TaxTMI 
TaxTMI 
TaxTMI 
When applying to the settlement commission, the question arises whether an application can be made before the settlement commission for disclosing an income which had escaped assessment and which was already discovered by the AO while finalising assessment; on whether the immunity from prosecution or penalty proceedings is available to the appellant only on co-operation with the settlement commission as per Section 245H of Income Tax Act or the appellant has to prove that there was ‘no concealment or wilful neglect on its part’. Would The Settlement Commission 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?
245C (1) provides that “An assessee may, at any stage of a case relating to him, make an application in such form and in such manner as may be prescribed, and containing 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, the additional amount of income-tax payable on such income and such other particulars as may be prescribed, to the Settlement Commission to have the case settled …”
Hence, incase a strict interpretation of the above Section is done, then it can be interpreted 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. However, it must be noted that the very object and intent of Chapter XIXA was to settle cases and to reduce the disputes and not to prolong litigation. But the provisions of Chapter XIX-A of the Act, should also not be used provide a shelter for tax dodgers, to subsequently obtain immunity from facing the consequences of tax evasion by simply approaching the Settlement Commission.
There is a difference between the provisions of Section 245H and Section 271(1)(c) of the Income Tax 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, it could exercise its discretion to grant immunity from prosecution and penalty. The Settlement Commission is the sole judge of the adequacy of and the nature of evidence placed before it and so long as cogent material and explanation is furnished by the appellant-assessee, it can grant relief. It the Settlement Commission is convinced that the appellant-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. The same was held in the case of KOTAK MAHINDRA BANK LIMITED Versus COMMISSIONER OF INCOME TAX BANGALORE AND ANR. - 2023 (9) TMI 1231 - Supreme Court.
Hence, to sum up, the Order passed by Assessing Officer based on any discovery made is not final. 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. 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.