Case: Major Metals Limited Vs. Union of India &amp; Others

the assessing officer, was not satisfactory. It is well settled that in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income tax as the income of the assessee of that previous year, if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the assessing officer, not satisfactory.29. In the exercise of the power of judicial review particularly against the findings of the Settlement Commission this Court would not be justified in re-appreciating the findings of fact which, in any event, are based on the material on record. The view taken is consistent with the law laid down by the Supreme Court.30. Finally that leaves the Court to deal with the penalty which has been imposed upon the petitioner. The submission which has been urged on behalf of the petitioner is that no notice to show cause was issued to the petitioner before the Settlement Commission proceeded to impose a penalty and there was hence a violation of the principles of natural justice.31. The first aspect of the matter which merits emphasis is that the petitioner moved the Settlement Commission specifically with a request for the settlement of the entire case including the grant of a waiver of penalty under the applicable provisions of the Income Tax Act, 1961. The Settlement Commission is vested with the power under Section 245H to grant an immunity wholly or in part from the imposition of any penalty under the Act where it is satisfied that any person who has made an application for settlement has co-operated with the Commission in the proceedings before it and has made a full and true disclosure of his income and of the manner in which the income has been derived. Under sub-section (6) of Section 245D, every order passed under sub-section (4) by the Settlement Commission is required to provide for the terms of settlement including any demand by way of tax, penalty or interest. It is in this perspective that the petitioner, when it sought settlement of the case which was pending before the Assessing Officer, expressly sought a direction in regard to the grant of a waiver of the penalty payable otherwise under the provisions of the Act. Section 274 stipulates that no order imposing a penalty under Chapter XXI shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. Evidently the assessee here was cognizant of the fact that the very object and purpose of the application was, inter alia, to seek a waiver of the imposition of a penalty and the assessee went before the Settlement Commission in the present case armed with such a request. Secondly, as the order passed by the Settlement Commission indicates, the assessee was heard specifically on the issue of penalty. The contention of the petitioner which has been recorded in para 28 of the decision of the Settlement Commission was that it had fully co-operated in the proceedings of the Commission and that it had made a full and true disclosure of the particulars of its income. The Commission considered the submission and held that looked at from the perspective of the test of human probabilities laid down by the Supreme Court and on the totality of the evidence, the contention of the assessee that it had genuinely received such high share premiums must fail. The Commission held that the assessee had not come clean before it. The assessee had offered an amount of Rs.10 lacs in each of the Assessment Years in question based on a story of having earned income for which no records were available, without touching upon the real issues for which the applicant was being pursued by the Revenue. The Commission has, in our view, with justification come to the conclusion that the attempt on the part of the assessee was merely to create a smoke screen in order to shut out further investigation. In these circumstances, the view which has been taken by the Settlement Commission has been after complying with the principles of natural justice and after furnishing to the assessee an opportunity of being heard specifically on the issue of penalty. The Settlement Commission is bound by the mandate of the Act, which includes Section 274. The Settlement Commission has to hear the applicant on the question of penalty. The proceeding before the Settlement Commission cannot be disjointed into parts, particularly having regard to the time limit set for disposal. The Commission has furnished a reasonable opportunity of hearing to the assessee and has heard him. No prejudice is shown. The Settlement Commission has imposed a penalty of Rs.2.75 crores. Section 271(1)(c) provides for the imposition of a penalty where the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income. In such a situation the penalty shall not be less than the amount of tax sought to be evaded but shall not exceed three times the amount of tax sought to be evaded. The total income tax demand in the present case, according to the petitioner, which has been arrived at on behalf of the Revenue works out to Rs.1.96 crores for AY 2008-09 and Rs.82.40 lacs for AY 2009-10. The total penalty of Rs.2.75 crores has been clarified by a corrigendum dated 30 December 2010 issued by the Settlement Commission to be on a pro rata basis as an amount of Rs.1.92 crores for AY 2008-09 and Rs.82.50 lacs for AY 2009-10. The penalty which has been imposed is thus commensurate with the provisions of Section 271(1)(c). In that view of the matter, we do not find any merit in the challenge to the order of the Settlement Commission on the aspect of penalty.32. For these reasons, having heard the counsel, we are of the view that there is no merit in the petition.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]It is impossible to accept the submission. The jurisdiction of the Settlement Commission having been invoked under Section 245C, the Commission, when it passed its order dated 18 October 2010 under Section 245D(3), specifically called upon the Commissioner to verify the genuineness of the loans and the credit worthiness of the entities who had allegedly given loans of Rs.3 lacs each (M/s. Oleander Manufacturing Credit Pvt. Ltd. and M/s. Tristar Agency Pvt. Ltd.) during FY09 and to enquire into the genuineness of the conversion of loans to share capital and share premium by the issue of shares. The Commissioner in his report dated 22 November 2010 adverted to the directions of the Commission and stated that a shortage of time had prevented the Assessing Officer from enquiring into the creditworthiness of the persons who had advanced moneys to the petitioner in the form of loans and share applications. The Commissioner, however, stated that all the parties concerned had confirmed having advanced loans to the petitioner; that all persons were income tax assessees and, therefore, the identity of the persons who had advanced the loans was established. The genuineness of the loan transactions, the credit worthiness of the entities who had allegedly advanced the loans and the genuineness of the conversion of the loans into share capital and share premium against the issuance of shares specifically formed a subject matter of the reference made to the Commissioner under Section 245D(3). The Commissioner dealt with a part of his mandate leaving the rest not analyzed, for reasons of time. These were all matters relating to the casenot covered by the applicationbut nonetheless referred to in the report of the Commissioner. The Commissioner, by the terms of reference, had to verify the genuineness of the transactions and credit worthiness of the parties. If the Commissioner were to hold that the transactions were genuine and parties were credit worthy, that would be an input before the Commission, but would not conclude the issue. Contrariwise, if the Commissioner were to hold that the transactions were sham and fictitious, it would still be for the Settlement Commission to arrive at its determination when it settled the case. The nature of the determination by the Commissioner does not determine the jurisdiction of the Commission. The expression relating to the case is an expression of width and amplitude. The report of the Commissioner furnished in pursuance of the directions of the Settlement Commission under Section 245D(3) cannot be read in a sense disjointed from the terms of reference made by the Commission to him. The report refers to the matters upon which he was called upon to investigate. All those matters would fall within the jurisdiction of the Commission as matters relating to the case and referred to in the report of the Commissioner. Consequently even on a literal and textual construction of Section 245D(4), we are satisfied that the Settlement Commission acted within the parameters of its jurisdiction in the present case. The position which emerges on a plain and literal construction of the language of the statute is supported by even a contextual construction. Parliament intended that the entire assessment is before the Settlement Commission. The Commission completes the process of assessmentas the decision in BrijLal holdsas part of the settlement of the case. Until the Settlement Commission is seized of the proceedings, there is no parallel assessment contemplated in law. Comprehensiveness, finality and conclusiveness are the three attributes of the function assigned to the Commission. That object is achieved when the entire assessment is completed, as part of the jurisdiction to settle a case. To dilute this position would defeat the object which Parliament intended to achieve. Once an assessee moves the Settlement Commission, the statute expressly mandates that the application cannot be withdrawn. Unless the Commission in a given case decides to reject the application, it is entitled to resolve the case by settlement. An assessee who moves the Settlement Commission cannot be allowed to be anything other than fair and candid. Nor can he assert an unqualified right that the Settlement Commission should either accept what he discloses or leave him to another round of assessment before the Assessing Officer.In the present case it needs to be emphasised that the Settlement Commission has considered all the material on record including the material which had a bearing on the credit worthiness and financial standing of the alleged subscribing companies to the share capital of the petitioner. None of the companies was held to have a financial standing or credit worthiness which would justify making of such a large investment of Rs.6 crores at a premium of Rs.990/per share. The allotment of shares, it must be noted, has taken place in pursuance of a private placement. The principles which have been applied in relation particularly to the public subscription of shares of a public limited company can obviously have no application to the facts of a case such as the present. The view which has been taken by the Settlement Commission is consequently borne out on the basis of the material on record. This is not a case where the Commission has proceeded contrary to law or on the basis of no evidence. There is no perversity in the findings of the Settlement Commission.In the exercise of the power of judicial review particularly against the findings of the Settlement Commission this Court would not be justified inthe findings of fact which, in any event, are based on the material on record. The view taken is consistent with the law laid down by the Supreme Court.The first aspect of the matter which merits emphasis is that the petitioner moved the Settlement Commission specifically with a request for the settlement of the entire case including the grant of a waiver of penalty under the applicable provisions of the Income Tax Act, 1961. The Settlement Commission is vested with the power under Section 245H to grant an immunity wholly or in part from the imposition of any penalty under the Act where it is satisfied that any person who has made an application for settlement hascooperated with theCommission in the proceedings before it and has made a full and true disclosure of his income and of the manner in which the income has been derived. Under(6) of Section 245D, every order passed under(4) by the Settlement Commission is required to provide for the terms of settlement including any demand by way of tax, penalty or interest. It is in this perspective that the petitioner, when it sought settlement of the case which was pending before the Assessing Officer, expressly sought a direction in regard to the grant of a waiver of the penalty payable otherwise under the provisions of the Act. Section 274 stipulates that no order imposing a penalty under Chapter XXI shall be made unless the assessee has been heard or has been given a reasonable opportunity of being heard. Evidently the assessee here was cognizant of the fact that the very object and purpose of the application was, inter alia, to seek a waiver of the imposition of a penalty and the assessee went before the Settlement Commission in the present case armed with such a request. Secondly, as the order passed by the Settlement Commission indicates, the assessee was heard specifically on the issue of penalty. The contention of the petitioner which has been recorded in para 28 of the decision of the Settlement Commission was that it had fullyin the proceedings of the Commission and that it had made a full and true disclosure of the particulars of its income. The Commission considered the submission and held that looked at from the perspective of the test of human probabilities laid down by the Supreme Court and on the totality of the evidence, the contention of the assessee that it had genuinely received such high share premiums must fail. The Commission held that the assessee had not come clean before it. The assessee had offered an amount of Rs.10 lacs in each of the Assessment Years in question based on a story of having earned income for which no records were available, without touching upon the real issues for which the applicant was being pursued by the Revenue. The Commission has, in our view, with justification come to the conclusion that the attempt on the part of the assessee was merely to create a smoke screen in order to shut out further investigation. In these circumstances, the view which has been taken by the Settlement Commission has been after complying with the principles of natural justice and after furnishing to the assessee an opportunity of being heard specifically on the issue of penalty. The Settlement Commission is bound by the mandate of the Act, which includes Section 274. The Settlement Commission has to hear the applicant on the question of penalty. The proceeding before the Settlement Commission cannot be disjointed into parts, particularly having regard to the time limit set for disposal. The Commission has furnished a reasonable opportunity of hearing to the assessee and has heard him. No prejudice is shown. The Settlement Commission has imposed a penalty of Rs.2.75 crores. Section 271(1)(c) provides for the imposition of a penalty where the assessee has concealed the particulars of his income or has furnished inaccurate particulars of such income. In such a situation the penalty shall not be less than the amount of tax sought to be evaded but shall not exceed three times the amount of tax sought to be evaded. The total income tax demand in the present case, according to the petitioner, which has been arrived at on behalf of the Revenue works out to Rs.1.96 crores for AYand Rs.82.40 lacs for AYThe total penalty of Rs.2.75 crores has been clarified by a corrigendum dated 30 December 2010 issued by the Settlement Commission to be on a pro rata basis as an amount of Rs.1.92 crores for AYand Rs.82.50 lacs for AYThe penalty which has been imposed is thus commensurate with the provisions of Section 271(1)(c). In that view of the matter, we do not find any merit in the challenge to the order of the Settlement Commission on the aspect of penalty.32. For these reasons, having heard the counsel, we are of the view that there is no merit in the petition.