2023INSC855 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.9720 OF 2014

KOTAK MAHINDRA BANK LIMITED … APPELLANT(S)

VS.

COMMISSIONER OF INCOME TAX

BANGALORE AND ANR. ... RESPONDENT( S)

J U D G M E N T

NAGARATHNA, J.

This appeal has been filed assailing 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 affirmed and the aforesaid Writ Appeal filed by the

appellant herein, was dismissed.

2. The facts giving rise to the present appeal, in a nutshell are that

the appellant-assessee, Kotak Mahindra Bank Limited (formerly, “M/s

ING Vysya Bank Limited”) is a Public Limited Company carrying on the

business of banking and is assessed to tax in Bangalore where its

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registered office is located. Apart from the business of banking, the

appellant also carries out leasing business on receiving approval from

the Reserve Bank of India (hereinafter “RBI” for short) vide Circular

dated 19.02.1994. Thus, the appellant derives its income, inter alia,

from banking activities as well as from leasing transactions.

2.1. The appellant filed its income tax returns for the assessment years

1994-1995 to 1999-2000 and assessment orders were passed up to

assessment year 1997-1998 and the assessment for the subsequent

years was pending. During the assessment proceedings for the

assessment year 1997-1998, the Assessing Officer made certain

additions and disallowances based on which the assessment already

concluded for the assessment years 1994-1995 to 1996-1997 were

proposed to be reopened. The Assessing Officer then passed an

Assessment Order dated 30.03.2000 for the Assessment Year 1997 -

1998. The main issue pertained to the income in respect of the activity

of leasing. As per the Assessment Order, the appellant had been

accounting for lease rental received, by treating the same as a financial

transaction. As a result, the lease rental was bifurcated into capital

repayment portion and interest component. Only the interest

component was offered to tax. In other words, the appellant treated

such leases as loans granted to the "purported" lessees to purchase

assets. In such cases, the ownership of the assets is vested with the

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lessees. However, the appellant claimed depreciation on those assets

under Section 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 1994-1995 to 1999-2000, after considering the issues

pertaining to the income assessable in respect of its leasing transaction;

eligibility to avail depreciation in respect of leased assets; the quantum

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of allowable deduction under Section 80M and exemption under Section

10(15) and 10(23G); and depreciation on the investments portfolio of

the bank classified as permanent investments.

2.4. When matters stood thus, the concluded assessments for earlier

assessment years were reopened by issuance of notices under Section

148 of the Act. The appellant filed returns under protest with respect to

the said assessment years.

2.5. Before the Settlement Commission, the Resp ondents-Revenue

raised a preliminary objection contending that the appellant did not

fulfil the qualifying criteria as contemplated under Section 245C(1) and

hence, the application filed by the appellant was not maintainable, as,

under the said provision, the appellant was required to make an

application in the prescribed manner containing full and true disclosure

of its income which had not been disclosed before the Assessing Officer

and also the manner in which such income ha d been derived. That

unless there is a true and full disclosure there would be no valid

application and the Settlement Commission will not be able to assume

jurisdiction to proceed with the admission of the application. It was thus

contended that the purported application made before the Settlement

Commission was not an application as contemplated under section

245C (1) of the Act for the reason that the appellant had not made a full

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and true disclosure of its income which had not been disclosed before

the Assessing Officer.

2.6. After considering the contentions of both parties, the Settlement

Commission passed an Order dated 11.12.2000 entertaining the

application filed by the appellant under Section 245C and rejecting the

preliminary objections raised by the Revenue. The Settlement

Commission allowed the application filed by the appellant by way of a

speaking order and permitted the appellant to pursue its claim under

Section 245D. Thus, the application was proceeded further under

Section 245D (1) of the Act.

2.7. The Revenue challenged the Order dated 11.12.2000 passed by

the Settlement Commission before the High Court of Karnataka at

Bangalore by way of Writ Petition No. 13111 of 2001 . The Revenue

questioned the jurisdiction 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

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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 notwithstanding any preliminary finding, it was still open

to the Commissioner to agitate or to apprise the Commission of all the

aspects of the matter that he may find fit to be placed before the

Commission. The Single Judge was of the view that it was not necessary

to examine the legal position that may require an interpretation of

provisions of Section 245C at that stage when the matter itself was still

at large before the Settlement Commission as the very object of Chapter-

XIXA was to settle cases and to reduce the disputes and not to prolong

litigation. Thus, the High Court disposed of the Writ Petition holding

that it was open to the parties to raise all their contentions before the

Commission at the stage of disposal of the application and the

Commission may, independent of the findings which it has given under

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the Order dated 11.12.2000, examine all the contentions and proceed

to pass orders on merits in accordance with the provisions of the Act.

2.9. As a result of the Order dated 18.08.2005 passed by the High

Court of Karnataka, the Settlement Commission heard both parties on

merits as well as on the issue of maintainability. The Settlement

Commission upheld the maintainability of the application filed by the

appellant and passed an Order dated 04.3.2008 under Sections 245D(1)

and 245D(4), determining the additional income at

Rs.196,36,06,201/-. As regards the issue of immunity from penalty

and prosecution, the Commission, having regard to the fact that the

appellant had co-operated in the proceedings before the Settlement

Commission and true and full disclosure was made by the appellant

before the Commission in paragraph 18.2 of its Order granted immunity

under Section 245H(1) from the imposition of penalty and prosecution

under the Act and the relevant sections of the Indian Penal Code.

Further, the Settlement Commission annulled the penalty levied by the

Assessing Officer under Section 271(1)(c) for the assessment year 1997-

1998 in respect of non-disclosure of lease rental income. The same was

annulled considering that the non-disclosure was on account of RBI

guidelines and subsequent disclosure on the part of the appellant, of

additional income of the lease income before the Settlement

Commission when the appellant realised the omission to disclose the

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same as per income tax law. The other pertinent finding of the

Settlement Commission are as 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 ha ve 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, the appellant offered additional income

for tax under various heads, which were not considered by the

Assessing Officer. Considering the nature and circumstances and

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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 Officer had

been made by the appellant.

2.10. Being aggrieved by the Order dated 04.03.2008 passed by the

Settlement Commission, the Respondent-Revenue preferred Writ

Petition bearing No. 12239 of 2008 (T-IT) before the High Court of

Karnataka assailing the said Order. The learned Single Judge of the

High Court vide Order dated 20.05.2010 upheld the Order of the

Settlement Commission as regards the jurisdiction to entertain the

application and also as regards the correctness of the Order passed by

the Settlement Commission in determining the tax liability, but found

fault with the Commission in so far as granting immunity to the

appellant from the levy of penalty and initiation of prosecution was

concerned. The Single Judge was of the view that the reasoning of the

Settlement Commission was vague, unsound and contrary to

established principles and that the burden was on the appellant herein

to prove that there was no concealment or wilful neglect on its part and

in the absence of such evidence before the Settlement Commission, the

Order granting immunity from penalty and prosecution was an illegal

order. The learned Single Judge, thus, remanded the matter to the

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Settlement Commission for the limited purpose of reconsidering the

question of immunity from levy of penalty and prosecution and the

Order of the Assessing Officer levying penalty, after providing an

opportunity to both parties.

2.11. Being aggrieved by the remand order passed by the learned Single

Judge, the appellant preferred Writ Appeal No. 2458 of 2018 before a

Division Bench of the High Court, contending as under:

i. That the reasoning given by the learned Single Judge to remand the

matter for fresh consideration was erroneous and against the

provisions of the Act. That the learned Single Judge failed to

appreciate that the orders passed by the Settlement Commission

are conclusive except as otherwise provided in Chapter XIX-A of the

Act. The orders passed by the Settlement 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.

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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 Commission exercises its powers

under Section 245H of the Act for grant of immunity from

prosecution and penalty. That Section 245H bestows exclusively

upon the Settlement Commission, the discretion to grant immunity

to an applicant from prosecution for any offence under the Act or

grant of immunity wholly or in part from the imposition of penalty

under the Act. The only precondition for granting immunity to the

applicant is that the applicant must have co-operated in the

proceedings before the Settlement Commission and made full and

true disclosure of his income and the manner in which such income

has been derived before the Settlement Commission. Thus, the

learned Single Judge erred in drawing reference to the possibility

of concealment of income before the Assessing Officer.

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iii. That the learned Single Judge failed to appreciate the difference

between the provisions of Section 245H and Section 27l(l)(c) of the

Act. Section 245H does not contemplate offering of any explanation

or evidence by an applicant to the satisfaction of the Settlement

Commission. If the Settlement Commission is satisfied that an

applicant has complied with the precondition specified therein, the

Settlement Commission could exercise its discretion to grant

immunity from prosecution and penalty. Therefore, there was no

error committed by the Settlement Commission in granting

immunity from prosecution and penalty.

2.12. In the meanwhile, Revenue preferred Special Leave Petition (C) CC

No. 19663 of 2010 before this Court against the Order dated 20.05.2010

passed by the learned Single Judge in Writ Petition No. 12239 of 2008.

On 06.01.2012, this Court directed the Special Leave Petition to stand

over for eight weeks and directed the Settlement Commission to dispose

of the matter remanded to it by the High Court. In pursuance of the

Order dated 06.01.2012 passed by this Court, the Settlement

Commission, Chennai, issued a notice in the remanded matter on

30.01.2012.

On 10.02.2012 the appellant moved an application before this

Court seeking modification of its Order dated 06.01.2012 by issuing a

direction to the High Court to dispose of Writ Appeal No. 2458 of 2010.

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It was contended that the filing of a Special Leave Petition against the

order of the learned Single Judge was not proper as a writ appeal should

have been filed. That admittedly, Writ Appeal No. 2458 of 2010 was

pending before 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 full and true disclosure of his

income which has not been disclosed before the Assessing Officer.

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Further, on perusal of Section 245H of the Act which discusses the

Commission’s power to grant immunity from prosecution and

penalty, it was observed that necessary ingredients for 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.

ii. Under Section 245H (1), the Settlement Commission, if satisfied

that any assessee who makes the application for settlement under

Section 245C, has co-operated with the 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 and also from the imposition

of penalty, either wholly or in part with respect to the case covered

by the settlement. Thus, 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. Further, if in a given case

such immunity is not granted, the Revenue would proceed to

prosecute the assessee in a jurisdictional court. Once prosecution

is lodged, the presumption is that there was mens rea on the part

of the assessee to conceal the income by a smoke screen and

thereby to evade tax. The Settlement Commission will have to

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examine the application by lifting the veil to see as to whether there

has been an intention to evade tax and then arrive at a conclusion

and in the absence of such an exercise being undertaken by the

Commission, the intention behind Section 245H (1) would become

otiose.

iii. The Division Bench noted that as per the provision of Section 245D

then prevalent, the Settlement Commission on receipt of an

application filed under Section 245C had to call for a report from

the Commissioner and on the basis of the material contained in

such report and having regard to the nature and circumstances of

the case or the complexity of the investigation involved therein, the

Settlement Commission was empowered to reject or allow the

application to be proceeded with, within the prescribed period and

it is in this background that the granting of immunity from

prosecution ought 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

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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 prosecution and penalty to the appellant, the High

Court ought not to have interfered with the decision of the

Settlement Commission. That the Settlement Commission is the

sole judge of the adequacy of and the nature of evidence placed

before it and so long as there was cogent material and explanation

which was furnished by the appellant-assessee, the High Court

ought not to have interfered.

ii. That the High Court ought to have appreciated that the Assessing

Officer may make all kinds of additions and make claims of evasion

of tax by an assessee. However, the Order of the Assessing Officer

is by no means the last word. There are appellate remedies which

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provide remedies for an aggrieved assessee and until the

assessment reaches finality, the conclusion of the Assessing Officer

in the assessment Order is nothing but his own assertion. Such a

stage had not been reached in the case of the appellant herein.

iii. Concealment of particulars before the Assessing Officer would not

have a bearing while the Settlement Commission exercises its

powers under Section 245H of the Act for grant of immunity from

prosecution and penalty. That if an assessee has disclosed in the

return of income his true income and the disclosure of income is

full and complete, there is no reason for him to go before the

Settlement Commission. Section 245C contemplates full and true

disclosure of income to be made before the Settlement Commission

only.

iv. That Section 245C does not contemplate any explanation or

evidence that requires to be offered by an applicant to the

satisfaction of the Settlement Commission and as such the Division

Bench’s judgment was liable to be quashed. Section 245C

contemplates full and true disclosure of income to be made before

the Settlement Commission and the same was made by the

assessee. That the learned Single Judge of the High Court

committed an error in holding that there is a statutory requirement

that concealment of particulars before the Assessing Officer would

have a bearing on the application filed before the Settlement

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Commission, which is required to exercise its power under section

245H of the Act for granting immunity from prosecution and

penalty.

3.2. With the aforesaid submissions, it was prayed that the present

appeal be allowed and the judgment of the learned Single Judge of the

High Court, as affirmed by the Division Bench in the 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

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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

245C being made applicable to an application filed by an assessee,

the prime ingredient would be disclosure of such income which had

not been disclosed in the return of income.

ii. That the Settlement Commission on receipt of an application filed

under Section 245C had to call for a report from the Commissioner

and on the basis of the material contained in such report, the

Commission ought to have proceeded to consider the application

filed by the assessee, as also the question of granting of immunity

from penalty and prosecution. Since this procedure was not

adhered to and the Settlement Commission, de hors any material

to demonstrate that there was any wilful concealment on the part

of the assessee to evade tax, went on to pass an order granting

immunity under Section 245H (1) to the appellant-assessee from

imposition of penalty and prosecution under the Act, the learned

Single Judge rightly set aside the Order of the Commission to such

extent only and remanded the said aspect of the matter for fresh

consideration.

iii. That concealment of income before the Assessing Officer would

have a bearing on the result of the application filed before the

Settlement Commission. That a perusal of Section 245H (1) would

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reveal that the same cannot be read in isolation as Section 245C is

embedded in 245H (1). Therefore, the two provisions would have to

be read harmoniously and when so read, it would emerge that in

order to qualify for immunity under Section 245H, the assessee

must not only co-operate with the Settlement Commission, but

must also disclose income which was not reflected in the return of

income, vide Ajmera Housing Corporation vs. Commissioner of

Income Tax, (2010) 8 SCC 739. However, in the present case, the

assessee has not disclosed any income which was not reflected in

the return of income, but has only brought to the notice of the

commission the income that had escaped assessment, which was

subsequently discovered by the Assessing Officer.

iv. Reliance was placed on the decision of this Court in Commissioner

of Income Tax vs. B.N. Bhattacharjee, (1979) 4 SCC 121 to

contend that the provisions of Chapter XIX-A of the Act, were to be

construed as having legislative intent behind them. That the policy

of law as disclosed in the said Chapter is not to provide a shelter

for tax dodgers, to subsequently obtain immunity from facing the

consequences of tax evasion by simply approaching the Settlement

Commission. That the Commission w ould 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

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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 Commission ought not to

have entertained the application before it. In that context, it was

submitted that the application in the present case also ought to

have been dismissed in limine and the Commission ought not to

have entertained the same.

3.4. In the light of the aforesaid contentions, learned ASG, Sri Balbir

Singh submitted that the present appeal be dismissed as being devoid

of merit and the judgment of the learned Single Judge of the High Court,

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as affirmed by the Division Bench in the impugned judgment dated

06.07.2013, be upheld.

Points for Consideration:

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 affirming

the findings of the learned Single Judge, to the effect 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

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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 Officer, 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 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.

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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.

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 satisfied that any person

who made the application for settlement under section 245C

has co-operated with the Settlement Commis sion 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 fit to impose for the reasons to be recorded in

writing, immunity from prosecution for any offence 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 offence have been instituted before

the date of receipt of the application under section 245C:

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Provided further that the Settlement Commission shall not

grant immunity from prosecution for any offence 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

specified in the order of settlement passed under sub-section

(4) of section 245D within the time specified 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 satisfied 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 offence with respect to which the

immunity was granted or 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 1

st 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

26

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 assessee should have co-operated with the

Settlement Commission in the procee dings 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 satisfied 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 Officer” must accompany the

application filed before the Settlement Commission, Section 245H

provides that if the assessee has co-operated with the Settlement

27

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 Officer” 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 Officer 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 Officer. What is of relevance is that the

assessee offered 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

28

made before/by the Assessing 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

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 satisfied that an applicant

29

has complied with the preconditions specified 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.

7.4. We find 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

30

appellant offered additional income under various heads, which

were not considered by the Assessing Officer. 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 Officer had been made by the appellant. The

findings of the Commission to this effect 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 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

31

not disclosed before the Assessing Officer 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 findings 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 different 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 Officer for AY 1997-98 in

respect of non disclosure of lease rental as income.

The penalty order is annulled considering that the non

disclosure was on account of RBI guidelines and the

32

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 satisfied.

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 offered

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 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

33

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 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 suffer from such infirmity 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

satisfied 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

34

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 find 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 offer 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 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.

10. We are fortified 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 the grounds of fraud, bias or malice.

35

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 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 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 Commissio n, vide B.N.

36

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 fide conduct of the assessee of offering

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 confidence of the bonafide

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.

37

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 affirmed, 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.

..………….……………J.

(B.V. NAGARATHNA)

..………….……………J.

(UJJAL BHUYAN )

NEW DELHI;

25

th SEPTEMBER , 2023.