Madras High Court directs ITSC to reconsider Khazana 268 kg gold settlement

The Madras High Court’s First Division Bench, comprising Chief Justice Manindra Mohan Shrivastava and Justice G. Arul Murugan, has set aside the Income Tax Settlement Commission’s rejection dated 11.06.2020 and directed the Commission to reconsider afresh Khazana Jewellery Pvt. Ltd.’s settlement plea concerning 268.200 kg of gold bullion valued at Rs.80 crores. The Division Bench’s file lists the matter as W.A. No. 4004 of 2025 with a docket entry dated 16.02.2026; the order follows a writ appeal against an earlier single judge order of 28.11.2025 that had refused interference.

The factual chain begins with a search conducted at Khazana’s premises on 21.04.2016 under Section 132 of the Income Tax Act, 1961. The company’s managing director, Kishore Kumar Jain, made a sworn statement during the search in which, in response to Question No.8, he admitted that the company’s “inflated refinery loss would be around 3% to 5% and siphoned off the excess gold from the refining process and sold it in the black market.” A company letter dated 29.06.2016 offered Rs.80 crores towards stock‑in‑trade, expressly corresponding to 268.200 kg of gold bullion said to be held with employees, goldsmiths and agents in the year of search (AY 2017‑18).

Khazana filed a settlement application under Section 245C on 16.10.2018 while assessment proceedings under Section 153A remained pending. The Settlement Commission rejected the application in June 2020 on the ground of “no full and true disclosure,” prompting the writ petition recorded as W.P. No. 10688 of 2020. The company’s litigation argued that Section 245C(1) required disclosure of the manner in which income was derived only for an alleged additional income of Rs.70.66 crores and not for the Rs.80 crores of unaccounted stock‑in‑trade; the Revenue countered that the Rs.80 crores would not have been revealed but for the search and that the petitioner failed to furnish information during joint verification.

The assessing officer’s joint verification report quantified the impact: “by including the unaccounted stock of 268.200 kgs of gold amounting to Rs.80 crores in purchase of old gold, the applicant had drastically reduced the total income of Rs.150.66 crores offered for taxation as a result of search action u/s 132 of the IT Act, 1961.” Legal summaries also record that the company’s refinery‑loss inflation was said to have generated Rs.70.66 crores across assessment years variously described in filings - Casemine and related summaries list AY 2011‑12 to 2016‑17 while an Indian Kanoon excerpt references AY 2011‑12 to 2014‑15, a discrepancy noted in court records.

The High Court’s remand emphasizes that the Settlement Commission must properly examine whether there was “full and true disclosure” of undisclosed income before rejecting a settlement application and ordered fresh consideration of the Rs.80 crore plea. Senior standing counsel A.P. Srinivas had drawn the court’s attention to Khazana being a closely held Chennai concern with family directors. Practically, the court noted that without reconsideration the firm faces exposure to penalty, interest and potential prosecution, placing the fate of the 268.200 kg of gold and the associated Rs.150.66 crore tax arithmetic squarely back before the ITSC for determination.