The Supreme Court of India in Kotak Mahindra Bank Ltd. v. Commissioner of Income Tax, Bangalore (2023 INSC 855) examined the scope of judicial interference with orders passed by the Income Tax Settlement Commission granting immunity from levy of penalty and prosecution under Section 245H of the Income Tax Act, 1961.

The appeal arose from the judgment of the Karnataka High Court which had affirmed the remand of the matter to the Settlement Commission for reconsideration of the issue of immunity from penalty and prosecution, despite the Commission having already recorded findings regarding full and true disclosure and cooperation by the assessee.

The appellant-assessee, a scheduled bank, had approached the Settlement Commission under Section 245C in respect of multiple assessment years, making disclosures relating to leasing income, depreciation claims, and other accounting treatments. The Settlement Commission, after considering the Commissioner’s report and the material placed on record, proceeded with the application under Section 245D and ultimately granted immunity from penalty and prosecution under Section 245H, recording that the assessee had cooperated and made a full and true disclosure of income.

The High Court interfered with the order of the Settlement Commission on the ground that the reasoning for granting immunity was inadequate and remanded the matter for fresh consideration. The Supreme Court, however, held that such interference was unwarranted and beyond the permissible scope of judicial review.

The Court reiterated that the discretion vested in the Settlement Commission under Section 245H is to be exercised based on satisfaction regarding cooperation and full and true disclosure, and once such satisfaction is recorded on consideration of relevant material, courts should not sit in appeal over the sufficiency or adequacy of such material. The Court emphasized that the object of Chapter XIX-A is expeditious settlement of tax disputes and that excessive interference would defeat legislative intent.

Relying on precedents including Ajmera Housing Corporation v. CIT (2010) 8 SCC 739, Express Newspapers Ltd. v. CIT (1994) 2 SCC 374, Jyotendrasinhji v. S.I. Tripathi (1993 Supp (3) SCC 389), B.N. Bhattacharjee v. CIT (1979) 4 SCC 121, and Ashirvad Enterprises v. State of Bihar (2004) 3 SCC 624, the Supreme Court held that immunity granted by the Settlement Commission can be interfered with only on limited grounds such as fraud, bias, malice, or violation of statutory provisions.

Accordingly, the Supreme Court set aside the judgment of the High Court, restored the order of the Settlement Commission dated 04.03.2008, and allowed the appeal, reaffirming the finality and sanctity of reasoned settlement orders passed under the Income Tax Act.

SOURCE LINK

https://api.sci.gov.in/supremecourt/2012/27212/27212_2012_15_1501_47195_Judgement_25-Sep-2023.pdf

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