Paragraph numbers below are the court’s original numbering, recovered from the source text.
4. Having heard the learned counsel for the respective parties and on perusal of the material on record, the following points would emerge for our consideration: i. Whether the Division Bench of the High Court was right in affi rming the fi ndings of the learned Single Judge, to the eff ect that the Settlement Commission ought not to have exercised discretion under Section 245H of the Act 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? ii. What order? Legal Framework:
5. Before proceeding further, it would be useful to refer to the legal framework relevant to the issues which arise in this appeal. 5.1. Chapter XIX-A of the Act was introduced by the Taxation Laws (Amendment) Act, 1975 w.e.f. 01.04.1976 for quick settlement of cases so that the tax due to the Department is realized at the earliest, by approaching the Settlement Commission. Chapter XIX-A of the Act incorporates Sections 245A to 245M. Section 245C which is relevant for the purpose of this case provides the manner in which an application for settlement of cases is to be made before the Settlement Commission. An assessee seeking to settle a case with the Department is required under Section 245C to make a full and true disclosure of his income which has not been disclosed before the Assessing Offi cer, the manner in which such income has been derived and the additional tax payable on such income. 5.2. Section 245D deals with the procedure to be followed by the Commission on receiving an application for settlement under Section 245C. Sub-section (1) of Section 245C enables the Commission to call for a report from the Commissioner. 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 KOTAK MAHINDRA BANK LTD. v. COMMISSIONER OF INCOME TAX BANGALORE [B.V. NAGARATHNA, J.] 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 off ence 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 fi t 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. 5.4. For ready reference, the relevant provisions of Chapter XIX-A of the Act are extracted as under: “245H. Power of Settlement Commission to grant immunity from prosecution and penalty.—(1) The Settlement Commission may, if it is satisfi ed that any person who made 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 his income and the manner in which such income has been derived, grant to such person, subject to such conditions as it may think fi t to impose for the reasons to be recorded in writing, immunity from prosecution for any off ence under this Act or under the Indian Penal Code (45 of 1860) or under any other Central Act for the time being in force 2 and also (either wholly or in part) from the imposition of any penalty under this Act, with respect to the case covered by the settlement: Provided that no such immunity shall be granted by the Settlement Commission in cases where the proceedings for the prosecution for any such off ence have been instituted before the date of receipt of the application under section 245C: Provided further that the Settlement Commission shall not grant immunity from prosecution for any off ence under the Indian Penal Code (45 of 1860) or under any Central Act other than this Act and the Wealth-tax Act, 1957 (27 of 1957) to a person who makes an application under section 245C on or after the 1st day of June, 2007. (1A) An immunity granted to a person under sub-section (1) shall stand withdrawn if such person fails to pay any sum specifi ed in the order of settlement passed under sub-section (4) of section 245D within the time specifi ed in such order or within such further time as may be allowed by the Settlement Commission, or fails to comply with any other condition subject to which the immunity was granted and thereupon the provisions of this Act shall apply as if such immunity had not been granted. (2) An immunity granted to a person under sub-section (1) may, at any time, be withdrawn by the Settlement Commission, if it is satisfi ed that such person had, in the course of the settlement proceedings, concealed any particular material to the settlement or had given false evidence, and thereupon such person may be tried for the off ence with respect to which the immunity was granted or for any other off ence 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 satisfi ed 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 KOTAK MAHINDRA BANK LTD. v. COMMISSIONER OF INCOME TAX BANGALORE [B.V. NAGARATHNA, J.] granting immunity from prosecution would be: (a) the assessee should have co-operated with the Settlement Commission in the proceedings before it; and (b) the assessee should have made a full and true disclosure of its income and the manner in which such income has been derived, to the satisfaction of the Commission. Therefore, what is of essence is that the assessee ought to have: (a) made full and true disclosure before the Commission, and (b) co-operated with the Commission in the proceedings before it. 6.1. Upon being satisfi ed as to the said ingredients, the Commission 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.
7. While Section 245C provides that the disclosures as to income “not disclosed before the Assessing Offi cer” must accompany the application fi led before the Settlement Commission, Section 245H provides that if the assessee has co-operated with the Settlement Commission and has made “full and true disclosure of his income”, the Settlement Commission may grant immunity from prosecution and penalty. It is the case of the Revenue that Section 245H (1) cannot be read in isolation as Section 245C is embedded in 245H (1), and hence, both the Sections must be read harmoniously. That when so read, the requirement under Section 245H would be that disclosure of income “not disclosed before the Assessing Offi cer” must be made before the Commission. According to the Revenue, in the present case, what had been “disclosed” in the application was the same as what was “discovered” by the Assessing Offi cer and therefore, the application of the assessee ought not to have been entertained by the Commission, and further, immunity under Section 245H ought not to have been granted. 7.1. In this regard, it is observed that even if the pre-conditions prescribed under Section 245C are to be read into Section 245H, it cannot be said that in every case, the material “disclosed” by the assessee before the Commission must be something apart from what was discovered by the Assessing Offi cer. What is of relevance is that the assessee off ered to tax, income, in addition to the income recorded in the return of income. Section 245C read with Section 245H only contemplates full and true disclosure of income to be made before the Settlement Commission, regardless of the disclosures or discoveries made before/by the Assessing Offi cer. It is to be noted that the Order passed by Assessing Offi cer based on any discovery made, is not the fi nal 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 Offi cer. 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 Offi cer, in our view, seems to be an artifi cial requirement. In every case, there may not even be additional income to off er, apart from what has been discovered by the Assessing Offi cer. 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 off er to tax income other than that disclosed in the return of income. 7.3. It is 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 satisfi ed that an applicant has complied with the preconditions specifi ed 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 under Section 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. KOTAK MAHINDRA BANK LTD. v. COMMISSIONER OF INCOME TAX BANGALORE [B.V. NAGARATHNA, J.] 7.4. We fi nd 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. We arrive at this conclusion having regard to the following aspects of the matter, recorded by the Settlement Commission: i. The Commission in its order dated 04.03.2008, 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, the appellant off ered additional income under various heads, which were not considered by the Assessing Offi cer. Considering the nature and circumstances and the complexities of the investigation involved, the Commission was of the view that the application was to be proceeded with under Section 245D (1) of the Act and that prima-facie, a full and true disclosure of income not disclosed before the Assessing Offi cer had been made by the appellant. The fi ndings of the Commission to this eff ect are usefully extracted as under: “4.3 We have considered the rival submissions. We are of the opinion that there is no bar for banking companies to approach the Commission. The disclosure of the material facts in the return of income or the documents accompanying return of income is not a bar for the 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 confi dential annexures and are satisfi ed 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 off ered additional income under various heads not considered by the Assessing Offi cer. We are satisfi ed 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 Offi cer has been made by the applicant. Additionally, taking a practical view of the case, we are also concerned by the time taken to dispose of this application, particularly in respect of a scheduled bank. We feel that the matters need to be given a quietus and brought to close as speedy collection of taxes is also an important function of the Settlement Commission. We therefore allow the application to be proceeded with u/s 245D(1) of the Act.” The aforesaid fi ndings of the Settlement Commission, demonstrate that it had applied its mind to the aspect of whether there was wilful concealment of income by the assessee. Having noted that non-disclosure was on account of RBI guidelines, which required a diff erent standard of disclosure, the Commission decided to grant immunity to the appellant from prosecution and penalty. Accrodingly, the Commission passed the following order: “TERMS OF SETTLEMENT: 18.1 The computation of the undisclosed income and the tax payable thereon is furnished in the annexure 1 to 5 to this Order. Tax payable along with interest as per law shall be paid within 35 days of receipt of this order. 18.2 Considering the co-operation extended by the applicant in the completion of the present settlement proceedings and the true and full disclosure made, we grant immunity u/s 245H(1) from the imposition of penalty and prosecution under the income-tax Act and relevant sections of IPC, relating to the matters covered in the present order. Penalty u/s 271(1)(c) was levied by the Assessing Offi cer for AY 1997-98 in respect of non disclosure of lease rental as income. The penalty order is annulled considering KOTAK MAHINDRA BANK LTD. v. COMMISSIONER OF INCOME TAX BANGALORE [B.V. NAGARATHNA, J.] that the non disclosure was on account of RBI guidelines and the subsequent disclosure of additional income of lease income before the Settlement Commission when the applicant realized the omission to disclose the same as per Income tax law. However, the immunity so granted shall be withdrawn, if it is subsequently found that the conditions prescribed in subsections 1(A)/(2) of Sec.245H are satisfi ed. 18.3 The Settlement Order passed in the above case shall be declared void, if it is subsequently found by the Settlement Commission that it has been obtained by fraud or misrepresentation of facts.” ii. The Commission’s order further reveals that the appellant off ered additional income and disclosed particulars of the income pertaining to the following transactions/activities: a) Two aspects of 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 fi nd 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 justifi ed in affi rming such view of the learned Single Judge. The 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 suff er from such infi rmity as would warrant interference by the High Court, by passing an order of remand.
8. It may be apposite at this juncture, to refer to the decision of this Court in Ashirvad Enterprises vs. State of Bihar, (2004) 3 SCC 624 wherein it was stated that whether immunity from prosecution and penalty should be granted in a given case, has to be decided by the Commission by exercising its discretion, in the light of the facts and circumstances of each case. There is no straight jacket formula that would universally apply in every case. Where the Commission is satisfi ed that the applicant (a) has made full and true disclosure of his income and the manner in which such income was derived, and (b) has co-operated with the Commission in the proceedings before it, immunity under Section 245H may be granted.
9. In the present case, as noted above, we fi nd 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 off er 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 under Section 245H of the Act. The High Court ought not to have sat in appeal as to the suffi ciency 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.
10. We are fortifi ed in our view by the judgment of this Court in Jyotendrasinhji vs. S.I. Tripathi, 1993 Supp (3) SCC 389, wherein it was observed that a Court, while exercising powers under Articles 32, 226 or 136 of the Constitution of India, as the case may be, may not interfere with an order of the Commission, passed in exercise of its discretionary powers, except on the ground that the order contravenes provisions of the Act or has caused prejudice to the opposite party. Interference may also be open on KOTAK MAHINDRA BANK LTD. v. COMMISSIONER OF INCOME TAX BANGALORE [B.V. NAGARATHNA, J.] the grounds of fraud, bias or malice. Therefore, 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 suffi ciency 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 fi nd 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 off ered a part of such concealed income before the Commission, the application for settlement ought to have been rejected.
12. While we are mindful of the fact that the provisions of Chapter XIX-A of the Act are not to be employed so as to provide a shelter for tax dodgers to obtain immunity from facing the consequences of tax evasion by simply approaching the Settlement Commission, vide B.N. Bhattacharjee (supra), we are however of the view that in the present case, the Commission rightly exercised its discretion under Section 245H having regard to the bona fi de conduct of the assessee of off ering additional income for tax, apart from the income disclosed in the return of income.
13. Before parting with the record, we may add that having regard to the legislative intent, frequent interference with the orders or proceedings of the Settlement Commission should be avoided. We have already indicated the limited grounds on which an order or proceeding of the Settlement Commission can be judicially reviewed. The High Court should not scrutinize an order or proceeding of a Settlement Commission as an appellate court. Unsettling reasoned orders of the Settlement Commission may erode the confi dence of the bonafi de assessees, thereby leading to multiplicity of litigation where settlement is possible. This larger picture has to be borne in mind.
14. In light of the aforesaid discussion, 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 dated 06.07.2012, passed by the High Court of Karnataka at Bangalore in Writ Appeal No. 2458 of 2010 whereby the judgment of the learned Single Judge dated 20.05.2010, passed in Writ Petition No. 12239 of 2008, remanding the matter to the Settlement Commission to determine afresh, the question as to immunity from levy of penalty and prosecution was affi rmed, is hereby set aside. Consequently, the order of the learned Single Judge is also set aside. The Order of the Settlement Commission dated 04.03.2008 is restored. The appeal is allowed. Pending application (s), if any, stand disposed of in the aforesaid terms. No order as to costs. Headnotes prepared by: Appeal allowed. Nidhi Jain KOTAK MAHINDRA BANK LTD. v. COMMISSIONER OF INCOME TAX BANGALORE [B.V. NAGARATHNA, J.]