Recently, the Supreme Court emphasized the need for High Courts to exercise restraint when contemplating intervention in the judgments of Settlement Commissions, as such interference has the potential to result in a proliferation of legal proceedings.

Settlement Commissions in Indian income tax and excise laws serve as alternative dispute resolution mechanisms for taxpayers looking to resolve disputes related to their dues through non-litigious means, diverging from the conventional legal process

The division bench of Justices BV Nagarathna and Ujjal Bhuyan noted that frequent interference by courts in disputes before such commissions could erode the confidence of those who approach settlement commissions.

"Having regard to the legislative intent, frequent interference with the orders or proceedings of the Settlement Commission should be avoided ... 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," the bench observed.

Case Brief -

 In the said matter, the Court made the observation while dealing with an appeal challenging the judgements of the Karnataka High Court from 2012 and 2010, the Court in its judgement had set aside a 2008 Settlement Commission order involving Kotak Mahindra Bank.

Back in 2000, an Assessing Officer had alleged that the bank had been concealed its rental income. A Settlement Commission eventually pegged the additional income due from the bank at over ₹196 crores.

Nonetheless, the forum opted to waive the penalty amount and conferred upon the bank immunity from prosecution, in accordance with Section 245H(1) of the Income Tax Act.

This Commission's observation that the bank had actively cooperated throughout the proceedings by providing complete and accurate disclosures. Additionally, the Commission determined that the initial failure to disclose the rental income was attributed to the existing guidelines set forth by the Reserve Bank of India.

The Supreme Court agreed with the commission's decision to grant the bank immunity from prosecution and to waive of the payment of penalty otherwise due from the bank.

"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 34 co-operated with the Commission in the proceedings before it, immunity under Section 245H may be granted," the Supreme Court explained.

"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," the Court's judgment stated.

Therefore the orders of the High Court were set aside. The order of the Settlement Commission was restored

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Click here to Read the Judgement