KULDEEP INDUSTRIAL CORPORATIONversusINCOME TAX OFFICER AND ORS.

A                  KULDEEP INDUSTRIAL CORPORATION
                                 v.
                     INCOME TAX OFFICER AND ORS.

                               DECEMBER 10, 1996
B
            [B.P. JEEVAN REDDY AND K.S. PARIPOORNAN, JJ.]


          Income Tax Act, 1961: Sections 144-B, 245-C and 245-D(l-A).

         Income Ttu~Settlement of cases-Application for AYs 1977- 78, 1978-
C 79 and 1979-8()-Assessee claimed to be manufacturer of stainless steel
  goods--Received substantial quantities of stainless steel sheets from
  MMTC-Disclosed huge losses for AYs 1977-78 and 1978-79 and small profit
  for AY 1979-8()-JTO found assessee not carrying on any manufactunng
  activity and issued notice proposing addition of three items of income-At
D this stage, assessee filed application before Settlement Commission seeking
  settlement for all three AYs-Assessee called upon ITO to stop all further
  proceedings on ground of filing of settlement application-But despite
  repeated request by ITO assessee neither replied to notices issued by ITO nor
  furnished her copy of settlement applicatiolt-ln these circumstances, ITO
  refused to stay further proceedings and communicated draft assessment order
E to assessee under S. 144-B for AY 1977-78 and detennined large amount as
  income of assessee against a small loss returned by assessee-ln settlement
  application assessee admitted that during accounting years relevant to said
   three AYs it had not carried on any manufacturing activity and sold stainless
  sheets to brokers in different cities and derived a profit in all AYs put
p togethei-Before Settlement Commission, CIT sought rejection of assessee's
   application on ground of fraud by assessee for evading tax on a massive
  scale-Settlement Commission rejected application in respect of AY 1977-78
   but by majority admitted same in respect of AYs 1978-79 and1979-8(}-f{eld
   : Neither settlement application nor facts and figures given therein relating to
   stock received, their sale to different parties, the expenses paid and profits
G made were confined to one AY(l977-78) but extended to all threeAYs-Facts
   stated in draft assessment order and admitted by assessee attracted S. 245-
   D( 1-A)-Hence, assessee disentitled to claim admission of his application
   even in respect of AYs 1978-79 and 1979-80.

H          Income TO:£-Settlement of cases by !To-Power of-lTO proceeded
                                          782
                   KULDEEP INDL. CORPN. v. I.T.O.                      783
with or collected material after assessee submitted application for settle-   A
ment-Held : ITO had power to do so.

      Income Tax-Settlement Commission-Jurisdiction of Supreme Court
over orders of-Held : In the nature of judicial review.

                                                                              B
        The appellant-assessee, a partnership firm, claimed to be a manufac·
turer of stainless steel utensils and received substantial quantities of
stainless steel sheets from M.M.T.C. The appellant· assessee filed returns
disclosing huge losses for Assessment Years (AYs) 1977-78 and 1978-79
and a small profit for AY 1979- 80. The Income Tax Officer (ITO) found
that the appellant-assessee was not carrying on any manufacturing ac· c
tivity. Accordingly the ITO issued a notice proposing addition of three
items of income. At this stage, the appellant-assessee filed an application
under Section 245-C of the Income Tax Act, 1961 before the Settlement
Commission seeking settlement for all the three AYs. The appellant-asses-
see then called upon the ITO to stop all further proceedings on the ground D
of filing of the settlement application. But despite repeated requests by the
ITO the appellant-assessee neither replied to the notices issued by the ITO
nor furnished her a copy of the settlement application. In these cir·
cumstances, the ITO refused to stay the assessment proceedings and
communicated a draft assessment order to the appellant-assessee under
Section 144-B of the Act for the AY 1977-78 and determined a large E
amount as income of the appellant-assessee against small loss returned by
the assessee. In the settlement application, the appellant·assessee ad·
mitted that during the accounting years relevant to the said three AYs it
had not carried on any manufacturing activity and sold stainless steel
sheets to brokers in different cities and derived a profit in all the AYs put F
together. Before the Settlement Commission, the Commissioner of Income
Tax (CIT) sought rejection of the appellant-assessee's application on the
ground of perpetuation of fraud by the assessee for evading tax on a
massive scale.

       The Settlement Commission rejected the application of the G
appellant-assessee in respect of the AY 1977-78 but by majority admitted
the same in respect of AYs 1978-79 and 1979-80. The dissenting member
rejected the application of the assessee on the ground that the assessee
itself did not make a distinction between AY 1977-78 on the one hand and
AYs 1978-79 and 1979-80 on the other. Further, the dissenting member was H
    784                      SUPREME COURT REPORTS [1996] SUPP. 9 S.C.R.

A   of the opinion that by making a distinction between the AY 1977-78 on the
    one hand and AYs 1978-79 and 1979-80 on the other would lay the Com-
    mission open to the charge of inconsistency. The appellant-assessee
    preferred the present appeal against the refusal of the Settlement Com-
    mission to admit its application for AY 1977-78.

B         On behalf of the appellant-assessee it was contended that the ITO
    had no power to collect material after the appellant-assessee filed the
    application for settlement.

               Dismissing the appeal, this Court
c
         HELD : 1. The dis.senting member is right in emphasizing the fact
  that the assessee itself did not make a distinction between the assessment
  year (AY) 1977-78 on the one hand and the AYs 1978-79 and 1979-80 on
  the other. The application filed by the assessee before the Settlement
D Commission has set out facts and figures relating to stocks received from
  M.M.T.C., their sale to different parties, the expenses and brokerage paid
  in that connection, the profits made from such sales and all other relevant
  particulars. Neither the application nor the particulars stated therein are
  confined to one assessment year (1977-78) but extended to all the three
  assessment years. In short, whatever was stated or disclosed in the said
E application related to all the three years; no distinction was made or
  suggested as between AY 1977-78 and other two AYs. As a matter of fact,
  the "computation of Income" at the end of the application gave the figures
  of Total sale of stainless steel sheets", "gross sale valuen, "cost of pur..
          11



  chase'', "transport charges" and "brokerage" for all the three AYs combined.
F The total profit from the sale of stainless steel sheets for all the three AYs
  was worked out. It was one package and indivisible. The opinion of the
  dissenting member that by making such a distinction, the Commission laid
  itself open to the charge of inconsistency is justified. Indeed it must be
  said that the majority of the members of the Commission have tried to
  make out a new case for the assessee not put forward by it in its applica-
G tion. It has to be further held that the facts found proved and stated in
  the draft assessment order and the facts admitted by the assessee in its
  application before the Commission do clearly show that the "concealment
   of particulars of income on the part of the applicant or perpetration of
   fraud by it for evading any tax or other sum chargeable or imposable .........
H under the Income Tax Act, 1961 has been established attracting Section
       KULDEEPINDL.CORPN. v. I.T.O.[B.P.JEEVANREDDY,J.]                 785

245-D(l·A) of the Income Tax Act, 1961. The frand played by it, which was A
discovered by the Income Tax Officer even by the date of submission of
report by the Commissioner, disentitled the assessee from claiming that
his case should be admitted for settlement by the Commission, even for
AYs 1978-79 and 1979-80. [793-G-H; 794-A-G]

      CIT (Central), Calcutta v. B.N. Bhattacharjee & Am; (1979) 118 !TR B
461 and CIT v. Express Newspapers Ltd., (1994) 206 !TR 443, relied on.

      2. Once an application is filed by an assessee for settlement under
Section 245-C of the Act, the Income Tax Officer (ITO) has power to
proceed with or collect any material after the date of submission of the       C
application. The Settlement Commission was, therefore, in error in hold·
ing to the contrary. [795-B)

      3. The nature of jurisdiction exercised by this Court over the orders
of the Settlement Commission is in the nature of judicial review. [795-A)
                                                                               D
      Sriram Durga Prasad v. Settlement Commissioner, 176 !TR 169 and
Jyotendra Singhji v. S.l. Tripathi, AIR (1993) SC 1991, relied on.

      CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 233.235
of 1982 Etc.
                                                                               E
     From the Judgment and Order dated 11!12.3.80 and 15.10.80 Income
Tax Officer, District (I)-1, Chandigarh) and Settlement Commission in A.
No. 18(A)/1/43/80 (IT).

     Gaurab Baoerjee and Ms. AK. Verma            for JBD & Co. for the
Appellaots.                                                                    F

      J. Ramamurthy, B.S. Ahuja and S.N. Terdol for the Respondents.

     The Judgment of the Court was delivered by

      B.P. JEEVAN REDDY, J.: The order of the Settlement Commission            G
dated October 15, 1980 has given rise to these appeals, Kuldeep Industrial
Corporation had filed ao application under Section 245-C of the Income
Tax Act in respect of three assessment years 1977·78, 1978-79 and 1979-80.
The Settlement Commission refused to admit the case relating to assess-
ment year 1977-78 for settlement, against which the assessee has filed Civil   H
    786                  SUPREME COURT REPORTS (1996) SUPP. 9 S.C.R.

A Appeals 233-35 of 1982 (Civil Appeals 236-237 of 1982). The Settlement
                                                                                  -t
    Commission has, however, admitted the case relating to the other two
    assessment years for settlement, against which the Revenue has preferred
    Civil Appeals 238-239 of 1982.

B        During the previous years relevant to the said three assessment years,
  the assessee received substantial quantities of stainless steel sheets from
  M.M.T.C. claiming to be a manufacturer of sterilizers. It filed returns for
  the three assessment years disclosing losses in a sum of Rs. 1,31,113 (for
  A.Y. 1977-78), Rs. 39,939 (for A.Y. 1978-79) and profit of Rs. 7,340 (for
  the A.Y. 1979-80). Certain inquiries were made by the Income Tax Officer
C in the Month of December 1979. She also impounded the account books
  of the assessee. On February 13, 1980 the Income Tax Officer visited the
  premises of the appellant where the assessee was said to be carrying on
  the manufacturing activity. She found no such activity being carried on
  there. On February 14, 1980 the Income Tax Officer issued a notice
D proposing addition of three items of income. At this stage i.e., on February
  29, 1980 the assessee filed an application before the Settlement Commis-
  sion seeking settlement of its case relating to all the said three assessment
  years. By its letter dated March 1, 1980 the assessee informed the Income
  Tax Officer that it has filed an application before the Settlement Commis-
  sion in respect of the said three assessment years and, on that basis, called
E upon the Income Tax Officer to stop all further proceedings. To this letter,
  the assessee enclosed a photocopy of the acknowledgement from the office
  of the Settlement Commission. By her letter dated March 3, 1980, the
  Income Tax Officer requested the assessee to furnish copies of the applica-
  tion filed by it before the Commission. The assessee declined to do so on
F the ground that his application was a secret document. The Income Tax
  Officer refused to stay the assessment proceedings and called upon the
  assessee to submit his replies/explanation to the notices already issued by
  her. The Income Tax Officer once again requested for copies of the
  application filed by the assessee before the Commission. The assessee
  complained to the Commission about the refusal of the Income Tax Officer
G to stay the assessment proceedings but at the same time refusedJo furnish
  copies of its application to the Income Tax Officer. By letter dated March
  11/12, 1980, the Income Tax Officer again requested for the copies of the
  application. She also called upon the assessee once again to furnish replies
  to the notices already issued. The assessee still refused. In these cir-
H cumstances the Income Tax Officer made a draft assessment order on 19th
       KULDEEPINDLCORPN. v. l.T.O.[B.P.JEEVANREDDY,J.]                      787

March, 1980 and communicated the same to the assessee, as required by A
Section 144-B, which was then in force. This assessment order pertains to
the assessment year 1977-78 only. Under this order the Income Tax Officer
determined the income of the assessee at Rs. 44,40,590 as against the loss
of Rs. 1,31,113 returned by the assessee. It was received by the assessee on
31st March, 1980.
                                                                                   B
      By its letter dated March 14, 1980, the Settlement Commission
forwarded a copy of the assessee's application filed under Section 245-C
to the Commissioner of Income Tax for his objections. This communication
was received by the Commissioner on 3rd April, 1980. On 5th June, 1980
the Commissioner filed his objections enclosing therewith a copy of the            C
draft assessment order dated March 19, 1980 pertaining to the assessment
year 1977-78. After hearing the parties, the Commissioner unanimously
refused to admit the assessee's application for settlement with respect to
the assessment year 1977-78. So far as the other two assessment years are
concerned, the majority (two out of three members) admitted the case for
settlement while one member dissented. The dissenting member was of the            D
opinion that the application of settlement should be rejected for the other
two assessment years also.

       In its application under Section 245-C, the assessee stated the fol-
lowing facts : the assessee, a partnership firm, is engaged in manufacture
and sale of stainless steel utensils, sterilizers and other items in its factory   E
located at Chandigarh. For the two assessment years 1977-78 and 1978-79
it had filed returns disclosing loss in a sum of Rs. 1,31,113 and Rs. 39,939
respectively. For the assessment year 1979-80 it returned a profit of Rs.
7,340. It is holding a quota for the purchase of stainless steel sheets from
M.M.T.C. During the accounting years relevant to the said three assess-
ment years, the assessee could not carry on the manufacturing activity on
                                                                                   F
account of acute shortage of funds. With a view to ensure that its quota
does not lapse, it obtained the quota and sold it to various brokers in
Bombay, Delhi and Madras. The assessee set out the arrangement with
those brokers. From these sales, the assessee said it derived a profit of Rs.
1,28,691 in all the three assessment years put together. It offered the said       G
amount to tax.

      In his objections filed to the assessee's application, the Commissioner
stated the following facts. The investigations made for the assessment year
1977-78 revealed that the assessee has tried to evade tax on a massive scale.
It had fabricated its account books to defraud the Revenue and had filed H
    788                  SUPREME COURT REPORTS [1996] SUPP. 9 S.C.R.

A   a return showing a loss of Rs. 1,31,113. On the basis of investigations, the
    Income Tax Officer has proposed an addition of Rs. 45,71,703 in her draft
    assessment order sent to the assessee for objections under Section 144-B.
    The story of manufacturing and the sale of manufactured products to
    certain named concerns is all fictitious. The parties, to whom the manufac-
    tured products were allegedly sold, denied having made such purchases.
B   Their account books also did not disclose any such transactions. The
    verification of the sales tax record shows that no trucks carrying stainless
    steel sheets ever crossed the sales tax barriers enroute to Chandigarh. The
    goods receipts produced by the assessee did not contain the stamp of sales
    tax barriers. The spot inspection of the factory disclosed that no manufac-
C   luring activity was being carried on there. The books of account for the
    assessment years 1978-79 and 1979-80 were not produced inspite of sum-
    mons issued under Section 131. The inquiries revealed that the stainless
    steel sheets were never brought to Chandigarh but were sold at premium
    at Bombay, Madras and Delhi. The various entries in the account books
    which were produced latter were found to be fictitious. Indeed, the asses-
D   see was in the habit of manipulating its account-books to defraud the
    Revenue. In 1974 a search and seizure operation was conducted in the
    assessee's premises which disclosed mis-utilisation of the stainless steel
    sheets. On the above facts the Commissioner stated that he strongly objects
    to the application under Section 245-C being proceeded with. He sub-
    mitted that in view of fraud perpetrated by the assessee having already
E   been established, the assessee's application may be rejected.

          So far the assessment year 1977-78 is concerned, all the three mem-
    bers of the Commission unanimously rejected the application on the fol-
    lowing reasoning :
F
            "23. Viewing the facts of this case against the observations made
            by us above, it appears to us that for the A.Y. 1977-78, the
            Department has a very strong case t9 raise objection on the ground
            that concealment of particulars of income or perpetration of fraud
            by the applicant has been or is likely to be established - particularly
G           so in regard to the perpetration of fraud. In so far as this year is
            concerned, there is clear fabrication of accounts, the balances in
            the accounts have been fudged; the sale vouchers and goods
            receipts have been cooked up, and a false facade is created to
            mislead the Department and cover up the real state of the
H           assessee's business transactions. It strains our sense of credulity
           KULDEEPINDL.CORPN. v. J.T.0.[B.P.JEEVANREDDY,J.]                   789

             too far to accept the applicant's .claim that all this was being done   A
             only to save its skin from some other departments and its intentions
             vis-a-vis the Revenue were nothing but honourable. If that be so,
             how does the assessee in any case explain the inflation by Rs. 10
             lacs of the carried forward balance in "Kuldip Parkash Imprest
             Account". To our minds, the Department has also succeeded in
                                                                                     B
             substance in rebutting the assessee's claim of so-called inaccuracies
             in the Commissioner's report. We do not find any distortion or
             misconception of facts in the Commissioner's report, nor can we
             subscribe to the view that it involves any colourable exercise of his
             powers. In fact, the Commissioner would have failed in his duty
             enjoined upon him by law, if he had not raised objection for the        c
             year 1977-78."

          The findings recorded by the Commission are too eloquent to call
    for any emphasis. They could not have been expressed in more stronger
    language.
                                                                                     D
           So far the other two assessment years (1978-79 and 1979-80) are
    concerned, there was a difference of opinion between the three members.
    The majority held that the case with respect to these two assessment years
    stands on a different footing, inasmuch as no inquiries appear to have been
    made by the Income Tax Officer in respect of these two assessment years.         E
    No bogus sales have also been conclusively established by the Income Tax
•   Officer by the date of filing of the application under Section 245-C, said
    the majority, except the entries regarding sale of scrap in the account books
    of the assessee. They were of the view that there is no adequate material
    on the basis of which it can be said that the concealment of income has          F
    been established or is likely to be established. The inspection of the factory
    premises by the Income Tax Officer or February 8, 1980 too is not of much
    relevance, they said, since the inspection is long after the expiry of the
    relevant previous years. The non-production of the account books for these
    years was also said to be not of such relevance because the department
    itself has been giving repeated adjournments for their production.               G

          The dissenting member, however, based his opinion on the following
    reasoning. The facts placed before the Commission conclusively establish
    that no manufacturing activity was being carried on by the assessee during
    the relevant years. The account books for all the three years were fabri- H
    790                   SUPREME COURT REPORTS (1996) SUPP. 9 S.C.R.

A cated with a view to conceal the assessee's true activity. It is not even the
  assessee's case that it carried on any manufacturing activity during the
  previous years relevant to assessment years 1978-79 and 1979-80. In the
  course of hearing before the Commission it was categorically admitted by
  the counsel for the assessee that the losses claimed by it in its returns were
  not true and that no manufacturing activity was carried on during the·
                                                                                      --
B relevaht years. The assessee has also admitted ihat it has sold the stainless
  steel quota at Bombay, Delhi and Madras and that it never transported the
  same to Chandigarh. It is also admitted that the books of .account, showing
  the sale of manufactured goods to various parties are admittedly lllltrue.
  The assessee itself has made no distinction as between these three assess-
C ment year. Its case is common to all the three assessment years. No
  distinction is, therefore, permissible as between three assessment years.
  The facts and record clearly prove that the assessee refused to produce its
  account books for the two subsequent assessment years ,inspite of notices
  and summons; they were produced later and were found to be fabricated.
D The inspection by the Income Tax Officer on February 8, 1980 disclosed
  no manufacturing activity at the alleged factory premises except some small
  scale electro-plating work being done there. The dissenting member further
  observed : "I do not see any reason why the admission made on behalf of
  the applicant that there was no manufacturing activity carried on and that
  the losses claimed as per return are not genuine can be or should be
E ignored. These admissions have been made in the papers filed along _with
  the application and also in the course of the hearing before us .... I als.o feel
  that the applicant should not be allowed to take advantage of his Own
  deliberate default before the Income Tax Officer and he should not be
  heard to plead before us that the Income Tax Officer has not examined
F the books or pointed any defects or deficie~cies therein so as .to be able
  to establish any concealment for these years. The applicant should not be
  allowed to take advantage of his own deliberate default to find a short-cut
  to approach the Commission and to circumvent the normal processes of
  law prescribed in the Income tax Act." The dissenting member emphasised
  that making a distinction between assessment year 1977-78 on one hand
G and 1978-79 and 1979-80 on the other would lay the Commission open to
   charge of inconsistency, particularly when it is not even the case of the
  assessee itself.

           Another proposition stated in the impugned order is that the Com-
H missioner cannot refer in his objections to any material collected after the
       KULDEEPINDLCORPN. v. l.T.O.[B.P.JEEVANREDDY,J.]                791

filing of the application under Section 245-C and that any material col-    A
lected after the filing of such application cannot be looked into while
deciding the 9uestion whether to admit the application or not.

       Mr. Harish Salve, learned counsel for the assessee submitted that this
is a case where the assessee has genuinely repented for its lapses and has
                                                                              B
made a clean breast of all its wrong-doing. It has admitted that it had not
carried on any manufacturing activity during the relevant years, that it had
sold the entire stainless steel quota at Bombay, Delhi and Madras, that the
returns filed by it were untrue, that the books of account maintained by it
were untrue and fabricated and that it had disclosed its true income for
the said assessment years before the Commission. Indeed the assessee has C
disclosed many other items of income apart from the three items men-
tioned in the notic.e dated February 14, 1980 issued by the Income Tax
Officer. Mr. Salve complained that the Income Tax Officer has drawn
several facts mentioned in the assessee's application under Section 245-C
and made them the basis of her draft assessment order. This was wholly D
unfair, said Mr. Salve. Having regard to the candour with which the
assessee approached the Commission, the Commission should have ad-
mitted the case relating to assessment year 1977-78 also for settlement.
Counsel further submitted that the very statements made and facts stated
by the assessee in its application cannot be made a basis for rejecting it.
Mr. J. Ramamurthy, learned counsel for the Revenue on the other hand E
assailed the order of the majority insofar as they admitted the assessee's
case for the two latter assessment years for settlement. He submitted that
in view of the facts and circumstances of the case which have been fully
and clearly pointed out by the dissenting member in his opinion, the
application of the assessee should have been rejected outright and should F
not have been admitted for any assessment year. The distinction made
between the three assessment years, the counsel submitted, is equally
untenable.

       The scheme of chapter XIX-A has been set out in the earlier
decisions of this Court including Commissioner of Income-Tax, (Central), G
Calcutta v. B.N. Bhattacharjee and Another, (1979) 118 I.T.R. 461 and
Commissioner of Income Tax v. Express Newspapers Limited, (1994) 206
I.T.R. 443 and need not be reiterated here. For the purpose of this case it
is sufficient to notice sub-sections (1) and (1-A) of Section 245-D. They
read:                                                                       H
    792                  SUPREME COURT REPORTS [1996) SUPP. 9 S.C.R.

A           "245D. (1) On receipt of an application under section 254C, the
            Settlement Commission shall call for a report from the Commis~ '·
            sioner and on the basis of the material contained in such report
            and having regard to the nature and circumstances of the case or
            the complexity of the investigation iovolved thereio, the Settlement
            Commission may, by order, allow the application to be proceeded
B           with or reject the application :

            Provided that an application shall not be rejected under this
            sub-section unless an opportunity has been given to the applicant
            of beiog heard.
c           (Second proviso omitted by the Finance Act, 1979, w.e.f. 1.4.1979.)

            [(lA) Notwithstanding anything contained in sub-section (1), an
            application shall not be proceeded with under that sub-section if
            the Commissioner objects to the application beiog proceeded with
            on the ground that concealment of particulars of iocome on the
D           part of the applicant or perpetration of fraud by him for evadiog
            any tax or other sum chargeable or imposable under the Indian
            Income-tax Act, 1922 (11 of 1922) or under this Act, has been
            established or is likely to be established by any income-tax
            authority, in relation to the case :
E
            Provided that where the Settlement Commission is not satisfied
            with the correctness of the objection raised by the Commissioner,
            the Settlement Commission may, after giving the Commissioner an
            opportunity of being heard, by order, allow the application to be
            proceeded with under sub-section ( 1) and send a copy of its order
F           to the Commissioner.]"

            The meaning and purport of these Sections has also been dealt with
    and set out in Express Newspapers. The said decision rejects the argument
    that once an application is filed by an assessee under Section 245-C, no
    further iovestigations or ioquiries can be carried on by the Income Tax
G   Officer and that he is obliged to stop all further proceediogs with effect
    from the said date. It has been held that the Income Tax Officer is not
    bound to do so and that he can contioue with the proceediogs before him
    till the date of submittiog the report by the Commissioner under sub-sec-
    tion (1-A) of Section 245-D - and may, even beyond. The Commission was,
H   therefore, io error in holding to the contrary.
       KULDEEPINDLCORPN. v. I.T.O.[B.P.JEEVAN REDDY,J.]                    793

       The contention of Mr. Salve that the assessee sent a copy of his           A
application filed under Section 245-C to the Income Tax Officer immedi-
ately and that the Income Tax Officer acted unfairly in drawing upon the
facts in said application to make the draft assessment order (relating to the
assessment year 1977-78) is factually incorrect as pointed out hereinabove.
The truth is that not only did the assessee not send a copy of it's application
to the Income Tax Officer but it refused to supply copies thereof inspite         B
of repeated requests by the Income Tax Officer. A copy of the application
was communicated by the Commission to the Commissioner only on 14th
March, 1980 and was received by the Commissioner on April 3, 1980, as
would be evident from the statement in the preamble to the objections filed
by the Commissioner. The draft assessment order was made on March 19,
1980 and communicated to the assessee alongwith a covering letter on
                                                                                  c
March 20, 1980. Even by the date of the making of the draft assessment
order the Income Tax Officer had made elaborate inquiries and had
discovered that there was no manufacturing activity, that there was no
transport of stainless steel sheets to Chandigarh, that they were sold in
Delhi, Bombay and Madras, that the alleged sale of manufactured goods             D
to various parties is false and that the account books were totally fabri-
cated. The draft assessment order states all these facts. Mr. Salve could
not point out any particular fact or facts which have been taken from the
assessee's application and used as a basis for making the draft assessment
order. It is significant to notice that according to the application filed by
the assessee its total income for all the three years put together is Rs.         E
1,28,691, whereas according to the draft assessment order the income of
the assessee is in the region of Rs. 45 lacs during the first assessment year
alone. The allegation of unfairness levelled against the Income Tax Officer
is, therefore, factually incorrect and is unwarranted.
                                                                                  F
      The dissenting member is right in emphasizing the fact that the
assessee itself did not make a distinction between the assessment year
1977-78 on one hand and the assessment years 1978-79 and 1979-80 on the
other. A perusal of the application filed by the assessee before the Com-
mission shows that it has set out facts and figures relating to stocks received G
from M.M.T.C., their sale to different parties, the expenses and brokerage
paid in that connection, the profits made from such sales and all other
relevant particulars. Neither the application nor the particulars stated.
therein are confined to one assessment year (1977-78) but extend to all the
three assessment years. In short, whatever was stated or disclosed in the
said application related to all the three years; no distinction was made or H
    794                     SUPREME COURT REPORTS (1996] SUPP. 9 S.C.R.

A suggested as between assessment year 1977-78 and other two assessment
  years. As a matter of fact, the "computation of Income" (Annexure C) at
  the end of the application gave the figures of "Total sale of stainless steel
  sheets 1\ 11gross sale value 11 , 11 cost of purchase 1\ 11 transport charges 11 and
  "brokerage" for all the three years combined. The total profit from the
B sale. of stainless steel sheets for all the three yeats was worked out at Rs.
  1,28,698.10 p. It was one package and indivisible. We are, therefore,
  inclined to agree with the opinion of the dissenting member that by
  making such a distinction, the Commission laid itself open to the charge
  of inconsistency. Indeed it must be said that the majority of the members
  of the Commission have tried to make out a new case for the assessee not
C put forward by it in its application. We are also of the opinion that the
  facts found proved and stated in the draft assessment order aforesaid and
  the facts admitted by the assessee in its application before the Commission
  and during the course of hearing before the Commission do clearly show
  that the "concealment of particulars of income on the part of the applicant
D or perpetration of fraud by it for evading any tax or other sum chargeable
  or imposable ......... under this Act has been established." Now, so far as
  the assessment year 1977-78 is concerned, the draft order does bear out
  the aforesaid facts and since the assessee's case and all the material facts
  are one and the same for all the three assessment years (as set out in its
  own application filed under Section 245-C) it must be said that the very
E same facts also establish the said factors even with respect to the two latter
  assessment years. In the circumstances it must be said that the main limb
  of sub-section (1-A) was fully satisfied in this case. No valid or relevant
  reasons have been assigned by the Commission, Within the meaning of the
  proviso to sub-section (1-A) to admit the application for the two latter
p assessment years. It was a gross case where the assessee brazenly and
  deliberately perpetrated fraud upon the Revenue with a view to evade the
  taxes legitimately and lawfully payable by him. The fraud played by it,
  which was discovered by the Income Tax Officer even by the date of
  submission of report by the Commissioner, disentitles the assessee from
  claiming that his case should be admitted for settlement by the Commis-
G sion. There is neither law in its favour nor equity. The fact that it has
  admitted its fraud in its application is of no consequence since its fraud
  was already discovered by the Income Tax Officer by her own extensive
  and elaborate inquiries.

           It has been held by this Court that the nature of jurisdiction exercised
         KULDEEPINDL.CORPN. v. l.T.O.[B.P.JEEVANREDDY,J.]              795

by this Court over the orders of the Settlement Commission is in the nature A
of judicial review. (See Sriram Durga Prasad v. Settlement Commissioner,
176 I.T.R. 169 andlyotendra Singhji v. S.I. Tripathi, A.LR. (1993) S.C. 1991.
In these cases, we find that the impugned orders of the Commission are
vitiated by more than one misdirection in law. Firstly, the Commission held,
wrpngly, that the h1.come Tax Officer had no power to proceed with or B
collect any material after the date of submission of the application under
Section 245-C. Secondly, having rightly rejected to admit the case relating
to assessment year 1977-78 for settlement, it (the majority) made out a new
case for. the assessee by creating a distinction between 1977-78 and 1978-79
and 1979-80, when no such distinction was suggested even by the assessee;
indeed such a distinction is contrary to the case put forward by the assessee C
in its application under Section 245-C. The Commission (the majority) also
ignored the several statements, admissions and averments made by the
assessee before the Commission while admitting the case relating to assess-
ment year 1978-79 and 1979-80 for settlement.

       For the above reasons the Civil Appeals 238 and 239 of 1982 filed by D
the Revenue are allowed with costs and the Civil Appeals 233-235 of 1982
(and Civil Appeals 236-237/1982) filed by the assessee are dismissed with
costs. The cost payable by the assessee in all th~ appeals put together are
assessed at Rs. 50,000 consolidated.
v.s.s.                                                  Appeal dismissed.
                                                                             E