Avoid Frequent Interference With Settlement Commission Orders: Supreme Court

Unsettling reasoned orders of the Settlement Commission may erode the confidence of bona fide taxpayers, thereby leading to a multiplicity of litigation where settlement is possible, the Supreme Court has said.

It said so in an appeal filed by Kotak Mahindra Bank Ltd. against an order of the Karnataka High Court. The dispute pertained to a tax reassessment proceeding initiated against Kotak after the bank had allegedly concealed its income.

While proceedings in the case were pending before various income tax authorities, Kotak approached the settlement commission to settle its tax liabilities.

The commission determined the bank’s additional liability at Rs 196 crore, and in view of the fact that the bank had made true and full disclosures during the proceeding before the commission, it further granted the bank immunity from imposition of penalties and prosecution under the Income Tax Act for the relevant assessment years.

However, this order was challenged before the Karnataka High Court. The high court set aside the immunity granted by the commission on the ground that its reasoning was vague and unsound and remanded the matter back to the commission for a fresh consideration.

All this back and forth led the matter to come up before the apex court.

While highlighting that the commission’s power to grant immunity from prosecution and penalties is discretionary in nature, the top court said that the commission had adequately considered the facts and information in this case and accordingly chose to grant immunity.

The apex court held that the high court ought not to have sat in appeal as to the sufficiency of the material and particulars placed before the commission.

Lastly, it was pointed out that, having regard to the legislative intent, frequent interference with the orders or proceedings of the settlement commission should be avoided by high courts.