The High Court Division Bench, which upheld the Single Bench order on Friday and turned down the plea of Cochin Minerals and Rutile Limited (CMRL) against the Directorate of Enforcement’s probe, has held that an order issued by the Income Tax Settlement Commission cannot confer immunity from money laundering charges.
The CMRL’s counsel, during the hearing, submitted that the order of settlement passed under Section 245D(4) of the IT Act was conclusive and that no matter covered by this order shall be reopened in any proceeding under the IT Act. This argument was put forward with reference to the IT department’s search on January 25, 2019, at the factory and office premises of the CMRL, and at the residences of its Managing Director and certain key employees. On November 6, 2020, the company approached the Income Tax Settlement Commission by filing an application under Section 245C of the IT Act.
The Interim Board for Settlement issued an order on June 12, 2023 under Section 245D(4) of the IT Act. According to the CMRL representatives, they were granted immunity under Section 245H of the IT Act from prosecution for any offence under the Act relating to the applicable assessment years.
The High Court didn’t accept this contention. The court cited the second proviso to Section 245H, which states that the Settlement Commission shall not grant immunity from prosecution for any offence under the Indian Penal Code or under any Central Act other than the IT Act and the Wealth-tax Act, 1957. It was held that immunity from prosecution can be granted only for any action under the IT Act and the Wealth Tax Act.
The HC maintained that the Prevention of Money Laundering Act is an independent statute with its own scheme of enforcement. “The subject matter of Settlement under the IT Act is the concealment of income, non-payment of tax, and attendant penalties. On the other hand, the objective of the PMLA is the process or activity connected with proceeds of crime,” the court noted in the order.
According to the HC, even if the Income Tax Settlement Commission determines that a taxpayer has made full and true disclosure and grants immunity under the IT Act, that determination operates only within the four corners of the IT Act and has no effect in PMLA proceedings, which involve a distinct cause of action and a distinct legal regime.
“The settlement of a tax dispute cannot therefore extinguish the offence of money laundering or the ED’s jurisdiction to inquire into the transactions leading to the proceeds of crime,” the HC order noted.
The ED, in its petition, cited that following the searches conducted in 2019, the Income Tax Department quantified the total of bogus expenditure allegedly utilised for cash payments at ₹135.54 crores for Assessment Years 2013-14 to 2019-20. The CMRL approached the Income Tax Settlement Commission and quantified the inflated expenses at ₹134.27 crores. They claimed that the payment of ₹1.72 crores towards software services by Exalogic Solutions Private Ltd was a genuine payment, the ED’s petition stated.
