Bank hid Rs 196 crore, then sought immunity. The twist: it got it.

Kotak Mahindra Bank told the taxman it had hidden Rs 196 crore. Then it asked for immunity from prosecution. The Supreme Court just said — yes, it can.

The bank had already been caught. The Assessing Officer had found the hidden income, made additions, and slapped a penalty for concealment. Yet the bank walked into the Settlement Commission, offered up the same money the taxman had already found, and asked for a clean slate. The Revenue argued this was absurd — you cannot get immunity for what was already discovered. The Supreme Court disagreed, and in doing so, settled a question that had divided tax practitioners for years: can a settlement commission grant immunity even when the income was already unearthed by tax officers?

When the bank's accounting caught the taxman's eye

Between 1994 and 2000, Kotak Mahindra Bank (then ING Vysya Bank) carried on banking and leasing business. It followed RBI guidelines for lease income. It split lease rentals into two parts — a capital repayment component and an interest component — and offered only the interest to tax. It also claimed depreciation on leased assets it did not own. The lease ledgers, thick with entries and smelling of old ink, recorded these splits year after year. On 30 March 2000, the Assessing Officer in Bangalore, sitting with the lease ledgers spread across his desk, took a different view. He added the capital component back into income, disallowed the depreciation, and on 14 June 2000 levied a penalty under Section 271(1)(c) (the penalty provision for concealing income or furnishing inaccurate particulars). He also reopened earlier assessments under Section 148 (the provision that allows the taxman to reassess income that escaped assessment). The penalty order, dated 14 June 2000, was a crisp document that landed on the bank's desk with the weight of a final warning.

The bank did not fight the additions in appeal. Instead, it took a different route.

The door the taxman cannot lock

On 10 July 2000, the bank approached the Settlement Commission in Chennai under Section 245C(1) of the Income Tax Act (the provision that allows a taxpayer to apply for settlement of a pending case by disclosing additional income). The application form, with the Rs 196 crore figure carefully entered, was filed in the Commission's chamber — a quiet room smelling of old paper and bureaucratic patience, where the only sound was the rustle of documents being turned. The Commission entertained the application, passed an order under Sections 245D(1) and 245D(4), and on 4 March 2008 determined additional income of about Rs 196,36,06,201. Crucially, it granted the bank immunity from penalty and prosecution under Section 245H (the provision that empowers the Commission to grant immunity if the assessee has cooperated and made full and true disclosure). The Commission found that the bank had cooperated fully and made a complete disclosure of its income and the manner in which it was derived. The order, running to several pages, bore the signatures of the Commission members and the weight of a settled case.

The Revenue was not happy. It challenged the immunity grant before the Karnataka High Court.

"What was 'disclosed' was merely what was 'discovered'"

On 20 May 2010, the Single Judge of the Karnataka High Court upheld the Commission's jurisdiction and the tax determination. But it set aside the immunity grant and sent the question back to the Commission, finding the reasoning for granting immunity too vague. The file felt thin in the courtroom that day — the judge noted the Commission had not examined whether there was wilful concealment. The courtroom was silent except for the judge's voice reading out the order, the papers rustling as the judgment was handed down. On 6 July 2012, the Division Bench upheld this remand.

The Revenue's argument was simple: the bank had not disclosed anything new. It had merely admitted what the Assessing Officer had already discovered. The word 'disclosure' in Section 245H, the Revenue argued, must mean something the taxman did not already know. Otherwise, every caught taxpayer could walk into the Commission, confess to what was already found, and walk out with immunity.

The bank appealed to the Supreme Court.

Why the Supreme Court said the High Court was wrong

The bench of Justice B.V. Nagarathna and Justice Ujjal Bhuyan heard Civil Appeal No. 9720 of 2014. On 25 September 2023, the courtroom fell silent as the judgment was delivered. The court reversed the High Court, holding that Section 245H cannot be saddled with an artificial requirement that the material 'disclosed' by the assessee must be something apart from what was 'discovered' by the Assessing Officer. The provision, the court said, only contemplates full and true disclosure of income — regardless of whether that income was already discovered by the taxman. The words of Section 245C read with Section 245H do not create a distinction between 'disclosed' income and 'discovered' income. The only preconditions for immunity under Section 245H(1) are: (a) the assessee has cooperated with the Commission in the proceedings; and (b) the assessee has made full and true disclosure of income and the manner in which it was derived.

The court also held that the sufficiency of material and particulars placed before the Commission, based on which it grants immunity, is beyond the scope of judicial review — except where the order contravenes the Act, causes prejudice, or is vitiated by fraud, bias or malice. None of those exceptions applied here. The court relied on a line of precedents — Ajmera Housing Corporation v. Commissioner of Income Tax (2010), Commissioner of Income Tax v. B.N. Bhattacharjee (1979), Commissioner of Income Tax v. Express Newspapers Ltd. (1994), Ashirvad Enterprises v. State of Bihar (2004), and Jyotendrasinhji v. S.I. Tripathi (1993) — to reinforce that the Commission's discretionary order was beyond the scope of judicial review except on limited grounds.

The judgment also clarified the procedural journey in detail. The assessment order was passed on 30 March 2000 by the Assessing Officer in Bangalore. The penalty order followed on 14 June 2000. The bank's application to the Settlement Commission in Chennai was filed on 10 July 2000. The Commission's final order granting immunity came on 4 March 2008. The Revenue's writ petition before the Karnataka High Court's Single Judge was decided on 20 May 2010, and the Division Bench upheld the remand on 6 July 2012. The Supreme Court's judgment on 25 September 2023 brought the matter to a close after nearly two decades of litigation.

The full width restored

The judgment restores the Settlement Commission's discretion to its full width. A taxpayer who has been caught can still approach the Commission, disclose the same income, and seek immunity — as long as the disclosure is full and true, and the taxpayer cooperates. The taxman cannot block immunity by arguing that the income was already 'discovered'. The only question for the Commission is whether the taxpayer has come clean and cooperated, not whether the taxpayer was caught first.

The court set aside the High Court's judgment of 6 July 2012 in Writ Appeal No. 2458 of 2010 and the Single Judge's order of 20 May 2010 in Writ Petition No. 12239 of 2008. It restored the Settlement Commission's order of 4 March 2008. The appeal was allowed with no order as to costs.

THE PLAY: If your client has been caught by the Assessing Officer but has not yet been prosecuted, a full and true disclosure before the Settlement Commission can still secure immunity — even if the income was already discovered.

The bank's Rs 196 crore stayed hidden for years. Then it was found. Then it was disclosed. And the Supreme Court said that was enough.