Law Insider India

Legal News, Current Trends and Legal Insight | Supreme Court of India and High Courts

SC: Material Disclosed to Income Tax Settlement Commission Should Not Be Different from What Was Discovered by AO

2 min read
Supreme Court Law Insider

LI Network

Published on: 27 September 2023 at 14:37 IST

The Supreme Court of India clarified that Section 245H of the Income Tax Act, 1961, which grants the Income Tax Settlement Commission the authority to provide immunity from prosecution and penalties to taxpayers who fully and truthfully disclose their income, does not impose an artificial requirement that the material disclosed to the Commission must be distinct from what was already discovered by the Assessing Officer.

The ruling came as a response to a case involving Kotak Mahindra Bank, which had approached the Settlement Commission seeking to settle its income tax liabilities. The Assessing Officer had previously issued a notice for the reassessment of the bank’s income, along with a penalty order for alleged income concealment.

The Settlement Commission, while upholding the bank’s application for settlement, granted immunity from penalty and prosecution under Section 245H(1) of the Act, and annulled the penalty levied by the Assessing Officer. However, the Revenue Department challenged this decision, leading to a legal battle.

The Karnataka High Court set aside the order granting immunity, stating that the reasoning behind the Settlement Commission’s decision was vague and unsound. The High Court believed that the bank should have proven that it had not concealed income or acted willfully to neglect it. Consequently, the case was remanded to the Settlement Commission for reconsideration.

The Supreme Court, in its analysis, highlighted that Section 245H(1) allows the Settlement Commission to grant immunity when the taxpayer has cooperated and made a full and true disclosure of income. While Section 245C specifies that the disclosure must include income “not disclosed before the Assessing Officer,” the Court emphasized that it does not necessitate that the disclosed material be entirely distinct from what the Assessing Officer had discovered.

The Court asserted that the purpose of Chapter-XIXA of the Act is to facilitate settlements and reduce disputes, rather than prolonging litigation. Taxpayers can approach the Settlement Commission by offering to tax additional income beyond what was initially reported, thereby resolving cases more efficiently.

The Supreme Court concluded that the Settlement Commission had made a valid decision based on relevant facts and material, considering the bank’s unique circumstances, such as complying with RBI guidelines. Therefore, it set aside the High Court’s order, restoring the Commission’s original decision to grant immunity to Kotak Mahindra Bank.

In essence, the Supreme Court’s ruling clarifies that the Settlement Commission’s discretionary powers should not be restricted by the requirement that disclosed material must differ from what the Assessing Officer had found. This decision upholds the principles of efficient tax settlement and aims to minimize prolonged litigation.