2024 (12) TMI 1267 - HC - Income Tax

Settlement Commissioner must ensure complete initial disclosure before granting immunity under Section 245H(1) IT Act

The Delhi HC examined the validity of Settlement Commissioner orders granting immunity from prosecution and penalty to respondents. The court held that ... Validity of orders passed by Settlement Commissioner to the extent that it has granted immunity from prosecution as well as the penalty to the Respondents - Maintainability of review petition - HELD THAT:- Mere recording of satisfaction, by itself, would not be sufficient to satisfy the conditions u/s 245H (1) of the IT Act Firstly, the Assessee has to be honest and fairly disclose all the facts at the outset itself. The Assessee cannot make disclosures in instalments in a settlement proceeding. For a disclosure to be considered full and true, the Assessee ought to have disclosed the complete undisclosed income in the first instance before the Settlement Commission. This Court had in its order observed that there is no foundation for the finding of the Settlement Commission that there was full and fair disclosure. Hence the matter was remanded for reconsideration as to whether immunity from penalty and prosecution ought to be granted or not. The Court is of the opinion that there is no error apparent on the face of the record or any other grounds that merit consideration for reviewing the order. Issues Involved:1. Whether the Income Tax Settlement Commission (ITSC) properly granted immunity from prosecution and penalty under Section 245H of the Income Tax Act, 1961.2. Whether there was full and true disclosure of income by the Assessees as required under Section 245C and Section 245H of the Income Tax Act.3. Whether the review petition filed by the Assessees is maintainable based on the alleged errors in the original order dated 21st July 2017.Detailed Analysis:1. Immunity from Prosecution and Penalty:The central issue was whether the ITSC correctly granted immunity to the Assessees from prosecution and penalty. The Revenue challenged the ITSC's order dated 27th June 2013, arguing that the ITSC failed to record its satisfaction regarding the full and true disclosure of income by the Assessees, which is a mandatory condition under Section 245H(1) of the Income Tax Act. The Court noted that the ITSC must be satisfied that the applicant has cooperated with it and has made a full and true disclosure of its income and the manner in which such income has been derived. The Court emphasized that mere recording of satisfaction is insufficient without a detailed explanation and reasoned order.2. Full and True Disclosure:The Court examined whether the Assessees made a full and true disclosure of income. The Assessees argued that the conditions under Section 245C(1) were satisfied, as recorded in the ITSC's orders dated 28th December 2011 and 27th June 2013. However, the Court found that the ITSC did not provide a detailed explanation or discuss the Department's report, which questioned the completeness and truthfulness of the disclosure. The Court referred to previous judgments, emphasizing that the Assessees must disclose all facts at the outset and cannot make disclosures in installments during settlement proceedings. The lack of a foundation for the ITSC's finding of full and true disclosure led to the remand of the matter for reconsideration.3. Maintainability of the Review Petition:The Assessees filed a review petition following the Supreme Court's liberty to do so. The Court highlighted that the scope of a review petition is limited and can only be entertained if there is an error apparent on the face of the record. The Assessees contended that the ITSC's satisfaction was recorded, but the Court found no error in its previous order dated 21st July 2017, which set aside the ITSC's grant of immunity and remanded the matter for reconsideration. The Court reiterated that the ITSC must record satisfaction regarding the cooperation and full and true disclosure by the Assessees, which was not adequately demonstrated in the ITSC's orders.Conclusion:The Court concluded that there was no error apparent on the face of the record to warrant a review of the order dated 21st July 2017. The matter was remanded to the ITSC to reconsider the grant of immunity from prosecution and penalty, with instructions to expedite the decision within four months. The review petitions and applications were disposed of accordingly.