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TMI Blog2024 (10) TMI 1585X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso 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 vali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the anvil and rigors of the provisions contained in Section 245D (2) read along with Section 245D (2C). Undisputedly, the ITSC had passed orders holding the application as made by respondent nos. 1 and 2 as liable to be proceeded with and additionally found that the said application for settlement was not liable to be invalidated and which is a circumstance spoken of in Section 245D (2C). 5. Section 245H follows a similar course and confers a discretionary power on the ITSC to accord immunity from prosecution and the levy of penalties, provided the applicant had made a full and true disclosure of its income and had cooperated in the proceedings. The question which consequently arises is whether the consideration of a full and true disclosure can be bifurcated or viewed in independent silos for the purposes of computation of income and the grant of immunity. The writ petitioner would contend that the issues are severable and thus it would be permissible for the Court to consider partially quashing the order of the ITSC and notwithstanding them having chosen not to question or assail the computation of the settlement amount. For the purposes of disposal of the present writ petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with respect to the findings in their report and which was also qualified by various disclaimers. 10. The ITSC thereafter undertook a comparative analysis between the audited and the consolidated accounts. It, in this regard, noted as follows:- 23.2 As can be seen from the SOF the entire computation of disclosure of income emanated from the financial results of 'consolidated account'. The moot point is the existence of huge variation of result between the audited account and the so-called consolidated account. There are also significant instances of strange adjustments made out of the said result to form part of the income computation in the SOF . For instance, the computation of net figure of Cash shortage at Rs. 44.90 cr is arrived at after netting cash on hand Rs. 15.25 cr from the cash (net) deployed through so-called bogus entities. Firstly, there was no corroborating material to testify these figures. Comparison of data at para 16.10 and bank statements in few cases also depict inconsistency/ discrepancy. At the same time, the said figures are crucially linked in the calculation of the undisclosed income before the Commission. 11. It ultimately and in light of the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s with the Department as indicated in para 17, to arrive at a fair assessment of the income, the Bench has ordered a joint verification of all available primary records in the presence of the AO, the applicant and the officers of the ITSC for determining the turnover and other relevant data for working out realistic income. In this connection, both the AR and the DR have expressed that they would welcome such exercise for arriving at a reasonable income for settlement. In order to arrive at such figure of income it was decided a detailed analysis of the item-wise potential trading results be worked out keeping in view profitability of each item, nature of commodity, on periodic basis spread throughout the year. These item-wise analysis and resultant profit would form the basis for extrapolating the profit margins for determining the annual income of the period under settlement. 9) It is to be mentioned here that during the concluding hearing of this application the AR conceded that in case the consolidated account presented by the applicant is not accepted the Bench should proceed to decide the settlement application on the basis of reasonable profit rate in the spirit of settlemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1600000 144936850 212040367 14. Appearing for the writ petitioners, Mr. Menon, learned counsel submitted that the sine qua non for the invocation of Section 245H is a full and true disclosure of income being made in the applications that may be filed before the ITSC. Mr. Menon submitted that bearing in mind the conclusions which came to be recorded by the ITSC and which stand reflected in Para 24 (7), it becomes apparent that the respondents had clearly failed to satisfy that primordial test. Mr. Menon submitted that the requirement of a full and true disclosure in the course of settlement and the said facet being of fundamental importance cannot possibly be doubted bearing in mind the decision of the Supreme Court in Kotak Mahindra Bank Ltd. vs. Commissioner of Income-Tax 2023 SCC OnLine SC 1215. 15. Learned counsel drew our attention to the following significant passages as appearing in that decision:- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... true disclosure was found to have been met by the ITSC and which had passed orders for the application to be proceeded with as also that it was not liable to be invalidated, it would be wholly impermissible for the petitioner to impugn the decision of the ITSC in part. This since, according to learned senior counsel, both Sections 245D as well as 245H are premised on identical preconditions being met. 18. On facts, the respondents contended that the record of the ITSC would itself establish that the income was ultimately computed by it on the basis of a joint verification of all the primary records that were made available and with the respondents themselves accepting and conceding to that course being adopted by the ITSC. They would consequently contend that the order of the ITSC is liable to be viewed as having been rendered on consent and consequently the challenge as raised being liable to be rejected. In any event, it was contended that the impugned order would establish that the respondents had voluntarily and in the spirit of settlement entrusted the ITSC to independently verify all facts and compute the tax liability liable to be foisted upon them. In view of the above, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue 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. 23. As was noticed hereinabove, 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. 24. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted than the power of the Court to interfere with an arbitration award. Regarding the jurisdiction of the Civil Court to deal with an arbitration award, the Supreme Court in the case of Coimbatore District Podu Thozillar Samgam v. Bala Subramania Foundry-has stated thus: The Court was also entrusted with the power to modify or correct the award on the ground of imperfect form or clerical errors, or decision on questions not referred, which were severable from those referred. The Court had also power to remit, the award when it had left some matters referred undetermined or when the award was indefinite, where the objection to the legality of the award was apparent on the face of the award. The Court might also set aside the award on the ground of corruption or misconduct of the arbitrator, or that a party had been guilty of fradulent concealment or wilful deception. But the Court could not interfere with the award if otherwise proper on the ground that the decision appeared to it to be erroneous. The award of the arbitrator was ordinarily final and conclusive, unless a contrary intention was disclosed by the agreement. The award was the decision of a domestic Tribunal chosen by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either failed to cooperate in those proceedings or withheld information. The Court is also cognizant of the fact that Chapter XIXA does not envisage the ITSC to be bound by the voluntary disclosure that an applicant may choose to make. It stands empowered to enquire and investigate as well as call for reports and material before completing the exercise of computation. This was an aspect which we had highlighted in Principal Commissioner of Income-Tax vs. Trent East LPG Bottling Ltd. 2024 SCC OnLine Del 2674 and where we had observed as follows:- 19. It becomes significant to note that in terms of section 245D (4) of the Act, the Income-tax Settlement Commission stands enabled to pass orders not only in respect of matters covered by the application, but also other matter relating to the case not covered by the application, but referred to in the report of the Principal Commissioner or Commissioner . 20. The Income-tax Settlement Commission apart from exercising its adjudicatory function upon the application as made, is also empowered by law to reopen any proceedings connected with the case pending before it and which may have been completed. If the Income-tax Settlement Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Penal Code, 1860, 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 . 6. On a close reading of the provisions extracted hereinabove, it emerges that under section 245H(1) if the Set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sive jurisdiction in the matter of levy of penalty under section 269ST and/or to grant immunity with respect thereto, is attractive but on further consideration we find ourselves unable to accept the same for the reasons: (A) Though the petitioner in the present case, in its application to the Settlement Commission has brought only the case pursuant to notices under section 153A admittedly issued to it, but the powers of the Settlement Commission under section 245D (4) to pass such order as it thinks fit are not confined to matters covered by the application but also extend to any other matter relating to the case not covered by the application, but referred to in the report of the Principal Commissioner or Commissioner presented to the Settlement Commission under section 245D(3) of the Act. (B) We have thus enquired from the counsel, whether the Principal Commissioner/Commissioner, in the present case, in response to the application of the petitioner to the Settlement Commission, has submitted any report and if so, whether in the said report the aforesaid aspect of violation of section 269ST of the Act has been reported; if it is so, the Settlement Commission would have jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er and in which context the petitioner had approached the Settlement Commission. (G) Though undoubtedly section 245A (b) while defining case refers to a proceeding for assessment pending before an Assessing Officer only and therefrom it can follow that penalties and prosecutions referred to in section 245F and section 245H are with respect to assessment of undisclosed income only, but (i) section 245F vests exclusive jurisdiction in the Settlement Commission, to exercise the powers and perform the functions of an Income-tax authority under this Act in relation to the case ; and (ii) section 245H vests the Settlement Commission with the power to grant immunity from imposition of any penalty under this Act with respect to the case covered by the settlement . The words of an Income-tax authority under this Act in relation to the case and immunity from imposition of any penalty under this Act with respect to the case covered by the settlement are without any limitation of imposition of penalty and immunity with respect thereto only in the matter of undisclosed income and in our view would cover also penalties under other provisions of the Act, detection whereof has the same origin as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings and which provisions not and the same is also likely to negate the objective and purpose for introduction of Chapter XIX-A in the Act and of settlement of cases. The said view has been followed in Tamil Nadu Kalyana Mandapam Association v. Union of India [(2004) 267 ITR 9 (SC); (2004) 5 SCC 632; 2004 SCC OnLine SC 491.], National Textile Corporation (MN) Ltd. v. Durga Trading Company [(2015) 12 SCC 558; (2016) 1 SCC (Civ) 489; 2015 SCC OnLine SC 1417.] and Maxopp Investment Ltd. v. CIT [(2018) 402 ITR 640 (SC); (2018) 15 SCC 523; 2018 SCC OnLine SC 250.] . Viewed in light of the above, we find that the order of the ITSC clearly does not merit interference under Article 226 of the Constitution. 28. Mr. Menon had commended for our consideration the 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 under Section 245D (4) and 245H do not proceed on a consideration of factors which may be said to be distinct or independent. Both are inform ..... X X X X Extracts X X X X X X X X Extracts X X X X
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