Section 245H Bar Does Not Justify Endless Prosecution: Punjab and Haryana High Court Quashes 17-Year-Old Income Tax Case Prosecution After Settlement

Case Name: Jagtar Singh v. Assistant Director of Income Tax (Investigation) III, Ludhiana and Another

Date of Judgment: September 9, 2026

Citation: CRM-M No. 12302 of 2018

Bench: Hon’ble Mr. Justice Sanjay Vashisth

Held: The Punjab and Haryana High Court held that although the first proviso to Section 245H(1) of the Income Tax Act, 1961 bars the Settlement Commission from granting immunity where criminal prosecution was instituted before receipt of the settlement application, that statutory restriction does not fetter the constitutional or inherent jurisdiction of the High Court to examine the matter holistically and quash the prosecution under Section 482 CrPC where its continuation would serve no meaningful purpose and amount to an abuse of the process of law.

The Court clarified that the Settlement Commission had correctly excluded the pre-existing prosecution from the immunity granted to the assessees. Nevertheless, the absence of statutory immunity did not compel the High Court to permit a prosecution to continue indefinitely. Considering that the settlement order had attained finality, the determined liability had been paid, no non-compliance was alleged by the Income Tax Department, and the prosecution had remained pending for nearly 17 to 18 years, the Court found that continuing the criminal proceedings would be merely academic and oppressive.

Summary: The Income Tax Department conducted a search and seizure operation under Section 132 of the Income Tax Act on February 24, 2009 at the business and residential premises connected with the Gobind Expeller Group, including the residences of the petitioners. At the commencement of the search, the petitioners’ statements were recorded regarding their bank accounts and lockers.

Gurpreet Singh stated that he did not maintain any locker in his or his wife’s name. Subsequent enquiries allegedly revealed that he held Locker No. 74 in Oriental Bank of Commerce jointly with his wife and also maintained a joint account with Kotak Mahindra Bank. Jagtar Singh disclosed one locker in Oriental Bank of Commerce but allegedly failed to disclose Locker No. 150 maintained with Kotak Mahindra Bank, which had been operated on January 23, January 29 and February 24, 2009.

Alleging that the petitioners had knowingly furnished false information on oath by concealing the existence and operation of the lockers and bank account, the Income Tax Department instituted Complaint No. 120 on March 31, 2009 for offences under the Indian Penal Code and Section 277 of the Income Tax Act. The Chief Judicial Magistrate, Ludhiana, summoned the petitioners on the same date.

During the pendency of the prosecution, a settlement application was filed before the Income Tax Settlement Commission on December 13, 2010. The Commission considered the issue relating to the undisclosed locker and made an additional assessment of ₹50 lakh to cover the discrepancies. The amount was offered for taxation to purchase peace and in the spirit of settlement. By its final order dated June 29, 2012, the Commission determined a total liability exceeding ₹6.18 crore in Jagtar Singh’s case and granted immunity from prosecution and penalty in relation to matters covered by the settlement. However, relying upon the first proviso to Section 245H(1), it expressly excluded the criminal prosecution already launched concerning the alleged operation of the locker on February 24, 2009.

The petitioners subsequently sought discharge under Section 245(2) CrPC. The Chief Judicial Magistrate dismissed the application, holding that the Settlement Commission had not granted immunity in respect of the prosecution already instituted and that the petitioners’ defence could be evaluated after completion of pre-charge evidence. The Sessions Court affirmed that order in revision on February 1, 2018.

Before the High Court, the petitioners argued that the settlement proceedings had conclusively resolved the tax dispute, the determined amount had been paid, and the settlement order had attained finality. They submitted that even though the Settlement Commission was statutorily barred from granting immunity in respect of an already instituted prosecution, the High Court remained competent to quash proceedings whose continuation would serve no legitimate purpose.

The Income Tax Department opposed the petitions by contending that the prosecution was not limited to Section 277 of the Income Tax Act but also involved offences under the IPC arising from deliberate false statements made during the search. It maintained that the settlement application was filed approximately 20 months after institution of the complaint and that the express bar contained in the first proviso to Section 245H(1) consequently applied. The Department further submitted that the prosecution related to concealment of the existence and operation of the lockers, rather than merely the contents found in them.

The High Court accepted that the Settlement Commission lacked jurisdiction to grant immunity from a prosecution instituted before receipt of the settlement application. It, therefore, found no illegality in the Commission’s decision to exclude the pending criminal case from the immunity granted to the petitioners. The Court, however, drew a clear distinction between the statutory powers of the Settlement Commission and the independent inherent jurisdiction of a constitutional court.

Relying upon the Supreme Court’s decision in Vijay Krishnaswami alias Krishnaswami Vijay Kumar v. Deputy Director of Income Tax (Investigation), 2025 SCC OnLine SC 1843, and the Punjab and Haryana High Court decisions in Satish Vohra v. State of Punjab and Nagesh Aggarwal v. Deputy Director of Income Tax (Investigation), the Court held that the High Court was neither constrained nor incapacitated from considering whether continuation of the prosecution would achieve any meaningful legal purpose.

The prosecution had remained pending for approximately 17 to 18 years, while the liability determined by the Settlement Commission had been paid as far back as 2012. The Department did not contend that the settlement order had been challenged or reversed, or that the petitioners had failed to comply with its financial terms. The Court further observed that the deterrent purpose underlying the penal provisions had substantially been served by the prolonged pendency of the prosecution itself. Continuing the proceedings at that stage would, therefore, amount to little more than an academic exercise.

Decision: The High Court allowed both petitions and quashed Complaint No. 120 dated March 31, 2009, the summoning order passed on the same date, the order dated December 3, 2016 dismissing the petitioners’ discharge application, and the revisional order dated February 1, 2018. All consequential criminal proceedings arising from the complaint were also quashed.