Supreme Court Restores ITSC Order In The Case Of Ing Vysya Bank Merged With Kotak Mahindra Bank) Granting Immunity From Penalty And Prosecution

KOTAK MAHINDRA BANK LTD. V/s CIT [CIVIL APPEAL NO.9720 OF 2014]

The Supreme Court restored the order of ITSC in the case of ING Vysya Bank (later merged with Kotak Mahindra Bank) granting immunity from penalty and prosecution.

The division bench of Justice B.V. Nagarathna and Justice Ujjal Bhuyan has observed that “the precondition for granting immunity is that the applicant must have co-operated in the proceedings before the Commission and made a ‘full and true disclosure’ of his income and the manner in which such income has been derived”.

The assessee was subjected to assessment/reassessment proceedings pursuant to which the Assessee approached ITSC for determination of taxable income and seeking immunity from prosecution and penalty. ITSC determined the additional income at Rs.196 Cr. and granted immunity from penalty and prosecution as the Assessee co-operated in the proceedings and made true and full disclosures. The Revenue challenged the ITSC order before HC.

Single Judge Bench of Karnataka HC found ITSC’s order granting immunity from levy of penalty as vague and contrary to settled principles since the burden to prove non- concealment or wilful neglect was not discharged by the Assessee by any evidence; Thus, remanded the matter back to ITSC for reconsideration. The Division Bench of Karnataka HC dismissed Assessee’s writ appeal.

The assessee contended that ITSC is the sole judge of the adequacy of and the nature of evidence placed before it and HC should not interfere so long as cogent material and explanation was furnished by Assessee. Assessment order is not the last word but Revenue’s own assertion which has appellate remedies and is thus, not final. Concealment of particulars before the Revenue would not have a bearing for grant of immunity by ITSC as Section 245C contemplates full and true disclosure of income to be made before the ITSC only. Section 245C merely contemplates full and true disclosure of income and does not contemplate any explanation or evidence to be produced.

The department contended that there is a marked difference between the terms ‘discovered’ and ‘disclosed’ and in the present case what has been “disclosed” in the application is the same as what was “discovered” by the Revenue. Prime ingredient before the ITSC would be disclosure of such income which had not been disclosed in the return of income. Section 245C mandates ITSC to obtain a report from CIT before considering the application for grant of immunity from penalty and prosecution which was not obtained and thus, vitiated the order granting immunity. For immunity under Section 245H, the Assessee must not only co-operate with the ITSC, but must also disclose income which was not reflected in the return of income. In the instant case, Assessee only disclosed the income that had escaped assessment, which was subsequently discovered by the Revenue. ITSC before proceeding to exercise its power under Section 245H did not apply its mind to the issue on whether Assessee wilfully evaded tax. Relied on SC judgement in Express Newspaper wherein the settlement was rejected as Assessee did not disclose before the ITSC any income which was not disclosed before the Assessing Officer.

The supreme court held that HC ought not to sit in appeal on sufficiency of details placed before ITSC on which it granted immunity from prosecution and penalty; Distinguishes Revenue’s reliance on coordinate bench ruling in Express Newspapers as in the said case authorities collected voluminous material demonstrating large scale concealment of income, however, merely part of concealed income was disclosed before ITSC, leading to rejection of settlement; Refers to coordinate ruling in B.N. Bhattacharjee to observe that ITSC is not to be approached by tax dodgers to obtain immunity from consequences of tax evasion, however, notes that in the present case, ITSC rightly exercised its discretion having regard to bona fide conduct of the Assessee of offering additional income for tax not disclosed in the return of income.