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TMI Blog2023 (9) TMI 1231X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - B. V. NAGARATHNA And UJJAL BHUYAN , JJ. For the Appellant : Mr. Shyam Divan, Sr. Adv. Mr. Rohan Shah, Adv. Mr. D. Bharat Kumar, Adv. Mr. Siddhartha Sinha, Adv. Mr. Aman Shukla, Adv. Mr. M. Chandrakanth Reddy, Adv. Ms. Anu Priya Nisha Minz, Adv. Mr. Abhijit Sengupta, AOR For the Respondent : Mr. Balbir Singh, A.S.G. Mr. Raj Bahadur Yadav, AOR Mr. Shashank Bajpai, Adv. Mr. Samarvir Singh, Adv. Mr. Prashant Singh Ii, Adv. Mr. Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32 of the Income Tax Act, 1961 (hereinafter referred to as the Act for the sake of convenience) though the appellant was not the owner of the assets for the purpose of the said transactions. 2.2. On 09.06.2000 the Assessing Officer issued a notice under Section 148 of the Act for the reassessment of income for the aforesaid assessment years. The Assessing Officer also passed a penalty order dated 14.06.2000 levying a penalty under Section 271 (1)(c) of the Act after being satisfied that the appellant had concealed its income as regards lease rental. 2.3. While various proceedings, such as an appeal before the CIT (A) for the assessment year 1997-1998, re-assessment proceedings for the assessment years 1994-1995 to 1996-1997 and regular assessment proceedings for the assessment years 1998-1999 and 1999-2000 were pending before various income tax authorities, the appellant, on 10.07.2000, approached the Settlement Commission at Chennai to settle its income tax liabilities under Section 245C (1) of the Act, by way of an application in Form No. 34B bearing No. 563/KNK-III/15/2000- IT. The appellant sought for determination of its taxable income for the assessment years 1994-19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diction of the Settlement Commission in entertaining the application filed by the appellant under Section 245C(1) of the Act. 2.8. The learned Single Judge of the High Court of Karnataka, after going through the legislative history of the provisions of Chapter-XIXA, accepted the argument advanced by the appellant that the proviso to Section 245C as it stood earlier, which enabled the Commissioner to raise an objection even at the threshold to entertain an application of this nature had been later shifted to sub-section (l)(A) of Section 245D and from the year 1991, it had been totally omitted and in the light of such legislative history, it was not open to the Revenue to raise any such preliminary objection regarding maintainability of the application itself. It was further held that the application can be proceeded with by the Settlement Commission for determination of the same on merits and it was not necessary that the Revenue should be permitted to raise a preliminary objection as to the maintainability of the application. The learned Single Judge disposed of the above Writ Petition by way of an Order dated 18.08.2005 in favour of the appellant herein by holding that notw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: i. As regards the disclosure of income by the appellant, the Settlement Commission noted that the application had to be considered within the framework of law as on the date the application was filed i.e., 10.07.2000. On a reading of Section 245C (1), the Commission observed that many amendments have been made to Section 245C after its introduction in 1976 and what is clear from the income disclosed before the Assessing Officer is that it is the income disclosed in the return of income furnished and not income that could be computed on the basis of a scrutiny or interpretation of the documents accompanying the return. That one has to read the entire conspectus of the provisions of Sec 245C to interpret the true meaning of income not disclosed before the Assessing Officer. That the statute is clear that the said phrase simply means income not disclosed in the return and not something additionally by way of income discovered in scrutiny. ii. The Commission further noted that the appellant had realized while adhering to the RBI guidelines of accounting of lease income that there was an error in not disclosing the full lease rental receipts as per income tax law. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commission are final as to the matters stated therein, subject to constitutional remedies. However, such constitutional remedies could be availed only when the orders passed by the Settlement Commission are contrary to the provisions of the Act or have prejudiced the Revenue/assessee or that they are vitiated by bias, fraud or malice. Thus, the learned Single Judge erred in finding fault with the validity of the order after having approved the jurisdiction and procedure followed by the Settlement Commission. ii. That the learned Single Judge ought to have appreciated that Section 245C contemplates full and true disclosure of income to be made before the Settlement Commission alone and to that extent the provisions of Section 245C are unambiguous and certain. The application to the Settlement Commission to be filed under Section 245C ought to contain full and true disclosure of income that was not disclosed in the returns/revised returns filed before the Assessing Officer. That the learned Single Judge misdirected himself in holding that there is a statutory requirement that concealment of particulars before the Assessing Officer would have a bearing while the Settlement Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore the High Court and the Revenue suppressed this vital information while filing the Special Leave Petition. This Court by way of an Order dated 21.02.2012 recalled its earlier Order dated 06.01.2012 passed in SLP (C) CC No. 19663 of 2010 and directed the High Court to dispose of Writ Appeal No. 2458 of 2010 within a period of two months. 2.13. Following the same, a Division Bench of the High of Karnataka vide Order dated 06.07.2012 dismissed the Writ Appeal preferred by the appellant and upheld the Order passed by the learned Single Judge. It was observed that the Order of the learned Single Judge remanding the matter to the Settlement Commission for adjudication did not suffer from any material irregularity or illegality. The pertinent observations of the Division Bench of the High of Karnataka are as under: i. On the question as to whether the Order dated 20.05.2010 passed by the learned Single Judge of the High Court in Writ Petition No. 12239 of 2008 would call for interference, on a reading of Section 245C (1) of the Act which governs the filing of an application by an assessee seeking settlement it was observed that the application made by an assessee, must contain f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to have been scrutinised by the Settlement Commission and the Single Judge in the instant case found that the same was not done, hence, the matter was rightly remanded. 2.14. Aggrieved by the Judgment dated 06.07.2012 in Writ Appeal No. 2458 of 2010, the appellant has preferred the instant Civil Appeal. Submissions : 3. We have heard learned senior counsel Sri Shyam Divan, appearing on behalf of the appellant-assessee and learned Additional Solicitor General, Sri Balbir Singh, appearing on behalf of the respondents-Revenue and perused the materials placed on record. 3.1. Sri Shyam Divan at the outset submitted that the judgment of the learned Single Judge of the High Court, as affirmed by the Division Bench by the impugned order, proceeds on a misdirection in law, in light of the facts of the case and therefore, the same is liable to be set aside by this Court. It was further submitted as follows: i. That when, in the present case, the Settlement Commission rendered a positive finding that the appellant had extended cooperation and had made a true and full disclosure and thereafter, in exercise of power under Section 245H, the Commission granted immunity from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned judgment dated 06.07.2013, be set aside, thereby restoring the Order of the Settlement Commission dated 04.03.2008. 3.3. Per contra, Sri Balbir Singh, learned Additional Solicitor General appearing on behalf of the respondents-Revenue submitted that the impugned judgment of the High Court is based on a correct appreciation of the law in the light of the facts of the present case and therefore, the same does not call for interference by this Court. It was further submitted as under: i. That it is only when the completed assessments were re-opened by the Revenue and when penalty proceedings were initiated that the application was filed by the appellant under Section 245C (1) before the Settlement Commission. That there is a marked difference between the terms discovered and disclosed in as much as what was discovered by the Assessing Officer during the course of assessment proceedings could not form part of what was disclosed by the assessee in the application filed before the Settlement Commission. However, in the present case, what has been disclosed in the application is the same as what was discovered by the Assessing Officer. The provisions of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax evasion by simply approaching the Settlement Commission. That the Commission would have to use its power under Section 245(C) read with Section 245H of the Act sparingly and only in cases where there was no intention on the part of the assessee to evade tax. However, in the present case, the Commission did not apply its mind to the issue as to, whether, the appellant-assessee had wilfully evaded tax, before proceeding to exercise its power under Section 245H of the Act. Hence, the matter was rightly remanded to the Commission to determine the issue as to grant of immunity to the assessee from levy of penalty and prosecution. v. Next, Sri Balbir Singh, Ld. ASG, referred to the judgment of this Court in Commissioner of Income Tax vs. Express Newspapers Ltd., (1994) 2 SCC 374 to contend that in a similar factual background, wherein the assessee had neither disclosed before the Settlement Commission any income which was not disclosed before the Assessing Officer, nor any details as to the manner in which such income was derived, this Court held that the conditions specified in Section 245C of the Act, were not complied with by the assessee and therefore, the Settlement Commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner. On the basis of the Commissioner s report and having regard to the nature and circumstances of the case or the complexity of the investigation involved therein, the Settlement Commission may either allow the application to be proceeded with or reject the same. Sub-section (4) of Section 245D empowers the Settlement Commission to pass an order after examination of the records and the report submitted by the Commissioner, after hearing the applicant and the Commissioner, or their authorized representatives and examining any further evidence before it. 5.3. Section 245H of the Act bestows upon the Settlement Commission, discretion to grant immunity to an applicant from prosecution for any offence under the Act or under the Indian Penal Code, or from the imposition of any penalty under the Act, with respect to the case covered by the settlement. The grant of such immunity is subject to such conditions which the Commission may think it fit to impose. The precondition for granting immunity is that the applicant must have co-operated in the proceedings before the Commission and made a full and true disclosure of his income and the manner in which such income has been derived. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for any other offence of which he appears to have been guilty in connection with the settlement and shall also become liable to the imposition of any penalty under this Act to which such person would have been liable, had not such immunity been granted. (3) On and from 1st day of February, 2021, the power of the Settlement Commission under this section shall be exercised by the Interim Board and the provisions of this section shall mutatis mutandis apply to the Interim Board as they apply to the Settlement Commission. Analysis : 6. On a close reading of the provisions extracted hereinabove, it emerges that under Section 245H(1) if the Settlement Commission is satisfied that any assessee who makes the application for settlement under Section 245C, has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of its income and the manner in which such income has been derived, may grant immunity from prosecution or from the imposition of penalty, either wholly or in part with respect to the case covered by the settlement. The necessary ingredients for granting immunity from prosecution would be: (a) the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer. It is to be noted that the Order passed by Assessing Officer based on any discovery made, is not the final word, for, it is appealable. However, the assessee may accept the liability, in whole or in part, as determined in the assessment order. In such a case, the 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 Assessing Officer. 7.2. 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 Assessing Officer, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he applicant to approach the Commission. In view of this, we hold that the applicant is eligible to approach the Commission. 5.1 Finally we have carefully gone through the settlement application and the confidential annexures and are satisfied that the complexities of investigation as brought out in the application do exist. We have also considered the nature and circumstances of the case as explained by the applicant's representative. The applicant is an established scheduled bank with several branches. The applicant has realized that when adhering to RBI guidelines of accounting of lease income there was an error in not disclosing the full lease rental receipts as per income tax law. In addition the applicant has offered additional income under various heads not considered by the Assessing Officer. We are satisfied that the nature and circumstances and the complexities of investigation involved do warrant the application to be proceeded with u/s 245D(1) of the Act. We are also reasonably satisfied that, prima facie, a full and true disclosure of income not disclosed before the Assessing Officer has been made by the applicant. Additionally, taking a practical view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant s leasing activity, namely, undeclared lease rent liable to income tax; additional income on account of disallowance of depreciation on 26 assets claimed to be leased. b) Treatment of bonus payments to employees. c) Treatment of share issue expenses. d) Treatment of depreciation on permanent assets and securities. iii. The Commission s order dated 11.12.2000, makes multiple references to the Report of the Commissioner, as required under Section 245D (1). Therefore, we find no substance in the submission of the Ld. ASG appearing on behalf of the Revenue that the procedure contemplated under Section 245D was not followed and in the absence of a report, the Commission was not correct in entertaining the appellant s application for settlement. 7.5. In the light of the aforesaid discussion, we are of the view that the learned 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. The Commission, in our view, adequately applied its mind to the circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, this Court has carved out a very narrow scope for judicial review of the Commission s orders, passed in the exercise of its discretionary powers. Hence, we hold that 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 under Section 245H of the Act, are beyond the scope of judicial review, except under the circumstances set out in Jyotendrasinhji vs. S.I. Tripathi (supra). 11. We find that the judgment of this Court in Express Newspapers Ltd. (supra), sought to be relied upon by the Respondents, would not come to their aid in the present case. It is to be noted that the said judgment turns on its own facts. In the said case, the income tax authorities had made extensive investigation and inquiry, whereby they had collected voluminous material demonstrating large scale concealment of income on the part of the assessee therein. In that background, this Court observed that the assessee, having merely offered a part of such concealed income before the Commission, the application for settlement ought to have been rejected. 12. While we are mindful of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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