uttaranchal Iron and Ispat Limited
was transferred to an unrelated group in 2012 and the shares in Bindal
Sponge Industries Limited were transferred to a different unrelated group in
2013.
WP (C) Nos.5424; 5425; 5427 & 5428/2016 Page 4 of 15
6. The details of the cash, jewellery and other valuables seized during the
search as well as the details of the documents seized during the search were
set out in this statement. The narration then shifted to unaccounted receipts
in Bindal Group, and, in particular, in relation to Bindal Sponge Industries
Limited, Bindal Papers Mills Limited and TPPL. Inter alia it was stated that
there were unaccounted receipts in the Group in different years, for which
the promoters indulged in sales outside books and in suppressing production
end by raising bogus bills for inflation of capital expenditure. The details of
such receipts were set out. The details of non-genuine share capital and non-
genuine unsecured loans introduced in different AYs in different group
companies were set out in a tabular chart as set out in para 7 of the
statement.
7. Inter alia , the fact that the four Petitioners herein were also beneficiaries
of the unaccounted funds generated in the group and the introduction of
funds in the Petitioner companies by way of accommodation entries for
share capital was disclosed. In para 12 of the application, the „manner of
earning income‟ was given for each of the applicants.
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8. On 30 March 2016, the ITSC passed an order under Section 245D (1) of
the Act. In para 7 of the said order, it was recorded as under:
“7. We have carefully considered the contents of the settlement
applications filed before us/ the paper books filed along with the
applications, submissions made during the hearing by the Learned
AR, details filed before us and clarifications given to queries made by
us, all the technical requirements prescribed u/s 245C(1) have been
fulfilled by all the applicants. On the basis of the material placed
before us, we are of the view that as of now, there is no reason to hold
that the disclosures made by the applicants are not full and true. The
WP (C) Nos.5424; 5425; 5427 & 5428/2016 Page 5 of 15
applicants have also explained the manner of deriving additional
income not disclosed to the Assessing Officer, in their respective
settlement applications. We accordingly hold that all the ten
applications dated 18.03.2016 are fit to be allowed and proceeded
with. Ordered accordingly.”
9. After the application was allowed to be proceeded as above, the Principal
Commissioner of Income Tax (Central), Delhi-3, Respondent No.1, filed a
report under Section 245D (2B) of the Act before the ITSC. It is significant
that the report submitted by Respondent No. 1 was a consolidated report and
did not make any distinction between the 10 applicants. The main areas of
undisclosed income declared in six companies i.e., Bindal Papers Mills Ltd.,
Bindal Sponge Industries Ltd., Tehri Pulp & Paper Ltd., Neeraj Paper
Marketing Pvt. Ltd., Agarwal Duplex Board Mills Ltd. and Bindlas Duplux
Ltd. were found as following:
a. Bogus share capital/Share premium
b. Unsecured Loan
c. Unaccounted stock found during the search and other expenses
d. Other issues
10. It was mentioned that the other four companies i.e., Brina Gopal Traders
Pvt. Ltd., Satyavan Sales Promotions Pvt. Ltd., Swabhimaan Vyapar Pvt.
Ltd and V.R. Digital Pvt Ltd were companies where the issue involved was
of share trading without any proper evidence. In the case of Swabhiman
Vyapar Pvt Ltd and Brina Gopal Traders Pvt. Ltd., the amount of unsecured
loan declared was Rs.25 lakh each. According to Respondent No.1, there
was inadequate disclosure on account of bogus share capital/share premium
and bogus unsecured loans. The report questioned the genuineness of the
WP (C) Nos.5424; 5425; 5427 & 5428/2016 Page 6 of 15
share capital and unsecured loans. It is stated that during the course of
assessment proceedings, notices were sent under Section 133 (6) of the Act
to all investors companies/lending companies and in most of the cases the
notices were received back. Therefore, no confirmation was forthcoming
even from a single person from whom the Assessee claimed to have
received the share capital with huge premium or unsecured loans. It was,
therefore, stated that the Assessee failed to establish the identity and
genuineness of the share capital/unsecured loans transactions within the
meaning of Section 68 of the Act. Further, under the head „other issues‟ in
the report, it was stated that the Assessee had submitted “a detailed cash
flow evidently to take advantage of netting/telescoping”.
11. It was further stated by Respondent No.1 in the report that the above
cash flow prepared with an intention to establish non-existent availability of
cash on account of unaccounted sales made in the case of Bindals Sponge
Industries Ltd., where the Assessee Company had huge business losses and
unabsorbed depreciation allowances. The cash flow statement indicated that
the closing balance was in excess of Rs. 10 crores for many financial years,
which was highly improbable. It was observed that “no prudent business
person would keep such amount of cash idle at his residential or business
premises especially considering the business of the Assessee where heavy
capital is required and huge working capital loan is always required on
which substantial interest has been paid by the Assessee group to the
Banks.” No supporting evidence had been filed. The transactions mentioned
in the cash flow statement were held not to be supported by the seized
documents. According to Respondent No. 1, the additional disclosure of
WP (C) Nos.5424; 5425; 5427 & 5428/2016 Page 7 of 15
income made by the Assessee was just about 50% of what ought to have
been disclosed.
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12. To the above report, the Petitioner submitted a para-wise reply on 11
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May 2016. The impugned order dated 13 May 2016 of the ITSC held that
“no clinching and direct evidence has been placed on record by the
Department upto this stage before us to come to the conclusion that the
Applicant has not made true and full disclosure of its income in the
settlement application.” It was stated that most of the issues raised by
Respondent No. 1 in his report “need further verification/inquiry which can
be taken up in the later proceedings.” Accordingly, six applications were
allowed to be proceeded with further within the meaning of Section 245D
(2C) of the Act.
13. Further, as far as four Petitioners before the Court were concerned, by a
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separate order of the same date i.e., 13 May 2016, it was observed as
follows:
“On a perusal of PCIT's report, it is seen that no specific comments
have been made with regard to the present four Applicants under
consideration; as to the manner of their deriving undisclosed income
offered for taxation in the settlement applications.”
14. The ITSC took up for consideration whether each of the four Petitioners
herein had made a true and full disclosure of income and the manner of
earning income. In para 6 of the impugned order, it was observed as under:
“6. However, other than the income from share dealings in A.Y.
2015- 16, the applicants have not explained the manner of earning the
WP (C) Nos.5424; 5425; 5427 & 5428/2016 Page 8 of 15
income which has resulted into unexplained loans, credit balance,
stock and transportation cost all being offered in the settlement
applications. In view of this, the learned AR, during the course of
hearing on 11.05.2016, was required to explain why the applications
be not declared invalid since the basic requirement under Section
245C for explaining the manner of deriving income offered in the
settlement applications had not been satisfied.”
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15. At the adjourned date i.e., 12 May, 2016 the written submissions were
filed by the four applicants which was noted in the impugned order.
However, in the impugned order, the ITSC was not satisfied with the
submissions on behalf of the four applicants/Petitioners for the following
reasons:
(a) A consolidated cash flow was filed to explain the non-genuine
share capital and non-genuine unsecured loans. Various receipts
claimed as 'deemed income' were shown as receipts in the hands of
the six other applicants. The non-genuine loans un-explaining credit
balance, stock, unaccounted expenditure declared in the hands of four
applicants in their settlement applications were “not covered by the
above consolidated cash flow.”
(b) The Petitioners had not explained the manner of deriving the
undisclosed income used in acquiring such assets incurring such
expenses.
16. Accordingly, it was held that the four Petitioners had not satisfactorily
explained the manner of deriving such additional income. Therefore, the
mandatory requirement for a valid application under Section 245C (1) of
the Act was not complied with. The applications were said to be invalid and
WP (C) Nos.5424; 5425; 5427 & 5428/2016 Page 9 of 15
were not allowed to be proceeded with.
17. This Court has heard the submissions of Mr. Ajay Vohra, learned Senior
counsel for the Petitioner and Mr. Zoheb Hossain, learned Senior standing
counsel for the Revenue.
18. Mr. Vohra submitted that in the settlement applications filed by the four
Petitioners and also six other companies of the Bindal Group, it was
elaborately explained that unaccounted income/funds generated by the group
as a whole from the unaccounted business transactions and inflation of
expenses were brought into a common pool and "redeployed/introduced in
the form of share capital and/or unsecured loans in various companies of the
Group.” It was also explained that there was intermingling of funds
generated by the various companies in the group. These were redeployed
and introduced in various group companies, depending upon business
requirement. Mr. Vohra accordingly submitted that the ITSC was required to
examine all these applications as a whole and not individually for final
settlement of the income of various entities in the group.
19. Mr. Vohra further submitted that in the initial order passed by the ITSC
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on 30 March 2016, there was a categorical finding that the Applicants had
explained the manner of deriving additional income. Further, in its report
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dated 3 May 2016, Respondent No. 1 did not offer any specific comment
on the applications filed by the four Petitioners herein. This was noted by
the ITSC in the impugned order. In fact, no comments were offered as to the
manner of deriving undisclosed income. In other words, there was no
objection raised by the Respondent specific to the manner of deriving
WP (C) Nos.5424; 5425; 5427 & 5428/2016 Page 10 of 15
income by the four Petitioners.
20. Mr Vohra submitted that there was no occasion for the ITSC to reverse
the stand taken by it in the earlier order and conclude that the Petitioners had
failed to explain the manner of earning the undisclosed income. Mr. Vohra
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referred to a common reply dated 11 May 2016 of the ten companies
including the Petitioners reiterating the manner of earning the undisclosed
income.
21. In reply to the above submissions, Mr. Hossain, learned counsel for the
Revenue referred to the impugned order passed by the ITSC which noted, on
the basis of the report of Respondent No.1, as well as the Petitioners‟ own
submissions that the Petitioners were unable to establish the bona fides of
the parties from whom they purportedly availed loans. It is submitted that
merely because the ITSC had directed the applications to be proceeded with
earlier, did not preclude it from concluding upon a further examination that
the applications did not disclose the manner of earning undisclosed income.
Mr. Hossain relied upon the decision of the Supreme Court in Ajmera
Housing Corporation v. Commissioner of Income Tax (2010) 8 SCC 739.
He submitted that the ITSC was fully within its powers to reject the
applications when it had become crystal clear that the Petitioners did not
fulfil the requirements of a settlement proceeding.
22. Mr Hossain submitted that in the present writ petition, the Court should
only be concerned with the legality of the procedure followed by the ITSC
and not with the validity of the order. He placed reliance on the decision in
R.B. Shreeram Durga Prasad & Fatechand Nursing Das v. Settlement
WP (C) Nos.5424; 5425; 5427 & 5428/2016 Page 11 of 15
Commission ( IT & WT) (1989) 1 SCC 628 reiterated in Jyotendrasinhji v.
S.I. Tripathi (1993) Supp (3) SCC 389. Mr. Hossain submitted that the
scope of interference by this Court with the impugned order of the ITSC
under Article 226 of the Constitution was limited. Once the ITSC had
exercised its powers and jurisdiction consistent with the law declared by the
Supreme Court in Ajmera Housing Corporation ( supra ), this Court ought
not to interfere with the impugned order merely because the applications of
the six other companies which were part of the Bindal Group were permitted
to be proceeded with. There was a rational basis for a different treatment
being accorded to the Petitioners since they were not covered under the
consolidated cash flow statement filed before the ITSC.
23. The above submissions have been considered. What the Respondents are
unable to deny is the fact that the applicants before the ITSC included six
companies of Bindal Group whose applications were directed to be
proceeded with by the ITSC. As far as the four Petitioners were concerned,
the ITSC held their applications to be invalid although they belonged to the
same Bindal Group.
24. The second fact is that in their applications the ten companies explained
that the unaccounted income diverted generated by the Group formed a
common pool and was redeployed into all companies in the Group. The
funds generated were introduced in the form of share capital or unsecured
loans in various other companies of the Bindal Group. It was, therefore, not
possible to examine the state of affairs of any one company of the group in
isolation of the entire group.
WP (C) Nos.5424; 5425; 5427 & 5428/2016 Page 12 of 15
25. The third aspect is that the report submitted by Respondent No. 1 before
the ITSC was a consolidated one. It actually did not differentiate between
the companies as far as objections to their, if any, having not made true and
full disclosure. That the four Petitioners had failed to indicate the manner of
earned the undisclosed income was not raised by Respondent No.1 in its
report.
26. A perusal of the applications filed, copies of which have been placed on
record, shows that the manner of deriving disclosed and unearned income
was indeed disclosed. To what extent this can be verified would be a matter
for more detailed examination. There appears to be no rational basis for
according a differential treatment to the four Petitioners. As a result of the
impugned order, while the regular assessment in respect of the four
Petitioners will proceed, the case of the six other companies forming part of
the same group would be decided by the ITSC. Obviously, the differential
treatment to four of the companies forming part of the same group results in
differential treatment which does not appear to be warranted in the instant
case.
27. If indeed, as contended by the Revenue, there was no full and true
disclosure of facts by all ten companies, then the Respondent ought to have
challenged the order of the ITSC permitting the applications of the six other
companies to be proceeded with. The Revenue appears to have accepted a
part of this order in regard to those six companies. Why it should allow the
Petitioners here to be treated differently is not clear. How it could prejudice
the Revenue if the Petitioners' applications were allowed to be proceeded
WP (C) Nos.5424; 5425; 5427 & 5428/2016 Page 13 of 15
with is also not clear. As rightly pointed out on behalf of the Petitioners, it
will not be possible for the ITSC to appreciate the extent and manner of
generating undisclosed income in the hands of the four companies /
Petitioners constituting a part of the Bindal Group without viewing it in the
context of the activities of the other six companies.
28. While indeed the scope of this Court under Article 226 of the
Constitution is limited, the Court finds that as far as the impugned order of
the ITSC is concerned, it does not spell out any rational criteria for
distinguishing between six companies of the Bindal Group and the four
Petitioners. Further, the ITSC proceeded to reject the settlement application
of the four Petitioners on a ground that was not urged by the Revenue viz.,
the failure to disclose the manner of earning undisclosed income. Merely
because the consolidated cash flow was not in respect of four Petitioners
could not mean that they had not disclosed the manner of earned undisclosed
income.
29. In the considered view of the Court, the impugned order of the ITSC
according a different treatment to the four Petitioners does not appear to be
justified in the facts and circumstances of the case. If allowed to stand, the
impugned order might defeat the very purpose of the companies of the
Bindal Group applying to the ITSC for an early settlement of disputes.
30. For all the aforementioned reasons, the Court is unable to sustain the
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impugned order dated 13 May 2016 passed by the ITSC declining the
prayers of the Petitioners that their applications before the ITSC should be
proceeded in accordance with law.
WP (C) Nos.5424; 5425; 5427 & 5428/2016 Page 14 of 15
31. While setting aside the impugned orders, the Court directs that the
applications of the four Petitioners would be entertained and proceeded with
by the ITSC on the same basis as the six other companies in the Bindal
Group. The Petitioners‟ applications shall be permitted to be proceeded
with.
32. The writ petitions are allowed and the applications are disposed of in the
above terms but, in the circumstances of the case, with no orders as to costs.
33. The applications of the four Petitioners will now be listed before the
ITSC along with the applications of the six other companies constituting the
Bindal Group on the date that the ITSC may have fixed for further
consideration of all the applications of the other six companies.
S. MURALIDHAR, J
CHANDER SHEKHAR, J
MAY 17, 2017
b’nesh/Rm
WP (C) Nos.5424; 5425; 5427 & 5428/2016 Page 15 of 15