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2024 (10) TMI 1585 - HC - Income TaxScope and extent of the power which the Income-tax Settlement Commission could exercise - Deputy Commissioner of Income Tax seeks to impugn the order of the Income Tax Settlement Commission ITSC as granted immunity to the respondent nos. 1 and 2 from prosecution and penalty proceedings - whether it would be open for the writ petitioner to assail the order of the ITSC only to the extent of according immunity from prosecution and penalty as contemplated u/s 245H - HELD THAT - In the facts of the present case, faced with a situation where the ITSC had at no stage come to conclude that the applications as made were liable to be rejected either on the ground that the respondents had failed to make a full and true disclosure or that they had failed to cooperate in the proceedings. If these twin conditions were found to be satisfied for the purposes of Section 245D (4), we fail to appreciate how the said issue could be questioned or reagitated while examining the validity of the discretionary power exercised by the ITSC u/s 245H. In our considered opinion, once the condition of full and true disclosure is held to be satisfied, the same would not partake a separate or different hue for the purposes of Section 245H. Any view to the contrary if taken, would surely result in an incongruous situation arising. This since it would constrain the Court to hold that the test of full and true disclosure applies differently for the purposes of computation and grant of immunity. We bear in consideration the indubitable fact that while the power to grant immunity stands enshrined in a separate provision in Chapter XIX-A, the said power is exercised contemporaneously by the ITSC while disposing of an application for settlement. The statute does not prescribe the power of computation and grant of immunity being exercised on the basis of tests and precepts which could be said to be separate or distinguishable. Section 245H postulates the power of immunity being liable to be invoked identically on a full and true disclosure of income and cooperation rendered before the ITSC. Thus, both Section 245D (4) as well as Section 245H are premised on identical considerations. It would thus be incorrect to uphold the contention of a perceived dichotomy between the opinion with respect to full and true disclosure under Section 245D and that which would guide Section 245H. Regard must also be had to the fact that the Act undoubtedly confers a finality and conclusiveness upon orders made by the ITSC. This becomes evident from a reading of Section 245I and which proscribes any matter or issue which stands concluded by an order of the ITSC being reopened in any proceedings under the Act. That the Legislature clearly intended to imbue finality upon an order of the ITSC is further underscored by Section 245I using the expression save as otherwise provided . Thus, an order Chapter XIX-A could be reviewed or reopened only on grounds set out therein and on no other. Supreme Court in Kotak Mahindra 2023 (9) TMI 1231 - SUPREME COURT held that the essential ingredients liable to be borne in consideration by the ITSC for the purposes of grant of immunity are cooperation by the applicant in the computation of total income in the settlement proceedings and a full and true disclosure of income being made. The settlement is premised on a full and true disclosure before the ITSC irrespective of the disclosures or discoveries that may be made before an Assessing Officer. Income-tax Settlement Commission is conferred wide powers by virtue of the provisions enshrined in Chapter XIX-A to examine and evaluate all aspects relating to an application for settlement that may come to be made before it. By virtue of the statutory powers so conferred, the Income-tax Settlement Commission's jurisdiction to examine and inquire is not confined merely to the disclosures that an applicant may choose to make. This is evident from the statutory provisions empowering and enabling it to call for reports from the Principal Commissioner/Commissioner as also the framing of directions for further inquiry and investigation being undertaken. Chapter XIX-A in our considered opinion thus enables the Income-tax Settlement Commission to holistically examine all aspects that may be said to arise from the application submitted for its consideration and enabling it to accord a full and complete closure to all disputes. The power conferred upon the Income-tax Settlement Commission not being confined merely to the matters spoken of and covered by the application but also extending to any other matter relating to the case was an aspect which came to be highlighted in a decision handed down by a Division Bench of the court in Tahiliani Design P. Ltd. 2021 (2) TMI 106 - DELHI HIGH COURT Thus we find that the order of the ITSC clearly does not merit interference under Article 226 of the Constitution. Invocation of the principle of severability - The power to sever and to disgorge a part which is offending and unsustainable could be wielded, provided it does not impact the very foundation of an order. However, and as we had noticed hereinabove, the considerations for the framing of an order u/s 245D (4) and 245H do not proceed on a consideration of factors which may be said to be distinct or independent. Both are informed by and founded upon cooperation and full and true disclosure and which are the essential prerequisites for computation of the settlement amount as well as consideration of grant of immunity. The aforenoted two factors thus constitute the very substratum of an application for settlement. Interfering with the grant of immunity on grounds as suggested by the writ petitioner would essentially amount to the Court questioning the validity of the acceptance of the application itself by the ITSC. If the twin statutory conditions were found to be satisfied and thus meriting an order of settlement u/s 245D (4) being rendered, the position would not vary or undergo a change when it come to the question of grant of immunity. We thus find ourselves unable to countenance the challenge as raised. WP dismissed.
Issues Involved:
1. Whether the Deputy Commissioner of Income Tax can challenge the order of the Income Tax Settlement Commission (ITSC) granting immunity from prosecution and penalty. 2. Whether the ITSC's order granting immunity under Section 245H is severable from the computation of income under Section 245D(4). 3. Whether the respondents made a "full and true disclosure" of income as required under the Income Tax Act. 4. The extent of judicial review over ITSC's decisions under Article 226 of the Constitution. Issue-wise Detailed Analysis: 1. Challenge to ITSC's Order Granting Immunity: The primary issue was whether the Deputy Commissioner of Income Tax could challenge the ITSC's order granting immunity from prosecution and penalty to the respondents. The petitioner sought to quash the ITSC's order to the extent it granted immunity, arguing that the respondents failed to make a "full and true disclosure" of income, a prerequisite under Section 245H of the Income Tax Act. The petitioner contended that the ITSC's findings, particularly in Para 24 (7) of the order, indicated the respondents' failure to meet this requirement. However, the court noted that the ITSC had conducted a comprehensive verification process, including a joint verification of primary records, and found no grounds to conclude that the respondents had failed to cooperate or make a full disclosure. 2. Severability of ITSC's Order: The petitioner argued that the ITSC's order was severable, allowing the court to quash the grant of immunity while leaving the computation of income intact. The court rejected this argument, emphasizing that the conditions for granting immunity under Section 245H and the computation of income under Section 245D(4) are based on identical considerations-full and true disclosure and cooperation. The court maintained that these factors are integral to both the computation and the grant of immunity, and thus, the order is not severable. 3. Full and True Disclosure: The court examined whether the respondents made a full and true disclosure of income. The ITSC had rejected both the audited and consolidated accounts presented by the respondents due to discrepancies but proceeded with a joint verification of primary records. The court noted that the ITSC's decision was based on this joint verification, which the respondents had accepted. The court found no evidence that the respondents failed to cooperate or withheld information, thus satisfying the statutory requirements for full and true disclosure. 4. Judicial Review of ITSC's Decisions: The court discussed the scope of judicial review over ITSC's decisions, highlighting that the ITSC functions as a statutory arbitration forum with wide powers to settle tax disputes. The court emphasized that interference with ITSC's decisions is limited to cases of grave procedural defects or lack of nexus between reasons and decisions. The court cited the Karnataka High Court's decision in N. Krishnan vs. Settlement Commission, which outlined the restricted grounds for judicial interference. The court concluded that the ITSC's order did not suffer from procedural defects or lack of reasoning, and thus, did not warrant interference under Article 226. Conclusion: The court dismissed the writ petition, upholding the ITSC's order granting immunity. It concluded that the conditions for full and true disclosure and cooperation were met, and the ITSC's decision was not severable. The court also noted the limited scope of judicial review over ITSC's decisions, emphasizing the finality and conclusiveness of its orders as intended by the legislature.
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