TAHILIANI DESIGN PRIVATE LIMITED  Vs JOINT CIT, CENTRAL WING, CENTRAL RANGE-8, DELHI

W.P.(C ) No.285/2020 Page 1 of 16
* IN THE HIGH COURT OF DELHI AT NEW DELHI

% Date of decision: 19th January , 202 1

+ W.P.(C) 285/2020, CM Nos. 857/2020 (of petitioner for stay of
operation of the impugned order dated 4th November, 2019) &
34968/2020 (for vacation of st ay granted by this Hon’ble Court
vide its order dated 10th January, 2020).
TAHILIANI DESIGN PRIVATE LIMITED ….. Petitioner
Through: Mr. P . Roychoudhri, Advocate .
Versus
JOINT CIT, CENTRAL WING,
CENTRAL RANGE -8, DELHI ….. Respondent
Through: Ms. Vibhooti Malhotra, Senior
Standing Counsel .
CORAM:
HON’BLE MR. JUSTICE RAJIV SAHAI ENDLAW
HON’BLE MR. JUSTICE SANJEEV NARULA

[VIA VIDEO CONFERENCING]
RAJIV SAHAI ENDLAW, J .
1. The petition impugns the order dated 4th November, 2019 for the
assessment year 2018 -19, under Section 271DA of the Income Tax Act,
1961 (“Act”), imposing penalty on the petitioner in the sum of
Rs.14,27,96,270/ -.
2. The petition came up first before this Court on 10th January, 2020,
when on the content ion of the counsel for the petitioner that the order dated
4th November, 2019 imposing penalty was passed after the petitioner had
made an application before the Settlement Commission under Section 245C
of the Act on 1st November, 2019, under intimation to the Assessing
Officer, the petition was entertained, counter affidavit directed to be filed
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and the order imposing penalty was stayed; it was however clarified that the
proceedings before the Settlement Commission shall go on, uninfluenced
by the pendency of this petition.
3. No counter affidavit has been filed inspite of two opportunities. The
counsel for the respondent states that a counter affidavit has been filed but
has not come on record. The counsel for the petitioner states that he has
received ad vance copy of the same. The counsel for the respondent draws
attention to CM No.34968/2020 filed by the respondent, for vacation of the
stay granted on 10th January, 2020 and expresses urgency, contending that
the petitioner has obtained stay of the order imposing penalty , by
misrepresenting / suppressing facts. We have however enquired from the
counsel for the petitioner, whether not the hearing on the application for
vacation of stay as well as on the main petition itself, would be substantially
similar. The counsel for the petitioner then states that the writ petition itself
can be heard today, without the counter affidavit coming on record in as
much as the outcome of the writ petition depends upon the interpretation of
the statutory provisions and the r espondent does not need to refer to any
documents other than those annexed to the petition and in fact the
respondent, along with its counter affidavit has not annexed any documents
and the pleadings in the counter affidavit are also confined to law, which
can be argued. We have thus proceeded to hear the counsels on the writ
petition.
4. It is the case of the petitioner, (a) that a search and seizure operation
under Section 132 of the Act as well as survey under Section 133A of the
Act was carried out on 2 9th May, 2018 in the case of the petitioner and
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thereafter the investigation wing referred the case of the petitioner to the
concerned Assessing Officer; (b) the respondent, being the Range Head of
the Assessing Officer of the petitioner, after going throu gh the seized
material , presumed that the petitioner had violated the provisions of Section
269ST of the Act and issued a notice dated 30th September, 2019 to the
petitioner, for assessment years 2018 -19 and 2019 -20, calling upon the
petitioner to show cau se why penalty under Section 271DA of the Act, for
violating the provisions of Section 269ST of the Act, be not imposed on the
petitioner and fixed the case for hearing on 10th October, 2019; (c) the
petitioner vide letter dated 10th October, 2019 requeste d for adjournment
and the case was adjourned to 16th October, 2019; (d) in the meanwhile, in
pursuance to the search and seizure operation, notices under Section 153A
of the Act were issued to the petitioner for the assessment years 2013 -14 to
2018 -19; (e) the petitioner, on 16th October, 2019 also , requested for
adjournment of the hearing and sought time to file reply to the show cause
notice dated 30th September, 2019; the hearing was adjourned to 21st
October, 2019 ; (f) the petitioner, vide letter dated 18th October, 2019
requested the respondent to supply the relevant documents on the basis of
which show cause notice under Section 271DA had been issued; (g) on 21st
October, 2019, the petitioner contended that it had not received the
document sought and s ought for the proceedings to be kept in abeyance; (h)
the petitioner , vide letter dated 30th October, 2019 , again reminded the
respondent to supply the relevant documents so that the petitioner could
prepare a reply to the show cause notice dated 30th September, 2019; (i) the
petitioner, to buy peace of mind and to avoid litigation, on 1st November,
2019 approached the Income Tax Settlement Commission for assessment
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years 2012 -13 and 2013 -14 to 2019 -20; (j) the petitioner, in accordance
with the provisions of the Act, on 1st November, 2019 itself also informed
the Assessing Officer about the filing of the application before the
Settlement Commission; (k) the petitioner, though not required to, by way
of abundant caution, vide e -mail dated 4th November, 2019, at 9:46 AM,
also informed the respondent of having approached the Settlement
Commission; (l) the respondent however proceeded to thereafter pass the
impugned penalty order dated 4th November, 2019 and communicated the
same to the petitioner from the same e-mail ID, at around 10:30 AM i.e.
immediately on receipt of petitioner’s e -mail; (m) vide the impugned
penalty order, penalty under Section 271DA for the assessment years 2018 –
19 and 2019 -20 has been imposed on the petitioner, ignoring the fact that
the p etitioner had already preferred an application before the Settlement
Commission; (n) the respondent, vide e -mail dated 7th November, 2019
informed the petitioner that the Settlement Commission assum es
jurisdiction only after it allows the application to be proceeded with, as
provided under Section 245F(2) of the Act and there is no bar on any
proceeding till then, in view of Section 245F(4) of the Act; (o) the
Settlement Commission, after the hearing on 8th November, 2019 , passed a
detailed order dated 11th November, 2019 allowing the application of the
petitioner under Section 245C(1) to be proceeded with further ; and, (p) as
the impugned penalty order is in contravention of the provisions of the Act,
the petitioner moved an application dated 22nd November, 2019 under
Section 154 of the Act but the same has been rejected by the respondent
vide e -mail dated 26th November, 2019 merely observing that the
application for rectification is untenable. Contending that order imposing
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penalty could not have been passe d after the petitioner had approached the
Settlement Commission, this petition has been filed.
5. We have considered the provisions of the Act to which the counsels
have drawn our attention during the hearing.
6. Chapter XIX -A titled “Settlement of Cases” of the Act, in Section
245C thereunder provides that an assessee, “at any stage of a case relating
to him” may make an application “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”. Section
245D lays down the procedure to be f ollowed on receipt of application
under Section 245C and vide Section 245D(4) empowers the Settlement
Commission to, after examination of records and report of the Principal
Commissioner and after giving an opportunity to the applicant and the
Principal Co mmissioner to be heard and after examining such further
evidence as may be placed before it or obtained by it, in accordance with
the provisions of the Act, “pass such order as it thinks fit on the matters
covered by the application and any other matter re lating to the case not
covered by the application, but referred to in the report of the Principal
Commissioner or Commissioner”. Section 245F titled “Powers and
Procedure of Settlement Commission” , in Sub -Section (1) thereo f provides
that the Settlement Co mmission, in addition to the powers conferred on it
under Chapter XIX -A, shall have all the powers which are vested “in an
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Income Tax Authority under this Act” and in Sub -Section (2) thereof inter
alia provides:
“(2) Where an application made under sectio n 245C has been
allowed to be proceeded with under section 245D, the Settlement
Commission shall, until an order is passed under sub-section (4) of
section 245D, have, subject to the provisions of sub-section (3) of
that section, exclusive jurisdiction to exercise the powers and
perform the functions of an income tax authority under this Act in
relation to the case :
Provided that where an application has been made under
Section 245C on or after the 1st day of June, 2007, the Settlement
Commission shall ha ve such exclusive jurisdiction from the date on
which application was made.”
Section 245H titled “Power of Settlement Commission to grant immunity
from prosecution and penalty” empowers the Settlement Commission to, if
satisfied that the applicant has c o-operated with the Settlement Commission
in the proceedings and has made a full and true disclosure of his income
and the manner in which such income has been derived, “grant to such
person, subject to such conditions as it may think fit to impose for the
reasons to be recorded in writing, immunity from prosecution for any
offence under this Act or under the Indian Penal Code (45 of 1860) , or
under any other Central Act for the time being in force and also either
wholly or in part from the imposition of an y penalty under this Act, with
reference to the case covered by the settlement”.
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7. The contention of the counsel for the petitioner is, that the petitioner,
on 1st November, 2019 having made an application to the Settlement
Commission, with effect from the said date, vide the proviso to Section
245(2), the Settlement Commission has exclusive jurisdiction in the matter
of imposition of penalty, as has been imposed on the petitioner by the
respondent vide the impugned order and thus the impugned order is w ithout
jurisdiction. It is argued that it is the Settlement Commission, which is to
still finally decide on the application of the petitioner, which will deal with
the matter of penalty if any also.
8. Per contra, the counsel for the respondent, not con troverting the
factual position as noted above, has argued that it is not as if the Settlement
Commission is a panacea for all illegalities committed under the Act. It is
stated that the Settlement Commission is concerned only with the case
before it and not with other matters. It is contended that the petitioner, in
the application made under Section 245C of the Act before the Settlement
Commission, did not disclose the notice to show cause dated 30th
September, 2019 aforesaid and did not cover the violat ions of Section
269ST of the Act alleged against him and thus the same do not form the
subject matter of “case” before the Settlement Commissioner and the
respondent thus remained entitled, notwithstanding the petitioner on 1st
November, 2019 having approa ched the Settlement Commission, to pass
the penalty order pursuant to the show cause notice dated 30th September,
2019. The counsel for the petitioner in this regard has drawn our attention
to Section 245A(b), also under Chapter XIX -A, defining “case”, fo r the
purposes of the said Chapter, as meaning “any proceeding for assessment
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under this Act, of any person in respect of any assessment year or
assessment years which may be pending before an Assessing Officer on the
date on which an application under su b section (1) of section 245C is
made”. Attention has also been invited to the Explanation to the said
definition to contend that the same would not cover a violation of Section
269ST of the Act. The contention of the counsel for the respondent is that
the Settlement Commission is concerned only with assessment of
undisclosed income and penalties and prosecutions with respect thereto and
the penalty under Section 269ST of the Act is independent thereof. On
enquiry, whether even in the case of disclosed in come, the provisions of
Section 269ST of the Act would be attracted, the counsel for the respondent
answers in the affirmative and on further enquiry whether the said aspect
can be referred to the Settlement Commission, if there is no case of
undisclosed i ncome, the counsel for the respondent replies in the negative.
9. We may at this stage record that Section 269ST prohibits receiving
an amount of Rs.2 lacs or more, in aggregate from a person in a day or in
respect of a single transaction or in respect of transactions relating to one
event or occasion, from a person, otherwise than by an account payee
cheque or an account payee bank draft or use of electronic clearing system
to a bank account. We may further record that the notice dated 30th
September, 20 19 was issued , stating that during the course of search and
seizure operation in the case of the petitioner it had been found from the
seized documents that the petitioner had grossly violated the provisions of
Section 269ST of the Act by way of cash recei pts of Rs.2 lacs or more from
a single person by splitting the invoices against the sale of goods at its
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stores, thus rendering itself liable for penalty proceedings under Section
271DA of the Act. It was further elaborated in the notice that the tally da ta
available in seized digital devices showed cash component of receipts of
Rs.2 lacs or more from a single person on a single day, totalling
Rs.2,99,33,314/ – in assessment year 2019 -20, amounting to violation of
Section 269ST.
10. The counsel for the pe titioner, responding to the argument of the
counsel for the respondent, has contended that the whole purpose of going
before the Settlement Commission would be lost if the petitioner were to be
harassed in this fashion and it is contended that all these as pects will be
considered by the Settlement Commission. The counsel for the petitioner
otherwise, on enquiry, fairly states that there is no specific mention of the
notice dated 30th September, 2019 or the proceedings of violation of Section
269ST of the Ac t, in the application of the petitioner to the Settlement
Commission.
11. We have considered the rival contentions.
12. Though undoubtedly (a) the application under Section 245C is to
have a case pending assessment settled and the Settlement Commission in
exercise of powers under Section 245D(4) is to pass orders as it thinks fit
on the matters “covered by the application” before it and which application
of the petitioner in the present case admittedly does not cover the notice
dated 30th September, 2019 and in pursuance to which penalty under
Section 269ST has been levied on the petitioner ; and, (b) the argument of
the counsel for the respondent that in pursuance to such an application the
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Settlement Commission in exercise of powers under Section 245F an d
245H has no case of violation of Section 269ST before it and thus does not
have exclusive jurisdiction in the matter of levy of penalty under Section
269ST and / or to grant immunity with respect thereto, is attractive but on
further consideration we fin d ourselves unable to accept the same for the
reasons:
A. Though the petitioner in the present case, in its application to the
Settlement Commission has brought only the case pursuant to notices
under Section 153A admittedly issued to it, but the powers o f the
Settlement Commission under Section 245D(4) to pass such order as
it thinks fit are not confined to matters covered by the application but
also extend to “any other matter relating to the case not covered by
the application, but referred to in the re port of the Principal
Commissioner or Commissioner” presented to the Settlement
Commission under Section 245D(3) of the Act.
B. We have thus enquired from the counsels, whether the Principal
Commissioner / Commissioner, in the present case, in response to the
application of the petitioner to the Settlement Commission, has
submitted any report and if so, whether in the said report the
aforesaid aspect of violation of Section 269ST of the Act has been
reported ; if it is so, the Settlement Commission would hav e
jurisdiction to pass orders with respect to violation alleged of Section
269ST also. However neither counsel has instructions on the said
aspect.
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C. It is not deemed necessary to adjourn the hearing to enable counsels
to take instructions on the aforesai d aspect, because the powers of the
Settlement Commission under Section 245D(4) also extend to
“examining such further evidence as may be placed before it or
obtained by it” and the Settlement Commission in the present case is
still seized of the matter an d would be within its rights to , if so deems
apposite, also deal with the aspect of violation of Section 269ST of
the Act and either to grant exemption from penalty therefor or to pass
such other order as it thinks fit in relation thereto as well and it is felt
that the said power and jurisdiction of the Settlement Commission
should not be permitted to be interdicted by the impugned order.
D. In this context we may also notice that the notices under Section
153A as well as under Section 271DA of violation of Section 269ST,
both have their origin in the search, seizure and survey conducted
qua the petitioner, as evident from a bare reading of the notice under
Section 271DA referred to hereinabove by us for this reason. Merit
is thus found in the contention of the counsel for the petitioner that
both are part of the same case.
E. The counsel for the respondent, on enquiry fairly states that if the
violation of 269ST of the Act is detected as a result of a search and
seizure operation, as it is in the presen t case, then it is open to a
applicant before the Settlement Commission to also include in the
application, the violation of Section 269ST of the Act and to seek
settlement qua that also.
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F. A Coordinate Bench of this Court in Agson Global Pvt. Ltd. Vs.
Income Tax Settlement Commission (2016) 380 ITR 343 held that
the powers and functions of an Income Tax Authority which are to be
exclusively exercised by the Settlement Commission must be in the
context of and have a nexus with the settlement proceedings. We
respectfully concur. The penalty proceedings i nitiated against the
petitioner, as evident from the notice dated 30th September, 2019,
were in the context of and had a nexus with the search, seizure and
survey carried out qua the petitioner and pursuant whereto notices
under Section 153A were also issued to the petitioner and in which
context the petitioner had approached the Settlement Commission.
G. Though undoubtedly Section 245A(b) while defining “case” refers to
a proceeding for assessment pending before an Assessing Officer
only and therefrom it can follow that penalties and prosecutions
referred to in Section 245F and Section 245H are with respect to
assessment of undisclosed income only, but (i) Section 245F vests
exclusive jurisdiction in the S ettlement Commission, to exercise the
powers and perform the functions “of an Income Tax Authority
under this Act in relation to the case”; and, (ii) Section 245H vests
the Settlement Commission with the power to grant immunity from
“imposition of any pena lty under this Act with respect to the case
covered by the settlement”. The words “of an Income Tax Authority
under this Act in relation to the case” and “immunity from;
imposition of any penalty under this Act with respect to the case
covered by the sett lement” are without any limitation of imposition
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of penalty and immunity with respect thereto only in the matter of
undisclosed income and in our view would cover also penalties under
other provisions of the Act, detection whereof has the same origin as
the origin of undisclosed income.
H. Not only so, the words “ in relation to the case” and “with respect to
the case” used in the aforesaid provisions, are words of wide
amplitude and which, in our opinion, in the facts of the present case
may allow the Set tlement Commission to, notwithstanding the
petitioner having not expressly referred to the notice dated 30th
September, 2019 and proceedings for violation of Section 269ST
pending against it in its application, pass such orders as it may thinks
fit in rela tion / with respect thereto and the said powers of the
Settlement Commission cannot be permitted to be interdicted by the
impugned order. We reiterate that the proceedings of violation of
Section 269ST, as per the notice dated 30th September, 2019, are a
result of what was found in the search and survey qua the petitioner
and are capable of being treated as part and parcel of the case taken
by the petitioner by way of application to the Settlement
Commission.
I. Supreme Court, in Doypack Systems Pvt. Ltd. Vs. Union of India
(1988) 2 SCC 299 held that the expression “in relation to” has been
interpreted to be the words of widest amplitude and is in the nature of
a deeming provision and is intended to enlarge the meaning of a
particular word or to include ma tters which otherwise may or may
not fall within the main provisions. Again, in Thyssen Stahlunion
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Gmbh Vs. Steel Authority of India Ltd. (1999) 9 SCC 334 it was
held that the phrase “in relation to arbitral proceedings” cannot be
given a narrow meaning t o mean only pendency of the arbitration
proceedings before the Arbitrator; it would cover not only
proceedings pending before the Arbitrator but also proceedings
before the Court and any proceedings which are required to be taken
under the old Act for awar d becoming decree and also appeal arising
thereunder; if narrow meaning of the phrase “in relation to arbitral
proceedings” is to be accepted, it is likely to create great deal of
confusion with regard to the matters where the award is made under
the old A ct. Applying the said law and reasoning, we hold that if we
were to interpret the words “in relation to” and “with respect to”
narrowly, the same also would not only cause confusion as to
prosecution and penalty under which provisions of the Act is the
subject matter of settlement proceedings and which provisions not
and the same is also likely to negate the objective and purpose for
introduction of Chapter XIX -A in the Act and of settlement of cases.
The said view has been followed in Tamil Nadu Kalyana
Mandapam Association Vs. Union of India (2004) 5 SCC 632,
National Textile Corporation (MN) Ltd. Vs. Durga Trading
Company (2015) 12 SCC 558 and Maxopp Investment Ltd. Vs.
Commissioner of Income Tax (2018) 15 SCC 523.
13. The stand of the respondent i n its e -mail dated 7th November, 2019
that the Settlement Commission assumes jurisdiction from the day when an
order under Section 245D(1) is made when the application under Section
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245C(1) is ordered to be proceeded with further, and which in the present
case was on 8th November, 2019 and before the said date the Settlement
Commission did not have exclusive jurisdiction and the respondent
remained entitled to impose penalty, was / is not only contrary to the
provisions of the proviso to Section 245F(2) but also contrary to the law
laid down by this Court in Commissioner of Income Tax Vs. Income Tax
Settlement Commission (2014) 360 ITR 407 (Delhi).
14. Once it is so, the Settlement Commission, under the proviso to
Section 245F(2), with effect from 1st Novemb er, 2019 when the petitioner
admittedly made the application under Section 245C before it, had the
exclusive jurisdiction to deal with the matter relating to violation of Section
269ST of the Act also and the respondent, on 4th November, 2019 did not
have the jurisdiction to impose penalty for violation of Section 269ST on
the petitioner and the impugned order is without jurisdiction and liable to be
set aside and is hereby quashed.
15. We are of the view that it should be left to the Settlement
Commission to, in exercise of its powers under Section 245D(4), Section
245F and Section 245H, consider whether the matter of penalty for
violation of Section 269ST of the Act is to be looked into by the Settlement
Commission while deciding the application of the petitioner , or not .
16. We accordingly direct , that without prejudice to the rig ht of the
Income Tax Authorities to conten d before the Settlement Com mission that
the petitioner having not disclosed the aforesaid facts before the Settlement
Commission , has not made a full and true disclosure within the meaning of
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Section 245C(1), the proceedings initiated by the respondent against the
petitioner for violation of Section 269ST of the Act should await the
decision of the Settlement Commission on the application of the petitioner
and to abide by the same. I f the Settlement Commission grants immunity
from penalty within the mea ning of Section 245H, for violation of Section
269ST, needless to state , the notices issued by the respondent to the
petitioner shall automatically lapse and/or would not remain actionable.
However if no immunity with respect thereto is granted, the respo ndent
shall be entitled to take further proceedings in pursuance to the said notices.
17. The petition is allowed in above terms .

RAJIV SAHAI ENDLAW, J.

SANJEEV NARULA, J .
JANUARY 19, 2021
Nk/gsr..
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