Canara Housing Development Company V. Deputy Commissioner of Income Tax Central Circle 2(2) and Commissioner of Income Tax Karnataka (Central) and Special Court of Economic Offences

WP/56334/2014

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The case involves M/s. Canara Housing Development Company, which sought to quash a prosecution order issued by the Deputy Commissioner of Income Tax under Section 279 of the Income Tax Act, 1961. The petitioner had previously approached the Settlement Commission, which granted them immunity from prosecution for the Assessment Year 2011-12. The core legal issue was whether the immunity granted by the Settlement Commission under Section 245H of the Income Tax Act, 1961, was sufficient to quash the earlier prosecution order. The court examined the precedents and the specific provisions of the Income Tax Act, ultimately deciding in favor of the petitioner.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 797767 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 27-02-2024
• Assessment Year: misc
• Other Referred Cases: Kotak Mahindra Bank Ltd. Vs. Commissioner of Income tax, R.B.Shreeram Durga Prasad and Fatehchand Nursing Das vs. Settlement Commission & Anr., Ashirvad Enterprises vs. State of Bihar, Jyotendrasinhji vs. S.I. Tripathi
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: RAVI RAJ
• Assessee Lawyers: M V SESHACHALA; NAGHARISH S
• Keywords: Immunity from prosecution; Income Tax Act; Quashing of order; Settlement commission
• Section: 154; 226; 279; 227; 249H

Judgement Text

" - 1 - NC: 2024:KHC:7967 WP No. 56334 of 2014 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27TH DAY OF FEBRUARY, 2024 BEFORE THE HON'BLE MR JUSTICE S.R.KRISHNA KUMAR WRIT PETITION NO. 56334 OF 2014 (T-IT) BETWEEN: M/S. CANARA HOUSING DEVELOPMENT COMPANY HAVING ITS OFFICE AT 10/1 LAKSHMINARAYANA COMPELX PALACE ROAD, BANGALORE - 560 052. REPRESENTED BY ITS MANAGING PARTNER SHRI P DAYANAND PAI AND RESIDING AT No.25 'MADHUVAN' BELLARY ROAD BYATARAYANAPURA BANGALORE - 560 092. …PETITIONER (BY SRI M V SESHACHALA, SENIOR COUNSEL FOR SRI NAGHARISH G S, ADVOCATE) AND: 1. DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 2(2) C R BUILDING, QUEENS ROAD BANGALORE - 560 032. 2. COMMISSIONER OF INCOME TAX KARNATAKA (CENTRAL) C R BUILDING, QUEENS ROAD BANGALORE - 560 032. 3. SPECIAL COURT OF ECONOMIC OFFENCES BANGALORE. …RESPONDENTS (BY SRI RAVI RAJ Y V, ADVOCATE FOR R1 & R2 R3 IS DELETED V/O DTD.8.1.2015) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSITITUTION OF INDIA PRAYING TO CALL FOR THE RECORDS ON THE FILE OF THE R-3 IN C C No.123/2014 VIDE ANN-B AND QUASH Digitally signed by LAKSHMINARAYANA MURTHY RAJASHRI Location: HIGH COURT OF KARNATAKA - 2 - NC: 2024:KHC:7967 WP No. 56334 of 2014 THE COMPLAINT IN C C No.123/2014 PENDING ON THE FILE OF THE R-3 VIDE ANN-B AND ETC., THIS PETITION COMING ON FOR ORDERS THIS DAY, THE COURT MADE THE FOLLOWING: ORDER In this petition, the petitioner seeks quashing of the impugned order at Annexure-A dated 13.02.2014 passed by the second respondent, directing initiation of prosecution as against the petitioner – assessee. 2. Heard learned senior counsel for the petitioner and learned counsel for the respondents and perused the material on record. 3. In addition to reiterating the various contentions urged in the petition and appreciating the material on record, learned senior counsel for the petitioner pointed out that pursuant to the order dated 13.02.2014 passed by respondent No.2 under Section 279 of Income Tax Act, 1961 (for short ‘I.T. Act’), criminal prosecution was initiated against the petitioner before the Special Court for Economic Offences. Meanwhile, on 07.03.2014 the petitioner filed an application before the Settlement Commission which was allowed by the Settlement Commission vide order dated - 3 - NC: 2024:KHC:7967 WP No. 56334 of 2014 19.10.2015, granting exemption / immunity from prosecution for the Assessment Year 2011-12. It is also submitted that as a consequence of the order dated 19.10.2015, an order dated 15.02.2016 was passed under Section 154 of the I.T.Act by the Assessing Officer giving effect to the order of Settlement Commission and granted refund in favour of the petitioner. It is submitted that on account of the aforesaid facts and circumstances and the provisions contained in Section 249H of the I.T.Act coupled with the judgment of the Hon’ble Apex Court in the case of Kotak Mahindra Bank Ltd. Vs. Commissioner of Income tax - (2023) 154 taxmann.com 545(SC) and R.B.Shreeram Durga Prasad and Fatehchand Nursing Das vs. Settlement Commission & Anr. – (1989) 176 ITR 0169, the impugned order dated 13.02.2014 deserves to be quashed, in the light of the immunity / exemption granted in favour of the petitioner – assessee for the Assessment Year 2011-12. 4. Per contra, learned counsel for the respondents does not dispute that subsequent to the impugned order, the Settlement Commission has passed an order on 19.10.2015, granting immunity / exemption in favour of the petitioner under Section 249H - 4 - NC: 2024:KHC:7967 WP No. 56334 of 2014 of the I.T.Act. It is therefore submitted that this Court be pleased to pass an appropriate order in accordance with law. 5. Under identical circumstances, in Kotak Mahindra’s case supra, the Hon’ble Apex Court has held as under; \"Immunity 13.4 Considering the cumulative facts as well as the circumstances of the case, the Applicant prayed for grant of immunity from the levy of penalties and prosecution under the Act. We have carefully considered the Applicant's submission. satisfied the requisite conditions provided u/s.245H. We find that the Applicant has co-operated. We note that the Applicant has in the proceedings before us and has disclosed the material facts fully and truly. There was no suppression of facts. We find that the Applicant had also disclosed truly the manner in which such income was derived. The additional amounts settled in this order to which the Applicant has agreed either at the instance or suggestion of the Commission would not have the effect of rendering his original disclosure dubious for the purpose of settlement under the Act. Accordingly we allow the prayer of the Applicant for immunity from penalty and prosecution under the Income Tax Act notwithstanding the fact that further income required - 5 - NC: 2024:KHC:7967 WP No. 56334 of 2014 to be disclosed is close to the additional income offered before the Commission.\" 6. In the instant case, a perusal of the order dated 19.10.2015, passed by the Settlement Commission, it is held as under; \"7.5. In the light of the aforesaid discussion, we are of the view that the learned Single Judge of the High Court was not right in holding that the reasoning of the Settlement Commission was vague, unsound and contrary to established principles. Division Bench was also not justified in affirming such view of the learned Single Judge. The Commission, in our view, adequately applied its mind to the circumstances of the case, as well as to the relevant law and accordingly exercised its discretion to proceed with the application for settlement and grant immunity to the assessee from penalty and prosecution. The Order of the Commission dated 04.03.2008 did not suffer from such infirmity as would warrant interference by the High Court, by passing an order of remand. 8. It may be apposite at this juncture, to refer to the decision of this Court in Ashirvad Enterprises vs. State of Bihar, (2004) 137 Taxman 455/266 ITR 578 (SC)/3 SCC 624, wherein it was stated - 6 - NC: 2024:KHC:7967 WP No. 56334 of 2014 that whether immunity from prosecution and penalty should be granted in a given case, has to be decided by the Commission by exercising its discretion, in the light of the facts and circumstances of each case. There is no straight jacket formula that would universally apply in every case. Where the Commission is satisfied that the applicant (a) has made full and true disclosure of his income and the manner in which such income was derived, and (b) has co- operated with the Commission in the proceedings before it, immunity under Section 245H may be granted. 9. In the present case, as noted above, we find that the appellant placed material and particulars before the Commission as to the manner in which income pertaining to certain activities was derived and has sought to offer such additional income to tax. Based on such disclosures and on noting that the appellant co-operated with the Commission in the process of settlement, the Commission proceeded to grant immunity from prosecution and penalty as contemplated under Section 245H of the Act. The High Court ought not to have sat in appeal as to the sufficiency of the material and particulars placed before the Commission, based on which the Commission proceeded to grant - 7 - NC: 2024:KHC:7967 WP No. 56334 of 2014 immunity from prosecution and penalty as contemplated under Section 245H of the Act. 10. We are fortified in our view by the judgment of this Court in Jyotendrasinhji vs. S.I. Tripathi, [1993] 68 Taxman 59/201 ITR 611/Supp (3) SCC 389, wherein it was observed that a Court, while exercising powers under Articles 32, 226 or 136 of the Constitution of India, as the case may be, may not interfere with an order of the Commission, passed in exercise of its discretionary powers, except on the ground that the order contravenes provisions of the Act or has caused prejudice to the opposite party. Interference may also be open on the grounds of fraud, bias or malice. Therefore, this Court has carved out a very narrow scope for judicial review of the Commission's orders, passed in the exercise of its discretionary powers. Hence, we hold that sufficiency of the material and particulars placed before the Commission, based on which the Commission proceeded to grant immunity from prosecution and penalty as contemplated under Section 245H of the Act, are beyond the scope of judicial review, except under the circumstances set out in Jyotendrasinhji (supra). - 8 - NC: 2024:KHC:7967 WP No. 56334 of 2014 11. We find that the judgment of this Court in Express Newspapers Ltd. (supra), sought to be relied upon by the Respondents, would not come to their aid in the present case. It is to be noted that the said judgment turns on its own facts. In the said case, the income tax authorities had made extensive investigation and inquiry, whereby they had collected voluminous material demonstrating large scale concealment of income on the part of the assessee therein. In that background, this Court observed that the assessee, having merely offered a part of such concealed income before the Commission, the application for settlement ought to have been rejected. 12. While we are mindful of the fact that the provisions of Chapter XIX-A of the Act are not to be employed so as to provide a shelter for tax dodgers to obtain immunity from facing the consequences of tax evasion by simply approaching the Settlement Commission, vide B.N. Bhattacharjee (supra), we are however of the view that in the present case, the Commission rightly exercised its discretion under Section 245H having regard to the bona fide conduct of the assessee of offering additional income for tax, - 9 - NC: 2024:KHC:7967 WP No. 56334 of 2014 apart from the income disclosed in the return of income. 13. Before parting with the record, we may add that having regard to the legislative intent, frequent interference with the orders or proceedings of the Settlement Commission should be avoided. We have already indicated the limited grounds on which an order or proceeding of the Settlement Commission can be judicially reviewed. The High Court should not scrutinize an order or proceeding of a Settlement Commission as an appellate court. Unsettling reasoned orders of the Settlement Commission may erode the confidence of the bonafide assessees, thereby leading to multiplicity of litigation where settlement is possible. This larger picture has to be borne in mind. 14. In light of the aforesaid discussions, we are of the view that the Order of the Settlement Commission dated 04.03.2008 was based on a correct appreciation of the law, in light of the facts of the case and the High Court ought not to have interfered with the same. Therefore, the judgment dated 06.07.2012, passed by the High Court of Karnataka at Bangalore in Writ Appeal No. 2458 of 2010 whereby the judgment of the learned Single Judge dated 20.05.2010, passed in - 10 - NC: 2024:KHC:7967 WP No. 56334 of 2014 Writ Petition No. 12239 of 2008, remanding the matter to the Settlement Commission to determine afresh, the question as to immunity from levy of penalty and prosecution was affirmed, is hereby set aside. Consequently, the order of the learned Single Judge is also set aside. The Order of the Settlement Commission dated 04.03.2008 is restored. The appeal is allowed.\" 7. As is clearly seen from the order of the Settlement Commission that the petitioner has been granted complete and total immunity / exemption from prosecution and in the light of Section 245H of I.T.Act, coupled with the judgment of the Hon’ble Apex Court supra, I am of the considered opinion that the impugned order dated 13.02.2014 passed under Section 279 of I.T.Act and all consequential proceedings deserve to be quashed. 8. In the result, the following; ORDER (i) The petition is hereby allowed. (ii) Impugned order dated 13.02.2014 and all consequential proceedings / prosecution as against - 11 - NC: 2024:KHC:7967 WP No. 56334 of 2014 the petitioner in relation to the Assessment Year 2011-12 are hereby quashed. Sd/- JUDGE GH List No.: 1 Sl No.: 1 "