2024 (4) TMI 464 - HC - Income Tax

Income Tax Settlement Commission order upheld as assessee made adequate disclosure in land transaction dispute

Pr. Commissioner of Income Tax (Central) -II Versus M/s. Trent East West LPG Bottling Ltd.

Delhi HC dismissed a writ petition challenging an Income Tax Settlement Commission (ITSC) order. The petitioner argued that the respondent-assessee failed ... Validity of order passed by the Income Tax Settlement Commission [ITSC] - “full and true” disclosure of its income or not? - manner of disclosure made by the respondent and insofar as it related to the purchase of a land parcel admeasuring 20 acres - petitioner principally asserts that since the respondent had failed to surrender the amount representative for the aforenoted transaction to tax in the statement filed before the ITSC, the acceptance of settlement is clearly vitiated and the order passed by the ITSC liable to be quashed on this ground alone. HELD THAT:- The procedure as contemplated under Chapter XIX-A does not detract from the right of an assessee to question an addition or view that may have been taken by the taxing authorities - an addition suggested or a view taken with respect to a particular item of income is incorrect or flawed. What the assessee is essentially doing in such a scenario is calling upon the ITSC to examine all such questions and render its decision, enabling the assessee to obtain closure of all disputes. Viewed in that light, it would be wholly incorrect for the writ petitioner to assert that the respondent had failed to make a “full and true” disclosure. What the law proscribes is an applicant seeking to either amend an application or taking contrarian positions in proceedings before the ITSC. As was explained by the Supreme Court in Ajmera Housing [2010 (8) TMI 35 - SUPREME COURT], the sine qua non for a settlement order being entered is a “full and true” disclosure of income being made by the applicant. As the Supreme Court explained, what is impermissible is a revision of a disclosure. A particular contention with respect to taxability and which is made in order to invite a conclusive pronouncement from the ITSC cannot possibly be viewed as a revision of the application made. In our considered opinion, therefore, in the facts of the present case, the test of “full and true” disclosure had clearly been met. We note that the ITSC while accepting the surrender of income, has not indicted the respondent-assessee. It has taken note of the perceived conflict in versions which were alluded to by the Commissioner and the respondent having been unable to proffer a satisfactory explanation. It had, however, and for the purposes of a holistic examination, voiced its doubts and confronted the respondent- assessee seeking its unequivocal stand in respect of the transaction relating to sale of immovable property. It is at that stage that the respondent appears to have offered to voluntarily surrender the said amount and thus agreeing to the same being subjected to tax. While ultimately accepting the voluntary surrender, it was not the case of the ITSC that the respondent was guilty of suppression or falsification of facts. What appears to have ultimately weighed upon it was the imperatives of the controversy being resolved and the matter being conferred finality. Extent and intensity of judicial review which must govern while considering a challenge to orders passed by the ITSC -As relying on JYOTENDRASINHJI VERSUS SI TRIPATHI AND OTHERS [1993 (4) TMI 1 - SUPREME COURT] and KOTAK MAHINDRA BANK LIMITED VERSUS COMMISSIONER OF INCOME TAX BANGALORE AND ANR. [2023 (9) TMI 1231 - SUPREME COURT] we find ourselves unable to hold that the procedure adopted by the ITSC was either palpably incorrect or manifestly erroneous. The decision ultimately rendered by it also cannot possibly be characterized as being contrary to any provision of the Act. This was not a case where the respondent had failed to make a disclosure. Details in respect of the subject transaction were duly disclosed. This was therefore not a case where a “full and true” disclosure had not been made. The dispute essentially was with respect to the character of the receipt. The assessee had contested the position taken by the writ petitioner of the same being an accommodation entry. The ITSC has ultimately and upon due consideration of the rival stands as struck before it, exercised its adjudicatory function bearing in mind the larger purpose and intent of the settlement process. The same consequently merits no interference under Article 226 of the Constitution. WP dismissed. Issues Involved:1. Invocation of Article 226 jurisdiction by the Principal Commissioner of Income Tax (PCIT) to challenge the order of the Income Tax Settlement Commission (ITSC).2. Alleged failure of the respondent to make a 'full and true' disclosure of income concerning a land transaction.3. The scope and extent of judicial review of ITSC orders.Summary:Issue 1: Invocation of Article 226 JurisdictionThe PCIT invoked the jurisdiction conferred by Article 226 of the Constitution to challenge the ITSC order dated 26 March 2014. The ITSC had settled the tax liabilities of the respondent-assessee for the block assessment period from 1995-96 to 25 May 2000 and accorded immunity from prosecution and penalties under the Income Tax Act, 1961.Issue 2: Alleged Failure to Make a 'Full and True' DisclosureThe PCIT contended that the respondent failed to surrender the amount related to a land transaction to tax in the statement filed before the ITSC, thus vitiating the acceptance of the settlement. The respondent had allegedly taken contradictory stands regarding the transaction, initially describing receipts as share subscription and later as a sale of immovable property. The ITSC, however, accepted the respondent's voluntary surrender of the amount in question, adding INR 2,35,83,500/- to the taxable income. The ITSC noted that the respondent had cooperated fully and voluntarily surrendered the amount, which was considered satisfactory for the settlement.Issue 3: Scope and Extent of Judicial Review of ITSC OrdersThe court emphasized that the ITSC has wide powers under Chapter XIX-A of the Income Tax Act to examine all aspects of an application for settlement. The court referred to the Supreme Court's rulings, which limit judicial review to instances where the ITSC's order is contrary to the provisions of the Act or has caused prejudice, or in cases of fraud, bias, or malice. The court found no such contravention in the ITSC's procedure or decision, noting that the respondent had made a 'full and true' disclosure of the transaction. The court concluded that the ITSC's decision to accept the voluntary surrender and settle the matter was appropriate and dismissed the writ petition.