MAJOR METALS LTD Vs. UNION OF INDIA

JUDGEMENT

(1.) The challenge in these proceedings under Article 226 of the Constitution is to the legality of an order dated 30 December 2010 passed by the Settlement Commission under Section 245D(4) of the Income Tax Act, 1961.

(2.) On 16 December 2009 the petitioner filed an application before the Settlement Commission under Section 245C(1) seeking a settlement of a case as defined in Section 245A(b) for Assessment Years 2008-2009 and 2009-2010 which was pending before the Assessing Officer, no assessment having been made under Section 143(3). The petitioner made a disclosure of income to the extent of Rs.10 lacs each for the two Assessment Years in question, being income which had not been disclosed before the Assessing Officer. The basis on which the Settlement Commission was moved was that during the course of Assessment Years 2008-09 and 2009-10 the petitioner was engaged in transactions in which the petitioner would locate sellers in the grey market who would sell goods to prospective buyers. According to the petitioner, the goods would be delivered directly by the seller to the buyer; and payment would be routed through the petitioner who in turn would effect payment to the seller after deducting its share. This activity, it was stated, was undertaken in respect of items which did not form part of the inventory of the petitioner. The difference, it is stated, was earned in cash and was not accounted in the regular books of account. The petitioner stated that the activity was since discontinued, but in order to buy peace of mind the petitioner was willing to offer the income earned from the activity during Assessment Years 2008-09 and 2009-10, each in the amount of Rs.10 lacs to tax. The terms of settlement which the petitioner proposed were that (i) the total income of the petitioner be determined at the amount disclosed in the petition; (ii) a waiver of interest be granted under the provisions of the Income Tax Act, 1961 as may be permissible; (iii) Immunity be granted to the petitioner from the levy of penalty and prosecution under the Act; and (iv) such other relief as the Settlement Commission may deem fit in the circumstances of the case be granted.

(3.) On 24 December 2009 the Settlement commission passed an order under the provisions of Section 245D(1) directing that the application be proceeded with. On 30 December 2009 the Settlement Commission sought a report from the Commissioner of Income Tax under Section 245D(2B). In terms of the provisions of Section 245D(2B) the report of the Commissioner was required to be submitted within a period of thirty days from the order of the Settlement commission. The period stipulated in the provision expired on 29 January 2010 in spite of which no report was received. By an order dated 23 February 2010 the Commission directed that further proceedings shall take place in the matter and that the application could not be regarded as invalid. On 21 September 2010 a report was submitted by the CIT under Rule 9 of the Income Tax Settlement Commission (Procedure) Rules, 1997. Under Section 245D(1), as it stood prior to amendment, the Settlement Commission was under a mandate to call for a report from the Commissioner on receipt of an application under Section 245C. This procedure was modified when Parliament substituted the provisions of Sub-section (1) as they now stand by the Finance Act, 2007 with effect from 1 June 2007. As it now stands, the earlier requirement of a report from the Commissioner on the receipt of an application under Section 245C and before the Commission decides whether to proceed with the matter, has been dispensed with. Rule 9 of the Income Tax Settlement Commission (Procedure) Rules, 1997 required, under the provisions of the earlier version of Section 245D(1) that the report of the Commissioner had to be furnished within a period of ninety days.