2014 (2) TMI 896 - HC - Income Tax

Power of Settlement Commission u/s 245H of the Act - Immunity from imposition of penalty and prosecution Held that - The criticism levelled by the revenue against the majority opinion of the ITSC granting immunity to the assessee is well-founded - Immunity can be granted only within the parameters of Section 245H(1) which requires full and true disclosure of income and co-operation from the assessee in the proceedings before the ITSC Co-operation implies an act of volition on the part of the assessee - the present assessee co-operated in the proceedings before the ITSC only when faced with the reports submitted by the CIT The ITSC was not justified in taking a charitable view towards the assessee - assessee did not make a full and true disclosure in the settlement application - it waited till the ITSC called for reports from the CIT which reiterated the facts established by the seized material. There was no spirit of settlement that ought to have been exhibited by the assessee in the application filed before the ITSC - it is not enough if it is shown in proceedings before the ITSC after being confronted with adverse reports, to which it had no answer Relying upon Ajmera Housing Co-operation and another v. CIT 2010 (8) TMI 35 - SUPREME COURT OF INDIA - the fact that the assessee kept revising its application for settlement by disclosing higher income in the revised applications established that it did not make a full and true disclosure of income which it did not disclose to the assessing authority - the assessee cannot be said to have co-operated in the proceedings before the ITSC - The assessee ought to have offered the entire amount being the bogus purchases of cement and steel - It was only at that stage, when cornered and when it was unable to rebut the evidence and the facts established by the evidence, that the assessee came forward with the additional income which when added in the settlement applications thus, the assessee has failed to satisfy the twin conditions of Section 245H (1) and was, therefore, not entitled to the immunity. Power to review the order of ITSC Held that - The decision in R.B. Shreeram Durga Prasad v. Settlement Commission 1989 (1) TMI 4 - SUPREME Court followed - The sole overall limitation upon the Commission appears to be that it should act in accordance with the provisions of the Act - The scope of enquiry, whether by High Court under article 226 or by this court under article 136 is also the same the order of the ITSC (majority view) is contrary to the provisions of Section 245H(1) of the Act Decided in favour of Revenue.

Issues Involved:
1. Legality of the Income Tax Settlement Commission (ITSC) granting immunity from penalty and prosecution.
2. Compliance with Section 245H(1) of the Income Tax Act, 1961.
3. Full and true disclosure of income by the assessee.
4. Cooperation by the assessee in the settlement proceedings.

Detailed Analysis:

1. Legality of the ITSC Granting Immunity:
The revenue challenged the ITSC's majority decision dated 08.02.2013, which granted immunity from penalty and prosecution to the respondent. The ITSC has vast powers, including granting immunity under Section 245H(1) of the Income Tax Act, 1961, provided the conditions of full and true disclosure and cooperation are met. The ITSC's decision was based on the assessee's offer to disclose the entire bogus purchase amount of Rs. 117.98 crores as additional income.

2. Compliance with Section 245H(1):
Section 245H(1) stipulates two conditions for granting immunity: (1) full and true disclosure of income, and (2) cooperation with the ITSC. The ITSC's majority view was that the assessee cooperated and made full disclosures during the proceedings. However, the minority view and the High Court found that the assessee did not meet these conditions. The High Court emphasized that cooperation implies voluntary action, not forced compliance after being confronted with evidence.

3. Full and True Disclosure of Income:
The assessee initially disclosed Rs. 39.53 crores as additional income, which was later increased to Rs. 43.78 crores following a CIT report. Ultimately, the ITSC advised the assessee to disclose the entire Rs. 117.98 crores. The High Court found that the assessee was aware of the bogus purchases from the beginning but did not disclose the full amount voluntarily. The disclosure was made only after being cornered by the CIT's reports, indicating a lack of full and true disclosure in the initial settlement application.

4. Cooperation by the Assessee:
The High Court noted that genuine cooperation involves voluntary disclosure, not compliance under pressure. The assessee's conduct was seen as defiant, waiting until the last moment to disclose the full amount. The ITSC's majority view, which granted immunity based on the assessee's eventual compliance, was deemed contrary to the evidence and the spirit of the law. The High Court agreed with the minority view that the assessee did not exhibit genuine cooperation.

Conclusion:
The High Court upheld the revenue's contention that the ITSC's majority decision was perverse and contrary to Section 245H(1). The assessee failed to make a full and true disclosure and did not voluntarily cooperate in the proceedings. Consequently, the High Court quashed the ITSC's majority view granting immunity from penalty and prosecution and allowed the writ petition with no order as to costs.

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