2012 (4) TMI 227 - HC - Income Tax

Challenge in these proceedings under Article 226 of the Constitution - application before the Settlement Commission seeking a settlement of a case including the grant of a waiver of penalty for Assessment Years 2008-2009 and 2009-2010 which was pending before the AO - The petitioner made a disclosure of income to the extent of ₹ 10 lacs each for the two Assessment Years in question - The Commission has come to the conclusion that a total amount of ₹ 6.18 Crores represents the additional income which is to be taxed in hands of the petitioner of which an amount of ₹ 4.26 crores relates to Assessment Year 2008-09 and ₹ 1.92 Crores for Assessment Year 2009-10 - assessee stated the Settlement Commission would have no jurisdiction to travel beyond the subject matter of the application - a penalty under Section 271(1)(c) is contrary to law since the Settlement Commission did not furnish a notice to show cause to the petitioner before the penalty was imposed Held that - The assessee had offered an amount of ₹ 10 lacs in each of the Assessment Years in question based on a story of having earned income for which no records were available - Settlement Commission complyied with the principles of natural justice and after furnishing to the assessee an opportunity of being heard specifically on the issue of penalty - Settlement Commission has imposed a penalty of ₹ 2.75 crores u/s Section 271(1)(c) where the assessee has mis-stated or concealed the particulars of his income - 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 - 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 ₹ 1.96 crores for AY 2008-09 and ₹ 82.40 lacs for AY 2009-10. The total penalty of ₹ 2.75 crores has been clarified by a corrigendum issued by the Settlement Commission to be on a pro rata basis as an amount of ₹ 1.92 crores for AY 2008-09 and ₹ 82.50 lacs for AY 2009-10 - The penalty which has been imposed is thus commensurate with the provisions of Section 271(1)(c) no merit in the challenge to the order on the aspect of penalty against assessee.

Issues Involved:
1. Jurisdiction of the Settlement Commission under Section 245D(4) of the Income Tax Act, 1961.
2. Scope of the Settlement Commission's powers in assessing undisclosed income.
3. Validity of the addition of income under Section 68 of the Income Tax Act.
4. Imposition of penalty under Section 271(1)(c) without a show-cause notice.
5. Compliance with principles of natural justice.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Settlement Commission under Section 245D(4):
The petitioner argued that the Settlement Commission overstepped its jurisdiction by addressing issues not raised in the application or the Commissioner's report. The court held that the Settlement Commission has comprehensive jurisdiction over the entire assessment once an application under Section 245C is allowed to proceed. The Commission can pass orders on matters covered by the application and any other matters related to the case referred to in the Commissioner's report. The court emphasized that the Settlement Commission is empowered to act proactively in gathering evidence and is not merely a passive spectator.

2. Scope of the Settlement Commission's Powers:
The court clarified that the Settlement Commission assumes exclusive jurisdiction over the assessment proceedings once it decides to proceed with an application under Section 245D(1). The Commission's role is to settle the case comprehensively, including assessing undisclosed income. The court referenced the Supreme Court's rulings, which affirmed that the Settlement Commission's function is akin to an assessment by settlement rather than a regular assessment.

3. Validity of the Addition of Income under Section 68:
The petitioner contended that the addition under Section 68 was unjustified as the identities of the shareholders were established. The court upheld the Settlement Commission's findings that the transactions were not genuine and that the share premium received was an attempt to launder unaccounted funds. The court noted that the Settlement Commission had relied on multiple factors, including the lack of financial standing of the subscribing companies and the unrealistic share premium, to conclude that the transactions were fictitious. The court distinguished between public issues and private placements, emphasizing that the principles applicable to public issues do not apply to private placements.

4. Imposition of Penalty under Section 271(1)(c):
The petitioner argued that the imposition of a penalty was invalid due to the lack of a show-cause notice. The court held that the petitioner had specifically sought a waiver of penalty in its application to the Settlement Commission, and the Commission had provided an opportunity to be heard on the issue. The court found that the Settlement Commission had complied with the principles of natural justice and that the penalty imposed was proportionate and justified under Section 271(1)(c).

5. Compliance with Principles of Natural Justice:
The court concluded that the Settlement Commission had adhered to the principles of natural justice by providing the petitioner with an opportunity to be heard on all relevant issues, including the imposition of a penalty. The court found no procedural defect or violation of natural justice in the Commission's proceedings.

Conclusion:
The court dismissed the petition, affirming the Settlement Commission's jurisdiction and its comprehensive assessment of the petitioner's undisclosed income. The court upheld the addition of income under Section 68 and the imposition of a penalty under Section 271(1)(c), finding that the Commission had acted within its powers and complied with the principles of natural justice.

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