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“supreme Court Upholds The Settlement Commission's Discretion To Grant Immunity From Prosecution And Penalty Under The Income Tax Act, Emphasizing The Importance Of Full Disclosure And Cooperation In Reducing Tax Disputes."

  28 September 2023       Share Bookmark

Court :
Supreme Court of India
Brief :

Citation :

Case title:


Date of Order:

25th SEPTEMBER, 2023








The case centres on how Chapter XIX-A of the Indian Income Tax Act should be interpreted, in particular how the Settlement Commission should not prosecute or penalise taxpayers for tax evasion. Whether the Commission correctly used its discretionary authority under Section 245H, which grants immunity if taxpayers cooperate with the Commission and disclose their income, is the main question at hand. The case concerns whether the Commission's decision was proper based on the appellant's cooperation after their disclosures were deemed insufficient to support immunity.



  1. Section 245C - Application for settlement of cases.
  2. Section 245D (1) - Reference to Settlement Commission.
  3. Section 245H - Immunity from prosecution and penalty.
  4. Section 271(1) (c) - Penalty for concealment of income.


  1. Articles 32 - ensures that citizens have access to justice by granting the right to petition the Supreme Court for the enforcement of fundamental rights.
  2. Article 226 - It is a strong legal remedy because it gives High Courts the authority to issue writs for the enforcement of fundamental rights as well as for any other reason within their territorial jurisdiction
  3. .Article 136 - enables the Supreme Court to hear appeals even when no fundamental rights are at issue, giving it the discretion to do so in order to uphold justice and maintain the consistency of the law across the nation.


OVERVIEW: The main issue in this case revolves around the Settlement Commission's discretionary authority under Section 245H of the Indian Income Tax Act. The issue in the case is whether the Commission correctly granted the appellant immunity from prosecution and penalties. The argument is based on the appellant's assertions of complete cooperation and truthful disclosure of income, including previously unreported sums. As the same income had already been discovered by the Assessing Officer, the Revenue claimed that the disclosures were insufficient. This case serves as a reminder of the difficulty in determining when immunity should be granted as well as the boundaries of judicial review of Settlement Commission judgements. The Commission's choice to grant the appellant immunity was ultimately upheld by the court.



Whether the Settlement Commission, in accordance with the provisions of Section 245H(1) of the Income Tax Act, appropriately exercised its discretion in granting immunity to the appellant from prosecution and penalty, with a prerequisite of full income disclosure and cooperation, while considering the complexities of the investigation involved in the case?



  1. The appellant argued that they had disclosed all of their income accurately and completely, including any income they had not previously disclosed to the Assessing Officer.
  2. The appellant argued that they complied with the conditions for immunity under Section 245H of the Income Tax Act by offering full cooperation to the Settlement Commission throughout the proceedings.
  3. The appellant claimed that failing to disclose certain income was not a conscious decision to conceal it, but rather an error in following RBI (Reserve Bank of India) guidelines for accounting of lease income.
  4. The appellant emphasised the complexity of the case given its nature and circumstances, and that the Settlement Commission made the correct decision to move forward with their application.
  5. They argued that choosing to settle with the Commission rather than appealing the assessment order was a reasonable course of action because Chapter XIX-A of the Income Tax Act was created to resolve cases and minimise disputes.
  6. The appellant emphasised that the Settlement Commission's discretionary decisions were subject to limited judicial review and that interference should only be allowed in cases of fraud, bias, or malice.
  7. The appellant argued that they had disclosed specifics of additional income from various deals and activities, including leasing activities, employee bonuses, share issuance costs, and depreciation on long-term assets and securities. This proved their dedication to openness.
  8. The appellant emphasised that, in accordance with Section 245D (1) of the Income Tax Act, the Settlement Commission's order made reference to the Commissioner's report. This demonstrated that the law's prescribed procedure was followed in their case.
  9. They emphasised that the Settlement Commission's decision to grant immunity was a matter of discretion and should be respected unless it was proven to be in violation of the Act's provisions, to have caused prejudice, to involve fraud, bias, or malice, or to be out of line with the case's facts and circumstances.



  1. The respondent argued that Section 245C and Section 245H of the Income Tax Act should be read together. They argued that the disclosure of income made before the Settlement Commission had to be of income "not disclosed before the Assessing Officer." They asserted that the disclosure made by the appellant matched what the Assessing Officer had found.
  2. The respondent argued that the material disclosed in the appellant's application was identical to what the Assessing Officer had found, and therefore the Settlement Commission should not have considered the application for settlement.
  3. They made the claim that the ruling in the case of Express Newspapers Ltd. applied to the current situation. In that case, it was decided that a settlement application offering only a portion of the concealed income should be rejected when thorough investigation and inquiry reveal widespread income concealment.
  4. The respondent argued that since the appellant had hidden income, approving the settlement application in this case would harm the revenue and that the Settlement Commission shouldn't be seen as shielding tax evaders.
  5. They argued that judicial interference with Settlement Commission orders should be restricted to specific circumstances, such as breaking Act provisions or acting with malice, fraud, or prejudice. There was no such basis for interference in this situation.
  6. The respondent emphasised that the appellant's disclosures did not accurately reflect additional income that had not previously been disclosed because of the way in which they were made. Instead, they asserted that the appellant was merely offering income that the Assessing Officer had already identified.
  7. It was argued that the Settlement Commission shouldn't be used to avoid paying taxes or to lessen the repercussions of doing so. Immunity in this situation would create a precedent that might persuade other parties to adopt a similar tactic.
  8. The respondent emphasised the significance of upholding the fairness of the settlement procedure. They argued that granting immunity in a situation where there was no meaningful additional disclosure could damage the Settlement Commission's credibility and efficiency.
  9. The respondent expressed worry that a ruling in the appellant's favour could set a precedent for other cases, possibly resulting in a flood of settlement applications where the disclosed income closely matched what the tax authorities already knew.



  1. The appellant satisfied the requirements for immunity from prosecution and penalty under Section 245H (1) of the Income Tax Act, and the Settlement Commission's decision was the result of a careful evaluation of relevant facts and materials.
  2. The Commission acknowledged that the appellant's adherence to RBI guidelines for lease income accounting was the primary cause of the nondisclosure of income, calling for a special standard of disclosure.
  3. The Commission's decision to grant immunity from prosecution and punishment was in line with the overarching goal of reducing disputes and hastening case resolution.
  4. The Commission handled the complexities of the investigation, the nature of the case, and the appellant's cooperation with pragmatism in its order.
  5. The Commission wisely used its discretionary powers, with a clause that stated immunity could only be revoked under certain circumstances.
  6. Taking into account the subsequent disclosure made during the Settlement Commission's proceedings, the order ultimately nullified the penalty imposed by the Assessing Officer for failure to disclose lease rental income.
  7. The analysis emphasised how crucial it is to keep interference with Settlement Commission orders to a minimum in order to align with the legislative goal of resolving disputes and minimising litigation.
  8. A prior decision (Ashirvad Enterprises v. State of Bihar) highlighted the importance of evaluating each case individually before granting immunity from prosecution and punishment.
  9. The analysis set the current case apart from an earlier ruling (Express Newspapers Ltd.), which involved extensive research and widespread income concealment.
  10. In the end, the analysis supported the Settlement Commission's order because it accurately applied the law and took into account particular case facts, which led to the restoration of the Commission's order and the approval of the appeal.



In conclusion, the case under consideration highlights the Settlement Commission's crucial role in resolving tax disputes and giving taxpayers a platform to correct unintentional non-disclosures. The appellant's cooperation and the Commission's carefully considered use of its discretionary authority resulted in the proper award of immunity from prosecution and punishment. This choice is in line with the legislative goal of reducing litigation and hastening case resolution. The case also serves as a warning against frequently interfering with the Commission's orders. The Commission's order was upheld, and the High Court's decision to remand the case was appropriately overturned, allowing for a fair and just resolution of the taxation issue.

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