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 mere recording of satisfaction is insufficient under Section 245H(1) of the IT Act. Assessees must make honest, complete disclosure initially, not in installments during settlement proceedings. The court found no foundation for the Settlement Commission's finding of full and fair disclosure. The matter was remanded for reconsideration regarding immunity grants. The HC determined no error apparent on record warranted review of the order.

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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.

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