2023 (9) TMI 1231 - SC - Income Tax

Validity of Settlement Commission order - validity of immunity granted to the assessee - jurisdiction of the Settlement Commission in entertaining the application filed by the appellant u/s 245C(1) - Settlement Commission annulled the penalty levied by the AO u/s 271(1)(c) for the assessment year 1997- 1998 in respect of non-disclosure of lease rental income and same was annulled considering that the non-disclosure was on account of RBI guidelines and subsequent disclosure on the part of the appellant, of additional income of the lease income before the Settlement Commission when the appellant realised the omission to disclose the same as per income tax law. Whether the Division Bench of the High Court was right in affirming the findings of the learned Single Judge, to the effect that the Settlement Commission ought not to have exercised discretion u/s 245H and granted immunity to the assessee de hors any material to demonstrate that there was no wilful concealment on the part of the assessee to evade tax and on that ground, remanding the matter to the Commission for fresh consideration? HELD THAT - Assessee may approach the Settlement Commission making full and true disclosure of his income and the manner in which such income has been derived. Such a disclosure may also include the income discovered by the AO. To say that in every case, the material disclosed by the assessee before the Commission must be something apart from what was discovered by the AO, in our view, seems to be an artificial requirement. In every case, there may not even be additional income to offer, apart from what has been discovered by the Assessing Officer. The object of Chapter-XIXA is to settle cases and to reduce the disputes, and not to prolong litigation. Therefore, instead of preferring an appeal against the assessment order, the assessee may, by making a full and true disclosure of income, approach the Settlement Commission and offer to tax income other than that disclosed in the return of income. As further to be noted that the power vested with the Settlement Commission under Section 245H is a discretionary power to be exercised if the Settlement Commission is satisfied that an applicant has complied with the preconditions specified therein. It is trite that any judicial, quasi-judicial or administrative authority must while exercising discretion, direct itself properly in law and consider all the facts and material that it is bound to consider while excluding from consideration irrelevant aspects of the matter. While exercising power u/s 245H, read with Section 245C of the Act the relevant facts and material which ought to be considered by the Commission are i. the report which is to be submitted by the Commissioner, under Section 245D(1) of the Act; ii. the disclosures made by the applicant before the Commission as to income, and the source of such income; iii. any other relevant evidence let in by the assessee or the department. We find that in the present case, the Settlement Commission has rightly considered the relevant facts and material and, accordingly, decided to grant immunity to the appellant from prosecution and penalty. Single Judge of the High Court was not right in holding that the reasoning of the Settlement Commission was vague, unsound and contrary to established principles. Division Bench was also not justified in affirming such view of the learned Single Judge - Commission, in our view, adequately applied its mind to the circumstances of the case, as well as to the relevant law and accordingly exercised its discretion to proceed with the application for settlement and grant immunity to the assessee from penalty and prosecution. The Order of the Commission dated 04.03.2008 did not suffer from such infirmity as would warrant interference by the High Court, by passing an order of remand. In the present case, as noted above, we find that the appellant placed material and particulars before the Commission as to the manner in which income pertaining to certain activities was derived and has sought to offer such additional income to tax. Based on such disclosures and on noting that the appellant co-operated with the Commission in the process of settlement, the Commission proceeded to grant immunity from prosecution and penalty as contemplated u/s 245H - High Court ought not to have sat in appeal as to the sufficiency of the material and particulars placed before the Commission, based on which the Commission proceeded to grant immunity from prosecution and penalty as contemplated u/s 245H. We are of the view that the Order of the Settlement Commission dated 04.03.2008 was based on a correct appreciation of the law, in light of the facts of the case and the High Court ought not to have interfered with the same. Therefore, the judgment passed by the High Court of Karnataka at Bangalore whereby the judgment of the learned Single Judge passed in Writ Petition remanding the matter to the Settlement Commission to determine afresh, the question as to immunity from levy of penalty and prosecution was affirmed, is hereby set aside. Consequently, the order of the learned Single Judge is also set aside. Order of the Settlement Commission is restored. The appeal is allowed.

Summary

Issues Involved:
1. Jurisdiction of the Settlement Commission to entertain the application under Section 245C(1) of the Income Tax Act.
2. Grant of immunity from penalty and prosecution under Section 245H(1) of the Act.

Summary:

Issue 1: Jurisdiction of the Settlement Commission
The appellant, a banking company, approached the Settlement Commission to settle its income tax liabilities for the assessment years 1994-1995 to 1999-2000. The Revenue raised a preliminary objection, contending that the appellant did not fulfill the qualifying criteria under Section 245C(1) of the Act, as it had not made a full and true disclosure of its income. The Settlement Commission, after considering the contentions, entertained the application and allowed it to proceed under Section 245D(1). The Revenue challenged this before the High Court, which upheld the Commission's jurisdiction, stating that the legislative history indicated that objections regarding maintainability should not be raised at the threshold. The High Court disposed of the writ petition, allowing the Settlement Commission to proceed on merits.

Issue 2: Grant of Immunity from Penalty and Prosecution
The Settlement Commission, after hearing both parties, determined an additional income and granted immunity from penalty and prosecution under Section 245H(1), considering the appellant's cooperation and full disclosure. The Revenue challenged this grant of immunity before the High Court. The Single Judge found the Commission's reasoning vague and remanded the matter for reconsideration of immunity. The appellant appealed, contending that the Settlement Commission's orders are conclusive and that the Single Judge erred in finding fault with the grant of immunity. The Division Bench upheld the Single Judge's order, stating that the Commission should have scrutinized whether there was an intention to evade tax.

Supreme Court's Analysis and Conclusion
The Supreme Court observed that the Settlement Commission's discretion under Section 245H is based on the assessee's cooperation and full disclosure. It noted that the Commission had considered the complexities of the case and the appellant's adherence to RBI guidelines, which led to the non-disclosure. The Court held that the Commission had rightly exercised its discretion and that the High Court should not have interfered. The Court emphasized that sufficiency of material and particulars placed before the Commission is beyond judicial review, except under specific circumstances like fraud or malice. The judgment of the High Court was set aside, and the order of the Settlement Commission was restored. The appeal was allowed, and no order as to costs was made.