2016 (5) TMI 338 - HC - Income Tax

Immunity from prosecution and penalty granted by Income Tax Settlement Commission (ITSC) - whether full and true disclosure was made by the assessee - Held that - The Court is unable to find, after reading the entire order carefully, any satisfaction recorded by the ITSC of the fulfilment of the above mandatory conditions under Section 254H (1) of the Act. While, the ITSC had noted the cooperation extended by the Respondent to it in the hearing, it has failed to record satisfaction that the Respondent has made a full and true disclosure of his income and the manner in which the said income has been derived. Further, the report submitted by the Department has not been discussed. It must be remembered that the ITSC is performing the important task of exercising its discretionary powers under the mandate of Section 245H(1) of the Act to grant immunity from prosecution and penalty. The legislature has in Section 245H(1) of Act mandated the recording of satisfaction by the ITSC of the fulfilment by the applicant of the aforementioned mandatory requirements. The very object and purpose of having an ITSC which is vested with such powers will be defeated if a lenient view is taken of the fulfilment of the requirements in Section 245H (1) of the Act. In the circumstances, without commenting on the merits of the submissions of either of the Department or the Respondent with regard to the disclosure already made before the SC and the report filed before it, the Court sets aside the impugned order and remands the matter to the ITSC for a fresh decision in accordance with law.

Summary

Issues:
Challenge to order granting immunity from prosecution and penalty by the Income Tax Settlement Commission.

Analysis:
The case involves a challenge by the Income Tax Department against an order passed by the Income Tax Settlement Commission (ITSC) granting immunity from prosecution and penalty to a company. The company, during a search and seizure operation, filed an application before the ITSC offering additional income and claiming it to be a true and full disclosure. However, a report submitted by the Commissioner of Income Tax raised concerns that the company had not made a true and full disclosure. The ITSC passed an order granting immunity based on the cooperation extended during the hearing.

Upon examination, the High Court found that the ITSC did not fulfill the mandatory requirements under Section 245H(1) of the Income Tax Act. The Court noted that while the ITSC acknowledged the cooperation of the company, it failed to record satisfaction that the company made a full and true disclosure of its income and the manner in which it was derived. The Court emphasized the importance of the ITSC recording satisfaction of these mandatory conditions before granting immunity from prosecution and penalty.

The Court rejected the argument that satisfaction could be inferred from the order itself and emphasized the legislative mandate requiring explicit satisfaction by the ITSC. Consequently, the Court set aside the impugned order and remanded the matter to the ITSC for a fresh decision in accordance with the law. The application of the company was scheduled for further proceedings before the ITSC, and the writ petition was disposed of accordingly.