Facts of the Case

The Revenue challenged the order dated 09 June 2014 passed by the Income Tax Settlement Commission (ITSC) under Section 245D(4) for Assessment Years 2001-02 to 2007-08 in respect of the respondent-assessee group engaged in real estate development. A search conducted on 11 October 2006 resulted in seizure of incriminating documents, jewellery, and cash. During assessment proceedings, the assessee filed settlement applications under Section 245C disclosing additional income. The Commissioner’s report questioned the genuineness of substantial share capital receipts and alleged routing of unaccounted funds through bogus share capital. The ITSC nevertheless admitted the applications and determined additional income, granting immunity from penalty and prosecution.

Issues Involved

  1. Whether the Settlement Commission can proceed with an application lacking full and true disclosure of undisclosed income.
  2. Whether subsequent surrender of income during proceedings cures defects in the original disclosure.
  3. Whether immunity under Section 245H can be granted absent complete disclosure.
  4. Whether revision or enhancement of disclosure is permissible under Chapter XIX-A of the Act.

 Petitioner’s Arguments (Revenue)

The Revenue contended that the assessee failed to make a full and true disclosure at the time of filing the settlement application, which is a mandatory jurisdictional condition. It argued that the assessee later offered additional income only after adverse findings in the Commissioner’s report, demonstrating that the initial disclosure was incomplete. The Revenue further submitted that Chapter XIX-A does not permit revision of an application under Section 245C and that the ITSC erred in granting immunity despite non-compliance with statutory preconditions.

Respondent’s Arguments (Assessee)

The assessee submitted that it had disclosed additional income in good faith and cooperated fully with the ITSC proceedings. It argued that further amounts were voluntarily surrendered to resolve disputes and achieve settlement. The assessee also contended that absence of shareholders at recorded addresses or subsequent buy-back transactions could not automatically render share capital non-genuine. It maintained that the ITSC followed due procedure and exercised its discretion lawfully in granting settlement and immunity.

Court Order / FINDINGS

The Delhi High Court held that “full and true disclosure” of undisclosed income is the foundational requirement for invoking the jurisdiction of the Settlement Commission under Section 245C. If this condition is not satisfied at the threshold, the Commission lacks authority to proceed further. The Court observed that the assessee’s later surrender of substantial amounts—particularly concerning bogus share capital introduced through accommodation entries—demonstrated that the original disclosure was incomplete. It further held that the statutory scheme does not permit revision of settlement applications, as this would defeat the purpose of requiring an honest initial disclosure. Consequently, the ITSC’s acceptance of the application and grant of immunity were held to be legally unsustainable, and the impugned order was set aside.

Important Clarification

The Court clarified that immunity from penalty and prosecution under Section 245H can be granted only when the applicant both cooperates and makes a full and truthful disclosure of income and its source. Any concealment or subsequent enhancement of disclosure undermines jurisdiction and invalidates the settlement process. The judgment emphasizes that Chapter XIX-A is intended as a mechanism for voluntary and complete disclosure, not as a forum for negotiating undisclosed income after detection.

Link to download the order –  https://www.mytaxexpert.co.in/uploads/1772191461_PR.COMMISSIONEROFINCOMETAXCENTRAL2VsPANKAJBUILDWELLLTD.GROUP.pdf 

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