# CASE DETAILS KOTAK MAHINDRA BANK LIMITED v. COMMISSIONER OF INCOME TAX BANGALORE AND ANR

- **Citation:** 2023 INSC 855
- **Court:** Supreme Court of India
- **Decided:** 2023-09-25
- **Case number:** Civil Appeal No. 9720 of 2014
- **Bench:** B. V. Nagarathna, Ujjal Bhuyan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/case-details-kotak-mahindra-bank-limited-v-commissioner-of-income-tax-bangalore-36637
- **Pages:** 27

## Headnote

Issue for consideration: Whether the Division Bench of the High
Court was right in affi rming the fi ndings of the Single Judge, to the eff ect
that the Settlement Commission ought not to have exercised discretion u/s.
245H of the Income Tax Act, 1961 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.
Income Tax Act, 1961 - s. 245H - Power of Settlement Commission
to grant immunity from prosecution and penalty - Exercise of - Assessee
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 - On basis thereof, the
Settlement Commission proceeded to grant immunity from prosecution
and penalty as contemplated u/s. 245H - Correctness:
Held: Settlement Commission rightly considered the relevant facts and
material and, decided to grant immunity to the assessee from prosecution and
penalty - Settlement Commission 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, the Commission decided
to grant immunity to the assessee from prosecution and penalty - Single
Judge of the High Court erred in holding that the reasoning of the Settlement
Commission was vague, unsound and contrary to established principles -
Division Bench also not justifi ed in affi rming the said view - Commission
2
SUPREME COURT REPORTS
[2023] 14 S.C.R.
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 - Thus, the order of the Commission did not suff er from
such infi rmity as would warrant interference by the High Court, by passing
an order of remand - Judgment passed by the High Court is set aside and
that of the Settlement Commission is restored. [Paras 7.4, 7.5, 9, and 14]
Income Tax Act, 1961 - s. 245H - Power of Settlement Commission
to grant immunity from prosecution and penalty - Exercise of -
Necessary ingredients:
Held: Under s. 245H(1), if the Settlement Commission is satisfi ed that
assessee 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, it may grant immunity from
prosecution or from the imposition of penalty - Even if the pre-conditions
prescribed u/s. 245C are to be read into s. 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 relevant that the assessee off ered to tax, income, in addition to
the income recorded in the return of income - s. 245C r/w s. 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. [Paras 6 and 7.1]
Income Tax Act, 1961 - s. 245H - Power of Settlement Commission
to grant immunity from prosecution and penalty - Nature of:
Held: Power vested with the Settlement Commission u/s. 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 - 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. [Para 7.3]
Income Tax Act, 1961 - s. 245H - Settlement Commission's order
- Judicial Review - Scope of:
3
Held: The scope is very narrow - It is only when the order contravenes
provisions of

## Text

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[2023] 14 S.C.R. 1 : 2023 INSC 855
1
CASE DETAILS
KOTAK MAHINDRA BANK LIMITED
v.
COMMISSIONER OF INCOME TAX BANGALORE AND ANR.
(Civil Appeal No. 9720 of 2014)
SEPTEMBER 25, 2023
[B. V. NAGARATHNA AND UJJAL BHUYAN, JJ.]
HEADNOTES
Issue for consideration: Whether the Division Bench of the High
Court was right in affi rming the fi ndings of the Single Judge, to the eff ect
that the Settlement Commission ought not to have exercised discretion u/s.
245H of the Income Tax Act, 1961 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.
Income Tax Act, 1961 - s. 245H - Power of Settlement Commission
to grant immunity from prosecution and penalty - Exercise of - Assessee
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 - On basis thereof, the
Settlement Commission proceeded to grant immunity from prosecution
and penalty as contemplated u/s. 245H - Correctness:
Held: Settlement Commission rightly considered the relevant facts and
material and, decided to grant immunity to the assessee from prosecution and
penalty - Settlement Commission 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, the Commission decided
to grant immunity to the assessee from prosecution and penalty - Single
Judge of the High Court erred in holding that the reasoning of the Settlement
Commission was vague, unsound and contrary to established principles -
Division Bench also not justifi ed in affi rming the said view - Commission
2
SUPREME COURT REPORTS
[2023] 14 S.C.R.
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 - Thus, the order of the Commission did not suff er from
such infi rmity as would warrant interference by the High Court, by passing
an order of remand - Judgment passed by the High Court is set aside and
that of the Settlement Commission is restored. [Paras 7.4, 7.5, 9, and 14]
Income Tax Act, 1961 - s. 245H - Power of Settlement Commission
to grant immunity from prosecution and penalty - Exercise of -
Necessary ingredients:
Held: Under s. 245H(1), if the Settlement Commission is satisfi ed that
assessee 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, it may grant immunity from
prosecution or from the imposition of penalty - Even if the pre-conditions
prescribed u/s. 245C are to be read into s. 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 relevant that the assessee off ered to tax, income, in addition to
the income recorded in the return of income - s. 245C r/w s. 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. [Paras 6 and 7.1]
Income Tax Act, 1961 - s. 245H - Power of Settlement Commission
to grant immunity from prosecution and penalty - Nature of:
Held: Power vested with the Settlement Commission u/s. 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 - 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. [Para 7.3]
Income Tax Act, 1961 - s. 245H - Settlement Commission's order
- Judicial Review - Scope of:
3
Held: The scope is very narrow - It is only when 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.
[Para 10]
Income Tax Act, 1961 - s. 245H - Proceedings of the Settlement
Commission - Legislative intent:
Held: Is to avoid frequent interference with the orders or proceedings
of the Settlement Commission - Order or proceeding of the Settlement
Commission can be judicially reviewed on limited grounds, and not to
be scrutinized as an appellate court - Unsettling reasoned orders of the
Commission may erode the confi dence of the bonafi de assessees, leading
to multiplicity of litigation where settlement is possible. [Para 13]
LIST OF CITATIONS AND OTHER REFERENCES
Ajmera Housing Corporation vs. Commissioner of Income Tax (2010)
8 SCC 739: [2010] 10 SCR 183; Commissioner of Income Tax vs. B.N.
Bhattacharjee (1979) 4 SCC 121: [1979] 3 SCR 1133; Commissioner of
Income Tax vs. Express Newspapers Ltd. (1994) 2 SCC 374: [1994] 1 SCR
64; Ashirvad Enterprises vs. State of Bihar (2004) 3 SCC 624: [2004] 3
SCR 300; Jyotendrasinhji vs. S.I. Tripathi 1993 Supp (3) SCC 389: [1993]
2 SCR 938 - referred to.
OTHER CASE DETAILS INCLUDING IMPUGNED
ORDER AND APPEARANCES
CIVIL APPELLATE JURISDICTION : Civil Appeal No.9720 of 2014
From the Judgment and Order dated 06.07.2012 of the High Court of
Karnataka at Bangalore in WA No.2458 of 2010.
Appearances:
Shyam Divan, Sr. Adv., Rohan Shah, D. Bharat Kumar, Siddhartha
Sinha, Aman Shukla, M. Chandrakanth Reddy, Abhijit Sengupta, Ms. Anu
Priya Nisha Minz, Advs. for the Appellant.
Balbir Singh, A.S.G., Rupesh Kumar, Aditya Rathore, Naman Tandon,
Raj Bahadur Yadav, Shashank Bajpai, Prashant Singh Ii, Samarvir Singh,
Shyam Gopal, Prahlad Singh, Rakesh Karela, Advs. for the Respondents.
KOTAK MAHINDRA BANK LTD. v. COMMISSIONER OF
INCOME TAX BANGALORE
4
SUPREME COURT REPORTS
[2023] 14 S.C.R.
JUDGMENT / ORDER OF THE SUPREME COURT
JUDGMENT
NAGARATHNA, J.
1. This appeal has been fi led 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 affi rmed and the aforesaid Writ
Appeal fi led 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 registered offi ce
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 fi led 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 Offi cer 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 Offi cer 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 fi nancial transaction. As a result,
the lease rental was bifurcated into capital repayment portion and interest
component. Only the interest component was off ered to tax. In other words,
the appellant treated such leases as loans granted to the "purported" lessees
5
to purchase assets. In such cases, the ownership of the assets is vested with
the 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 Offi cer issued a notice under Section
148 of the Act for the reassessment of income for the aforesaid assessment
years. The Assessing Offi cer also passed a penalty order dated 14.06.2000
levying a penalty under Section 271 (1)(c) of the Act after being satisfi ed
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 of allowable deduction under Section 80M
and exemption under Section 10(15) and 10(23G); and depreciation on the
investments portfolio of the bank classifi ed 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 fi led returns under protest with respect to the said
assessment years.
2.5. Before the Settlement Commission, the Respondents-Revenue
raised a preliminary objection contending that the appellant did not fulfi l the
qualifying criteria as contemplated under Section 245C(1) and hence, the
application fi led 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
KOTAK MAHINDRA BANK LTD. v. COMMISSIONER OF
INCOME TAX BANGALORE [B.V. NAGARATHNA, J.]
6
SUPREME COURT REPORTS
[2023] 14 S.C.R.
disclosed before the Assessing Offi cer and also the manner in which such
income had 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 and true disclosure of its income which had not been disclosed
before the Assessing Offi cer.
2.6. After considering the contentions of both parties, the Settlement
Commission passed an Order dated 11.12.2000 entertaining the application
fi led by the appellant under Section 245C and rejecting the preliminary
objections raised by the Revenue. The Settlement Commission allowed the
application fi led 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
fi led by the appellant under Section 245C(1) of the Act.
2.8. The learned Single Judge of the High Court of Karnataka, after
going through the legislative history of the provisions of Chapter-XIXA,
accepted the argument advanced by the appellant that the proviso to Section
245C as it stood earlier, which enabled the Commissioner to raise an
objection even at the threshold to entertain an application of this nature had
been later shifted to sub-section (l)(A) of Section 245D and from the year
1991, it had been totally omitted and in the light of such legislative history,
it was not open to the Revenue to raise any such preliminary objection
regarding maintainability of the application itself. It was further held that
the application can be proceeded with by the Settlement Commission
for determination of the same on merits and it was not necessary that the
Revenue should be permitted to raise a preliminary objection as to the
maintainability of the application.
7
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 fi nding, it was still open to
the Commissioner to agitate or to apprise the Commission of all the aspects
of the matter that he may fi nd fi t 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 fi ndings which it
has given under 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 fi led 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 Offi cer 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 same as per income tax law. The other
pertinent fi nding of the Settlement Commission are as under:
KOTAK MAHINDRA BANK LTD. v. COMMISSIONER OF
INCOME TAX BANGALORE [B.V. NAGARATHNA, J.]
8
SUPREME COURT REPORTS
[2023] 14 S.C.R.
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 fi led i.e., 10.07.2000. On a reading of Section
245C (1), the Commission observed that many amendments have
been made to Section 245C after its introduction in 1976 and
what is clear from "the income disclosed before the Assessing
Offi cer" 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 Offi cer." 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 off ered
additional income for tax 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 primafacie, a full and true disclosure of income not disclosed before
the Assessing Offi cer 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
9
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 Settlement Commission for
the limited purpose of reconsidering the question of immunity from levy
of penalty and prosecution and the Order of the Assessing Offi cer 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
fi nal 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 fi nding fault with the
validity of the order after having approved the jurisdiction and
procedure followed by the Settlement Commission.
ii.
That the learned Single Judge ought to have appreciated that
Section 245C contemplates full and true disclosure of income
to be made before the Settlement Commission alone and to that
extent the provisions of Section 245C are unambiguous and
certain. The application to the Settlement Commission to be fi led
under Section 245C ought to contain full and true disclosure
of income that was not disclosed in the returns/revised returns
KOTAK MAHINDRA BANK LTD. v. COMMISSIONER OF
INCOME TAX BANGALORE [B.V. NAGARATHNA, J.]
10
SUPREME COURT REPORTS
[2023] 14 S.C.R.
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
Offi cer 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 off ence 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 Offi cer.
iii.
That the learned Single Judge failed to appreciate the diff erence
between the provisions of Section 245H and Section 27l(l)(c)
of the Act. Section 245H does not contemplate off ering of any
explanation or evidence by an applicant to the satisfaction of
the Settlement Commission. If the Settlement Commission is
satisfi ed that an applicant has complied with the precondition
specifi ed 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.
11
On 10.02.2012 the appellant moved an application before this Court
seeking modifi cation of its Order dated 06.01.2012 by issuing a direction to
the High Court to dispose of Writ Appeal No. 2458 of 2010. It was contended
that the fi ling of a Special Leave Petition against the order of the learned
Single Judge was not proper as a writ appeal should have been fi led. That
admittedly, Writ Appeal No. 2458 of 2010 was pending before the High
Court and the Revenue suppressed this vital information while fi ling 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 suff er 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 fi ling 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 Offi cer. 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 satisfi ed
that any assessee who makes the application for settlement
KOTAK MAHINDRA BANK LTD. v. COMMISSIONER OF
INCOME TAX BANGALORE [B.V. NAGARATHNA, J.]
12
SUPREME COURT REPORTS
[2023] 14 S.C.R.
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 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 fi led 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 Solicitor General,
13
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 affi rmed 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 fi nding 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 Offi cer may make all kinds of additions and make
claims of evasion of tax by an assessee. However, the Order of
the Assessing Offi cer is by no means the last word. There are
appellate remedies which provide remedies for an aggrieved
assessee and until the assessment reaches fi nality, the conclusion
of the Assessing Offi cer 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 Offi cer 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
KOTAK MAHINDRA BANK LTD. v. COMMISSIONER OF
INCOME TAX BANGALORE [B.V. NAGARATHNA, J.]
14
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[2023] 14 S.C.R.
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 off ered 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
Offi cer would have a bearing on the application fi led before the
Settlement 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 affi rmed 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 fi led by the appellant under Section 245C
(1) before the Settlement Commission. That there is a marked
diff erence between the terms "discovered" and "disclosed" in as
much as what was "discovered" by the Assessing Offi cer during
the course of assessment proceedings could not form part of what
was "disclosed" by the assessee in the application fi led before
the Settlement Commission. However, in the present case, what
15
has been "disclosed" in the application is the same as what was
"discovered" by the Assessing Offi cer. The provisions of Section
245C being made applicable to an application fi led 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
fi led 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 fi led 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 appellantassessee 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 Offi cer would
have a bearing on the result of the application fi led before
the Settlement Commission. That a perusal of Section 245H
(1) would 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 refl ected 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 refl ected 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 Offi cer.
KOTAK MAHINDRA BANK LTD. v. COMMISSIONER OF
INCOME TAX BANGALORE [B.V. NAGARATHNA, J.]
16
SUPREME COURT REPORTS
[2023] 14 S.C.R.
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 would have
to use its power under Section 245(C) read with Section 245H of
the Act sparingly and only in cases where there was no intention
on the part of the assessee to evade tax. However, in the present
case, the Commission did not apply its mind to the issue as to,
whether, the appellant-assessee had wilfully evaded tax, before
proceeding to exercise its power under Section 245H of the Act.
Hence, the matter was rightly remanded to the Commission to
determine the issue as to grant of immunity to the assessee from
levy of penalty and prosecution.
v.
Next, Sri Balbir Singh, Ld. ASG, referred to the judgment
of this Court in Commissioner of Income Tax vs. Express
Newspapers Ltd., (1994) 2 SCC 374 to contend that in a similar
factual background, wherein the assessee had neither disclosed
before the Settlement Commission any income which was not
disclosed before the Assessing Offi cer, nor any details as to the
manner in which such income was derived, this Court held that
the conditions specifi ed 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, as
affi rmed by the Division Bench in the impugned judgment dated 06.07.2013,
be upheld.
17
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
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.]
18
SUPREME COURT REPORTS
[2023] 14 S.C.R.
either allow the application to be proceeded with or reject the same. Subsection (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.