The Karnataka High Court has ruled that the Settlement Commission, by accepting explanations “in the spirit of settlement,” cannot be faulted or subjected to interference within the limited scope of judicial review.
The petitioner filed an affidavit under Rule 8 of the Income Tax Settlement Commission (Procedure) Rules, 1997, stating that she had not maintained detailed records of the cash gifts.
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The Principal Commissioner of Income Tax (PCIT) filed a report under Rule 9, raising various objections, which were addressed by the Settlement Commission in its order.
The department challenged the Settlement Commission’s order, which accepted the petitioner’s application under Section 245C of the Income Tax Act for the Assessment Years 2012-2013 to 2019-2020. The order determined that the additional income of ₹2,20,00,000 was fair and reasonable, granted immunity from penalty and prosecution, but imposed interest under Sections 234A, 234B, and 234C, applying the provisions of Section 234B(2A).
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The Karnataka High Court, dismissing the petition of the department, held that the Settlement Commission’s order, which provided a detailed rationale aligned with the objectives of settlement under Chapter XIX-A of the Income Tax Act, did not warrant interference.
If the applicant had disclosed these cash gifts as “cash in hand” in their wealth tax returns, the alleged unaccounted cash would have been explained during the search, eliminating the need for the subsequent disclosure before the Settlement Commission. The Commission considered the additional income of ₹2,20,00,000 offered for taxation to be fair and reasonable, and accordingly, disposed of the application.
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The petitioner had applied for settlement under Section 245C of the Income Tax Act on November 18, 2019, covering assessment years 2012-2013 to 2019-2020. The application was allowed to proceed as per the order dated November 25, 2019, under Section 245D(1) of the Income Tax Act.
The petitioner, an individual assessee with income from salaries, had been subjected to a search under Section 132, during which records, documents, and jewellery were seized. Statements were recorded under Section 132(4), and undisclosed income was initially offered for tax, though this was later retracted.
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The additional income of ₹2,20,00,000 presented before the Settlement Commission was claimed to be cash gifts received from relatives and well-wishers during the Assessment Years 2012-2013 to 2016-2017. A cash payment of ₹2,16,00,000 was also made for the purchase of jewellery from vendors associated with the Nirav Modi Group.
The Single Bench of Justice S. Sunil Dutt Yadav, in his observation, noted that the Settlement Commission had acknowledged the declaration made under Rule 8 of the Income Tax Settlement Commission (Procedure) Rules and accepted the assertion regarding cash gifts.
It was noted by the Karnataka High Court that, “Conclusion of the Settlement Commission by accepting the explanation ‘in the spirit of settlement’ cannot be faulted calling for interference in exercise of the limited jurisdiction.”
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