Justice J K Maheshwari, Justice Vijay Bishnoi, Supreme Court
Settlement Commission’s Findings Are Conclusive: Supreme Court Imposes ₹2L Costs On Revenue For Continuing Prosecution When Assessee Was Granted Immunity
|The appellant approached the Supreme Court challenging the dismissal of the petition seeking quashing of the proceedings initiated by the Revenue for the offence under Section 276C(1)2 of the Income Tax Act.
While observing that, in terms of Section 245-I of the Income Tax Act, the findings of the Settlement Commission are conclusive with respect to the matters stated therein, the Supreme Court has imposed a cost of Rs 2 lakh on the Revenue for continuing prosecution when the assessee was granted immunity from the levy of penalty.
The appellant approached the Apex Court challenging the dismissal of the petition seeking quashing of the proceedings initiated by the Revenue, before the Additional Chief Metropolitan Magistrate (E.O.II), Egmore, Chennai, for the offence under Section 276C(1)2 of the Income Tax Act, 1961, (IT Act) for assessment year 2017- 2018.
The Division Bench of Justice J.K. Maheshwari and Justice Vijay Bishnoi held, “It must also be noted that, in terms of Section 245-I, the findings of the Settlement Commission are conclusive with respect to the matters stated therein. Once such an order was passed, it was incumbent upon the authorities to inform the High Court that continuation of the prosecution would amount to an abuse of the process of law, in particular when the Settlement Commission did not record any finding of wilful evasion of tax by the appellant.”
Factual Background
In the year 2016, a search under Section 132 of the IT Act was conducted at the residence of the appellant, and unaccounted cash of Rs 4,93,84,300 was seized. After taking a statement of the appellant under Section 132(4) of the IT Act, a show-cause notice was issued. During the pendency of the proceedings initiated by the appellant, the Deputy Director of Income Tax (Investigation), Chennai, (respondent-DDIT) filed a complaint against the appellant for an offence under Section 276C(1), alleging wilful attempt to evade tax with respect tothe assessment year 2017-2018 and for not filing the correct return of income.
Being aggrieved, the appellant filed a quashing petition under Section 482 of the Code of Criminal Procedure (CrPC) seeking quashing of the complaint and pending proceedings. The appellant also filed an application under Section 245C before the Settlement Commissioner and sought immunity from the levy of a penalty as well as prosecution in the matter of alleged evasion of proposed tax. The Settlement Commission granted immunity from the levy of a penalty, refraining from granting immunity from prosecution due to the pendency of a quashing petition before the High Court. By the order impugned, the Madras High Court dismissed the quashing petition. Aggrieved thereby, the appellant approached the Apex Court.
Reasoning
On a perusal of the provisions of the IT Act, various circulars issued by the department and also various judgments of the Apex Court, the Bench held that if an assessee has made suppression of income without disclosing the manner in which the excess amount was earned and concealed the account making wilful attempt to evade the tax which may be imposable and chargeable or payable, he/she is required to be prosecuted. The recourse to lodge prosecution was made permissible subject to the department’s circular dated April 24, 2008, which provided for confirmation by ITAT in case the penalty imposed under Section 276C(1) exceeded Rs. 50,000. As per the Bench, the circulars were binding on the authorities and required to be adhered to while lodging the prosecution by the Revenue.
It was noticed that the complaint was filed by DDIT after the sanction of PDIT before the Additional Chief Metropolitan Magistrate. Thereafter, an application under Section 245(C) was filed by the appellant before the Settlement Commission. On the date of lodging the prosecution, the finding of concealment of income or imposition of the penalty of more than Rs. 50,000 was not recorded by the ITAT.
“Nothing has been brought on record to show that any wilful attempt to evade the payment of tax by assessee was made. No explanation has been put forth by Revenue to demonstrate as to why PDIT or DDIT did not comply the procedure while lodging prosecution in this case. Therefore, in our view, the act of the authority in continuing prosecution is in blatant disregard to their own binding circular dated 24.04.2008 and in defiance to the guidelines of the Department”, it said.
Referring to the order passed by the Settlement Commission under Section 245D(4), the Bench noted that in the settlement proceedings, the assessee had disclosed all the facts material to the computation of his additional income and fully satisfied the provisions of Section 245H. The Commission recorded a finding that overall additional income was not on account of any suppression of any material facts, and it did not disclose any variance from the manner in which the said income had been earned. Thus, immunity from penalty under IT Act was granted in exercise of powers under Section 245H.
“From perusal of Section 245-I, it is clear that every order of settlement shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided, be reopened in any proceeding under the Act or under any other law for the time being in force”, the Bench noted. The Bench concluded that the prosecution lodged with the help of a proviso to sub-section (1) to Section 245H was in defiance of the circular dated April 24, 2008, which was in vogue. It was the duty of the PDIT and DDIT to look into the facts that, in the absence of any findings of imposition of penalty due to concealment of fact, the said prosecution could not be proved against the assessee.
“Upon a holistic consideration of the matter, we are of the view that the conduct of the authorities lacks fairness and reasonableness, and the High Court’s approach appears to be entirely misdirected, having failed to appreciate the factual and legal position in right earnest”, the Bench mentioned while allowing the appeal. Quashing the prosecution lodged by the Revenue against the appellant, the Bench ordered, “ In the facts and circumstances of the case as discussed hereinabove, we are inclined to impose costs against the Revenue which is quantified at Rs. 2,00,000/- payable to the appellant. Pending application(s), if any, shall stand disposed of.”
Cause Title: Vijay Krishnaswami @ Krishnaswami Vijayakumar v. The Deputy Director of Income Tax (Investigation) (Neutral Citation: 2025 INSC 104)