Case Law Details
Commissioner of Income Tax Central II Vs Standard Farms Pvt. Ltd. & Anr. (Delhi High Court)
Delhi High Court recently reviewed the decision in the case of Commissioner of Income Tax (Central II) Vs Standard Farms Pvt. Ltd. & Anr. The review petitions were filed by the petitioners seeking a reconsideration of the court’s earlier order, which set aside an order by the Income Tax Settlement Commission (ITSC) that had granted immunity from prosecution and penalty. The petitioners contended that the ITSC had correctly granted immunity after considering the satisfaction required under Section 245H(1) of the Income Tax Act, 1961.
The case centered on the procedure followed by the ITSC when granting immunity from prosecution and penalty. The Revenue had challenged the ITSC’s decision, asserting that the commission had failed to record its satisfaction on two crucial aspects: whether the petitioners had made a full and true disclosure of income, and whether they had cooperated during the proceedings. These conditions are mandatory for granting immunity under Section 245H(1) of the Income Tax Act, and the Revenue argued that the ITSC had not sufficiently established these criteria. The court, in a prior ruling, remanded the matter back to the ITSC, pointing out the failure to explicitly confirm the fulfillment of these conditions.
In their review petition, the petitioners argued that the satisfaction of the conditions for immunity had already been recorded in the ITSC’s previous orders, specifically in the order dated December 28, 2011. They contended that the order from the ITSC, along with the tax payments made, met the requirements for granting immunity. They also cited previous rulings, including the Supreme Court decision in Jyotendrasinhji v. SI Tripathi, to support their stance that the satisfaction of the conditions was adequately documented.
However, the Revenue’s counsel emphasized that the ITSC had not explicitly confirmed the satisfaction on the required conditions in its decision. Referring to the case of BDR Builders and Developers, the counsel highlighted that it is essential for the Settlement Commission to specifically record satisfaction regarding both the cooperation of the assessee and the full disclosure of income. The court reiterated this point, agreeing that immunity cannot be granted without a clear and explicit finding on these two mandatory conditions.
The Delhi High Court ultimately found that the ITSC had not adequately recorded its satisfaction regarding the petitioners’ compliance with the statutory conditions. It reiterated the legal requirement that such satisfaction must be explicitly noted to grant immunity under Section 245H(1). Consequently, the court upheld its earlier decision to remand the matter back to the ITSC for a fresh decision in line with the law. The court’s ruling emphasized the importance of a meticulous examination of the conditions before granting immunity from prosecution and penalty under the Income Tax Act.
This case underscores the critical role of the ITSC in thoroughly examining the fulfillment of legal conditions for immunity, as outlined in Section 245H(1) of the Income Tax Act. Without a clear satisfaction on these points, immunity from prosecution and penalty cannot be granted. The Delhi High Court’s decision reinforces the need for due diligence in tax matters, ensuring that the principles of transparency and cooperation are fully upheld.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This hearing has been done through hybrid
REVIEW PET. 188/2019 and CM APPL.63697/2023 (for condonation of delay)
REVIEW PET. 189/2019 and CM APPL. 63640/2023 (for condonation of delay
2. These review petitions are filed by the Petitioners e., M/s Standard Farms Private Ltd and Raheja Builders Private Ltd under Section 114 read with Order 47 Rule 1 of the CPC seeking review of the decision dated 21st July 2017 passed by this Court. The said order reads as under:
“1. The Revenue has filed these writ petitions challenging the impugned order dated 27th June, 2013 passed by the Income Tax Settlement Commissioner (ITSC) to the extent that it has granted immunity from prosecution as well as the penalty to the Respondents.
2. Although in the course of the proceedings before the ITSC, based on the report submitted on behalf of the Revenue, an addition beyond what was originally disclosed by the Assessee was made, the order of the ITSC determining the amount payable by the Respondents was not challenged by them.
3. The grievance of the Revenue is that the ITSC granted the Respondents immunity from penalty and prosecution without recording its satisfaction that there has been full and true disclosure of the income as well as the manner in which such income has been derived by the Respondents. It is submitted this was a mandatory condition in terms of Section 254H (1) of the Income Tax Act 1961 (‘Act’).
4. Both the sides have placed reliance on the decision of this Court is Commissioner of Income Tax (Central)-IIBDR Builders and Developers (2016) 385 ITR 111 (Del).
5. In the aforesaid decision, this Court, in similar circumstances, set aside the order of the ITSC granting immunity from prosecution and penalty and remanded the matter to the ITSC for a fresh decision in accordance with law.
6. Following the said decision, the impugned order of the ITSC to the extent it has granted the Respondents immunity from penalty and prosecution is hereby set aside and the matter is remanded to the ITSC for a fresh decision on that question in accordance with law in that regard.
7. The matter be listed for directions before the ITSC on 30th August, 2017
8. The petitions are disposed of in the above ”
3. The submission of Gagan Kumar learned Counsel appearing for the review Petitioners (hereinafter ‘Assessees’) is that the order of the Settlement Commission dated 27th June 2013, by which immunity was granted was set aside and remanded, deserves to be reviewed. He submits that the satisfaction as to the fulfilment of the conditions under Section 245H(1) of the Income Tax Act, 1961 (hereinafter, ‘IT Act’) by the Assessees has been recorded in two orders i.e., orders dated 28th December, 2011 and 27th June, 2013. It is his submission that paragraph 4 of the order dated 28th December, 2011 passed by the Settlement Commission, clearly records as under: –
“1. Settlement applications under section 245C(1) of the Income Tax Act, 1961 were filed in all the above four cases on 16.12.2011. The applications pertained to assessment years 2004-05 to 2010-11 in case of applicant at Sl.No.2 and 3; for assessment years 2005- 06 to 2010-11 in respect of applicant at Sl.No.1 and for assessment years 2006-07 to 2010-11 in respect of applicant at Sl.No.4, respectively. The proceedings for relevant assessment years are pending u/s 153 A or 143 (for A.Y.2010-11), in all the above cases. Regular assessment proceeding for A.Y. 2010-11 are pending before the ACIT, Central Circle-10, New Delhi in all the above cases.
As common issues are involved, and all cases were subjected to a common search operation all cases are being disposed off by a common order.
2. Notices under section 245D (1) were issued and the applicants were heard on 27.12.2011.
3. During the course of hearing, the learned authorized representative explained the pendency position and background of filing the settlement The AR has submitted that all the applications are covered within the meaning of clause (i) of sub- section(1) of section 245C of the Income Tax Act as the tax payable exceeds Rs.50 Lacs. It has been submitted by the AR that additional taxes with interest has been duly paid in all the cases as per evidences filed along with the applications
The intimation to the AO in Form No. 34 BA has been made on 16.12.2011 itself in all the above cases, complying with the requirements u/s 245C (4) of the Income Tax Act. Further, none of the applicants had filed any earlier settlement application after 01.06.2007.
4. In view of the above discussion, we hold that since the applicants have fulfilled all the conditions prescribed under section 245C (1) of the Income Tax Act, the applications are allowed to be proceeded ”
4. It is the submission on behalf of the Assessees that the above-mentioned satisfaction read with the background recorded in the order passed by the Settlement Commission was sufficient to grant immunity. It is his further submission that in terms of Section 245C and Section 245H of the IT Act, an application is filed before the Settlement Commissioner, and upon the said application being filed, the Settlement Commissioner would then record his satisfaction as to the cooperation rendered. The same has been done and recorded in this case vide order dated 28th December Thereafter, the Settlement Commission has considered the matter. It is submitted that at both stages, there has been no non-cooperation by the Assessees, and thus, this direction of remitting the matter back deserves to be reviewed. Reliance is placed upon Section 245H of the IT Act, the decision of the Supreme Court in Jyotendrasinhji v. SI Tripathi And Ors., 1993 (3) SCC Supp 389, and the recent decision of the Coordinate Bench of this Court in PR. Commissioner of I Tax (Central)-II v. M/s Trend East West LPG Bottling Ltd., 2024: DHC: 2827-DB.
5. On the other hand, Mr. Sanjay Kumar, ld. Counsel on behalf of the Department submitted that the consistent view taken by this Court has been that for immunity to be granted under 245H(1) of the IT Act, proper satisfaction has to be recorded by the Settlement Commission not only with respect to the cooperation rendered but also with respect to the full and true disclosure made by the Assessee. Ld. Counsel placed reliance on the Delhi High Court decision dated 4th May, 2016 in P. (C)6899/2013 titled as “Commissioner of Income Tax v. BDR Builders and Developers”. Further reliance is also placed on order dated 10th February 2014 passed by a coordinate bench of this Court in Commissioner of Income Tax (Central)-II6. Income Tax Settlement Commission & Anr., 2014: DHC: 785-DB. It is informed that the Appeal preferred against the above-said order dated 10th February 2014 is presently pending as a Civil Appeal bearing number C.A. No. 2626/2018 and 2625/2018 and that there is no stay that has been granted.
6. Heard. The order dated 21st July, 2017, of which review is sought, was also challenged by the Assessees/Respondents before the Supreme Court in SLP(C) No. 28158/2017 and SLP(C) No. 28021/2017. By a common order dated 14th February, 2019 the Supreme Court had given liberty to the Assessees to file a review petition before this Court. The order of the Supreme Court is extracted below: –
“Having heard learned counsel for the petitioner, we grant liberty to the petitioner to file review petition before the High Court on the grounds urged by him in these special leave petitions.
Needless to say, if such a review petition is filed within one month from today, the same shall be decided in accordance with law.
The petitioner is, however, granted further liberty to approach this Court in the event any adverse order passed by High Court.
The special leave petitions stand disposed of. Pending applications, if any, stand disposed of.”
7. It is pursuant to said liberty that the present petitions have been filed. First of all, this Court notes that the scope of a review petition is fairly Unless there is an error apparent on the face of the record, a review petition would not be entertainable. This Court has considered the submission of the Assessees that in the order dated 28th December 2011, the Settlement Commissioner records that the conditions prescribed under Section 245C (1) of the IT Act have been satisfied.
8. In the opinion of this Court, the mere recording of satisfaction, by itself, would not be sufficient to satisfy the conditions under Sections 245H(1) of the IT A Coordinate bench of this Court, in Commissioner of Income Tax BDR Builders and Developers Ltd. has held:
“ 6. The court finds the mandate of section 245H of the Act which spells out the power of the Income-tax Settlement Commission to grant immunity from prosecution and penalty is clear. Section 245H(1) states that the Income-tax Settlement Commission has to be satisfied that the applicant before it : (i) has co-operated with the Income- tax Settlement Commission in proceedings before it, (ii) has made a full and true disclosure of (a) its income, and
(b) the manner in which such income has been derived. It is, therefore, absolutely essential that the Income-tax Settlement Commission records its satisfaction regarding compliance by the applicant before it on the above mandatory requirements. It is only then the Settlement Commission can proceed and pass an order granting immunity to the applicant from prosecution.
7. When the impugned order of the Income-tax Settlement Commission is examined, it is seen that the reason for granting the respondent immunity from prosecution and penalty has to be found in para. 12, which reads as under:
“12. The applicants have prayed for immunity from prosecution and imposition of penalties under various provisions of the Income- tax Act. Considering the facts and circumstances of the case and the co-operation extended to the Commission during hearing immunity is granted from prosecution and penalty imposable under the Income-tax Act in relation to the issues arising from the applications and covered by this order.”
8. Although, it is earnestly pleaded by Mr. Salil Aggarwal that the entire order has to be perused in order to understand the above observations, the court, even on the reading of the entire order, finds that there has been no conscious application of mind to the mandatory requirement of section 245H(1) of the Act by the Income-tax Settlement Commission. In other words, the court is unable to find, after reading the entire order carefully, any satisfaction recorded by the Income-tax Settlement Commission of the fulfilment of the above mandatory conditions under section 254H(1) of the Act. While, the Income-tax Settlement Commission had noted the co-operation extended by the respondent to it in the hearing, it has failed to record satisfaction that the respondent has made a full and true disclosure of his income and the manner in which the said income has been Further, the report submitted by the Department has not been discussed.
9. Salil Aggarwal, then pleaded that the satisfaction of the abovementioned mandatory requirements should be inferred from para. 12 of the impugned order itself and if not, in the preceding paragraphs of the said order. The court is unable to agree with the above submission. It must be remembered that the Income-tax Settlement Commission is performing the important task of exercising its discretionary powers under the mandate of section 245H(1) of the Act to grant immunity from prosecution and penalty. The Legislature has in section 245H(1) of Act mandated the recording of satisfaction by the Income-tax Settlement Commission of the fulfilment by the applicant of the aforementioned mandatory requirements. The very object and purpose of having an Income-tax Settlement Commission which is vested with such powers will be defeated if a lenient view is taken of the fulfilment of the requirements in section 245H(1) of the Act”
9. It is thus clear that satisfaction must be recorded with respect to the twin conditions i.e.,
(i) cooperation rendered by the Assessee with the Income-tax Settlement Commission in proceedings before it and
(ii) full and true disclosure made by the Assessee of (a) its income, and (b) the manner in which such income has been
In the absence of the same, immunity ought not to be granted. In this context, apart from few paragraphs i.e., Paragraph 12 in order dated 27th June, 2013 and Paragraph 4 in order dated 28th December, 2011, which have been recorded by the Settlement Commission, there has been no reason given by the Court either in its initial order 28th December, 2011 or in its final order dated 27th June, 2013 as to why the Commission has recorded its satisfaction in respect of true and full disclosure and as to why the Assessees make out a case for grant of immunity from prosecution and penalty. The relevant paragraphs in the said orders read as under:
Order dated 27th June, 2013
“12. The applicant has prayed for immunity from prosecution and imposition of penalties under various provisions of the Income Tax Act. Considering the facts and circumstances of the case and the cooperation extended to the commission during the hearing, immunity is granted from prosecution and penalty imposable under the I.T. Act in relation to the issues arising from the application and covered by this order.”
Order 28th December, 2011
“4. In view of the above discussion, we hold that since the applicants have fulfilled all the conditions prescribed under section 245C (1) of the Income Tax Act, the applications are allowed to be proceeded with.”
10. Further, the ld. Counsel for the Department has placed reliance on Commissioner of Income Tax (Central)-II v. Income Tax Settlement Commission & Anr. which is a connected case, involving the same parties, to support the plea of lack of full and true disclosure on the part of Applicant/Respondent-Raheja Builders. A coordinate bench of this Court, after describing the factual matrix, vide order dated 10th February, 2014 has illustrated the standard of cooperation and disclosure that is to be exercised by the Assessees to be qualified to receive immunity under Section 245H of IT Act. The Court held as under:
“14. The aforesaid factual position shows that the assessee took a chance – sat on the fence, so to say – by not coming clean in the settlement application and not disclosing income which it did not disclose before the assessing officer – and when the CIT’s reports exposed its conduct in the proceedings before the ITSC, it was “advised” by the ITSC, “in a spirit of settlement” to offer the entire amount of bogus purchase of Rs.117.98 crores, which it accepted. We fail to see any spirit of settlement; that spirit ought to have been exhibited by the assessee in the application filed before the ITSC, as the law requires, and it is not enough if it is shown in proceedings before the ITSC after being confronted with adverse reports, to which it had no answer. In Ajmera Housing Co-operation and another v. CIT, (2010) 326 ITR 642, the Supreme Court held that the fact that the assessee kept revising its application for settlement by disclosing higher income in the revised applications established that it did not make a full and true disclosure of income which it did not disclose to the assessing authority. In the circumstances, the assessee cannot be said to have “co-operated” in the proceedings before the ITSC. It did not voluntarily offer the additional income, being the difference between 117.98 crores and 39.53 crores. It first offered additional income of Rs.39.53 crores in the settlement application filed under Section 245-C(1); when the ITSC found, pursuant to the report filed by the CIT on 17.10.2012, that by the assessee’s own admission, purchase invoices were bogus to the extent of Rs.43.78 crores instead of Rs.39.53 crores, the assessee made a further disclosure of Rs.4.25 crores. After all the reports were examined by the ITSC and after considering the evidence adduced by both the sides, it found that the assessee ought to have offered the entire amount of Rs.117.98 crores, being the bogus purchases of cement and steel from 5 parties as against Rs.39.53 crores offered by it. It was only at that stage, when cornered and when it was unable to rebut the evidence and the facts established by the evidence, that the assessee came forward with the additional income of Rs.78.45 crores, which when added to Rs.39.53 crores disclosed in the settlement application, aggregated to Rs.117.98 crores. In other words the assessee waited till the last moment to make the additional offer. This conduct of the assessee, far from showing co- operation in the proceedings before the ITSC, shows defiance and an attitude of a fence-sitter. The Member who expressed the minority view rejecting the claim for immunity from penalty and prosecution has pertinently brought out this aspect of the assessee’s conduct in the observations quoted hereinabove. We agree with his view that the assessee was all along quite aware that the entire amount of Rs.117.98 crores, being bogus purchase of cement and steel from 5 parties of Gurgaon and Delhi, was concealed income. There is ample evidence brought on record by the revenue in this behalf. Yet the assessee consciously chose not to offer the aforesaid amount as additional income – i.e. income which was not disclosed before the assessing officer – in the application filed before the ITSC under Section 245(1). The assessee has thus failed to satisfy the twin conditions of Section 245H (1) and was, therefore, not entitled to the immunity. The majority view expressed by the ITSC, with respect, goes contrary to the evidence on record and fails to take note of the contumacious conduct of the assessee despite an opportunity afforded by Chapter XIX-A of the Income Tax Act to errant assessees to come clean and turn a new leaf. The spirit of settlement was absolutely lacking; it may not be without justification to say that the assessee was indulging in abuse of a well-intentioned statutory provision. It is certainly open to the ITSC to grant immunity to an applicant from penalty and prosecution. This power, however, has to be exercised only in accordance with law i.e. on satisfaction of the conditions of Section 245H(1). We are constrained to observe that the majority view taken by the ITSC in the present case reflects a somewhat cavalier approach, perhaps driven by the misconception that granting of immunity from penalty and prosecution was ritualistic, once the assessee discloses the entire concealed income, ignoring the vital requirement that it is the stage at which such income is offered that is crucial and that the applicant cannot be permitted to turn honest in instalments. When there is unimpeachable evidence of a much larger amount of concealed income, about which there is no ambiguity, then what was disclosed by the assessee in the application filed under Section 245-C1 cannot be regarded as full and true disclosure of income merely because the assessee, when cornered in the course of the proceedings before the ITSC, offered to disclose the entire concealed income. In as much as the ITSC has ignored this crucial aspect, the majority view expressed by it cannot at all be countenanced.”
11. Thus, two aspects are clear. 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 dated 21st July 2017 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.
12. In view of the above discussion, 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 dated 21st July 2017.
13. Considering the factual matrix of this case, the matter is remanded to the Income Tax Settlement Commission in terms of the order dated 21st July
14. If there are any further case laws or judgments which the Assessees wish to rely upon, the same may be placed before the Settlement Commission, which would hear the matter on the aspect of immunity, as held in the order dated 21st July 2017 and pass a reasoned order.
15. Considering the long delay in this matter, the Settlement Commission shall expeditiously decide the said issue preferably within a period of 4 months from today.
16. The review petitions and applications, if any, are disposed of in these terms.