ITSC Is Entrusted With Power Of Granting Immunity From Penalty & Prosecution Only When Contingency Of Full & True Disclosure Is Fulfilled: Delhi HC
The Delhi High Court observed that the Income Tax Settlement Commission (ITSC) is entrusted with the power of granting immunity from penalty and prosecution only in cases where the contingency of full and true disclosure is fulfilled.
The Court observed thus in a writ petition filed by the Commissioner of Income Tax against a company seeking quashing of an order passed by the ITSC under Section 245D (4) of the Income Tax Act, 1961 (ITA).
A Division Bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav held, “… it is evident from the aforementioned discussion that the ITSC is entrusted with the power of granting immunity from penalty and prosecution. However, such power is exercised only in cases where the contingency of full and true disclosure is fulfilled and the assessee has cooperated in the settlement proceedings. … Taking into account the judicial precedents and discussions outlined hereinabove, it is imperative to highlight that the legal framework concerning applications under Section 245C (1) of the Act fundamentally requires a "full and true disclosure" of additional income.”
Senior Standing Counsel Shlok Chandra represented the petitioner while Senior Advocate Salil Aggarwal represented the respondent.
Factual Background -
The Court was called upon to examine the statutory requirement of “full and true disclosure” under Section 245C of ITA, pre-conditions associated with an application under Chapter XIX-A of the Act and effect of violation of the said pre-conditions on the jurisdiction of the ITSC as well as the fate of the application. In this case, the respondent-assessee group was engaged in real estate business in Delhi, and particularly in the development of commercial complexes. The business activities of the respondent-assessee group involved purchase of land from the Delhi Development Authority on auction, followed by development and sale of the same to various customers.
In 2006, a search and seizure operation was conducted at the business and residential premises of the assessee group under Section 132(1) of the Act. During the said operation, various incriminating documents including jewellery and cash were found and the same were accordingly seized. Subsequently, the case of the respondent-assessee group was centralized with the Assessing Officer (AO). Being aggrieved by the underestimation of the additional income and failure upon the part of the respondent-assessee group to make full and true disclosure of the income before the ITSC, the Revenue filed the writ petition.
The High Court in the above context of the case noted, “It must be noted that the procedure prescribed under Chapter XIX-A of the Act is a marked departure from the general procedure involving assessment by the AO and consequent action under the law. As briefly observed in the initial part of this judgment, this departure is meant to provide an opportunity for the assessee to come clean regarding the income and tax payable thereon.”
The Court added that however, the relief envisaged in Chapter XIX-A of the Act is wide in nature and apart from settlement and quantification of payable tax, it also protects the assessee from prosecution and penalties, if so ordered by the ITSC. It said that at the root of this incentive, lies a commitment of the assessee to make a full, true and honest disclosure of the income, source of income and additional tax payable thereon and once it is seen that the disclosure was not full and truthful, the ITSC loses its jurisdiction to entertain such an application as well as to provide any immunity to the applicant from prosecution and penalties.
“Hence, in the present case, the ITSC has erred in law by approving the application of the respondent-assessee group under Section 245C of the Act. The ITSC further went on to grant immunity from the penalty and prosecution under Section 245H of the Act, which was contrary to the twin conditions stipulated herein above. Thus, the ITSC acted in excess of the jurisdiction conferred upon it under the Act”, it concluded.
Accordingly, the High Court allowed the writ petition and set aside the impugned order.
Cause Title- PR. Commissioner of Income Tax (Central) 2, Delhi v. Pankaj Buildwell Ltd. & Group (Neutral Citation: 2024:DHC:2919-DB)
Appearance:
Petitioner: Sr. Standing Counsel Shlok Chandra, Junior Standing Counsels Priya Sarkar, Madhavi Shukla, and Advocate Ujjawal Jain.
Respondent: Senior Advocate Salil Aggarwal, Advocates Madhur Aggarwal, and Uma Shankar.
