2021 (5) TMI 373 - HC - Income Tax

Settlement application order u/s 245(C) - writ petitioner Commissioner of Wealth Tax said that there was no true and full disclosure by the 2nd respondent/assessee at the time of filing of an application under Section 245(C) - valuation of property under wealth tax assessment - as contended that the 2nd respondent had filed return of wealth taking into consideration the value of the property on various valuation dates and also taking into consideration several litigations and disputes, which were pending against the said property of their respective valuation dates - HELD THAT - Without considering the additional wealth offered by the second respondent, which has been disclosed before the Assessing Officer, the Settlement Commission proceeded with the Settlement in violation of the provisions of the Income Tax Act and beyond the jurisdiction of the Settlement Commission. The revised statement of facts filed by the 2nd respondent on 22.02.2008 would be sufficient to arrive a conclusion that the 2nd respondent has not filed an application under Section 245(C) of the Act with true and full disclosure. The additional statement of facts given during the adjudication of the application before the Settlement Commission, raises a doubt regarding the true and full disclosure and further, the reasonings given by the petitioner/Income Tax Department in the matter of true and full disclosure were not considered by the 2nd respondent. The Settlement Commission without adhering to the provisions of the Income Tax Act and more specifically, in violation of the mandatory requirement for entertaining an application for settlement, passed the impugned order of settlement, knowing fully well that the 2nd respondent has not made true and full disclosure as mandated under Section 245(C) of the Income Tax Act. The petitioner / Commissioner of Income Tax in his written submission dated 20.02.2008, specifically made certain points, which would reveal that the non-disclosure of wealth by the 2nd respondent came to notice as soon as the application for NOC under Section 281 of the I.T.Act was made. Thus, there is nothing new disclosed by the 2nd respondent before the Settlement Commission. The 2nd respondent has come forward to offer additional wealth at the time of admission, which further reinforces the position that the disclosure made in the application is neither true nor full. The 2nd respondent has totally omitted to include another immovable property namely the plot at Royapettah in the statement of taxable wealth. Thus, the 2nd respondent failed to include this property in the return of wealth on the relevant valuation dates. Thus, omission of this property has also resulted in establishing that the disclosure made is neither true nor full. In view of the fact that the petitioner could able to establish that the 2nd respondent has not approached the 1st respondent / Settlement Commission with true and full disclosure of income and during the course of proceedings, offering additional income and findings of the Settlement Commission would also confirm the same, the said offerings of the additional income would be sufficient for the purpose of arriving a conclusion that the 2nd respondent filed an application under Section 245(C) of the Income Tax Act without disclosing true and full income. Thus, to comply with the requirements of the provisions of Section 245(C), there is every reason to believe that the 2nd respondent / assessee has not approached the Settlement Commission with clean hands and thus, the Department is empowered to go for further adjudication. This being the very purpose and object of the condition imposed under Section 245(C) of the Act, there is no reason for the Settlement Commission to get along with the application, which were not filed with true and full disclosure. Thus, the Settlement Commission has committed an error apparent and allowed the application filed by the 2nd respondent in violation of the provisions of the Income Tax Act.

Issues Involved:
1. True and full disclosure by the assessee under Section 245(C) of the Income Tax Act.
2. Jurisdiction and powers of the Settlement Commission.
3. Maintainability of writ petition under Article 226 of the Constitution of India.
4. Valuation of property for Wealth Tax purposes.
5. Additional income disclosure during adjudication.

Issue-wise Detailed Analysis:

1. True and Full Disclosure by the Assessee under Section 245(C) of the Income Tax Act:

The petitioner, Commissioner of Wealth Tax, challenged the Settlement Commission's order on the grounds that the assessee did not make a true and full disclosure at the time of filing the application under Section 245(C) of the Income Tax Act. The petitioner argued that the assessee approached the Settlement Commission with unclean hands, and during adjudication, it was established that the assessee had not disclosed true and full facts. The Settlement Commission entertained the application in violation of the Act's provisions and passed an order not in consonance with its conferred powers. The assessee sold property worth ?206.34 crores in 2005-06 but did not file returns or pay tax under the Wealth Tax Act for the period prior to its sale. The petitioner contended that the Settlement Commission did not have jurisdiction to entertain the application due to the absence of "full and true disclosure."

2. Jurisdiction and Powers of the Settlement Commission:

The petitioner argued that the Settlement Commission lacked jurisdiction to entertain the application or grant relief due to the absence of full and true disclosure. The Settlement Commission's order dated 13.03.2008 was questioned on the grounds of misrepresentation or ante-dating, which vitiated the order's validity. The petitioner cited the Supreme Court's judgment in Commissioner of Income Tax Vs. Express Newspaper Limited, emphasizing that the Settlement Commission must record satisfaction on full and true disclosure before passing any order.

3. Maintainability of Writ Petition under Article 226 of the Constitution of India:

The second respondent contended that the writ petition under Article 226 was not maintainable as the Settlement Commission's orders under Section 22D(iv) of the Wealth Tax Act could not be interfered with routinely, except under exceptional circumstances. The respondent argued that the Court could not substitute its views for those of the Settlement Commission, particularly on the question of full and true disclosure and case complexity. The petitioner, however, relied on the Supreme Court's judgment in Ajmera Housing Corporation Vs. Commissioner of Income Tax, which allowed the High Court to entertain writ petitions challenging the Settlement Commission's orders.

4. Valuation of Property for Wealth Tax Purposes:

The dispute centered on the valuation of the property on respective valuation dates from Assessment Years 1999-2000 to 2005-06. The assessee filed returns considering the property's value and pending litigations. The Assessing Officer proposed to take the market value of the land progressively from ?100 crores onwards for the period 1999-00 to 2005-06, while the assessee showed a much lower rate. The Settlement Commission's order noted the need for suitable adjustments due to litigations affecting the property's value on different valuation dates.

5. Additional Income Disclosure During Adjudication:

The second respondent offered an additional amount of ?60 crores for Assessment Years 2004-05 and 2005-06 to buy peace and avoid litigations. The petitioner argued that offering additional amounts indicated that the initial application did not contain true and full disclosure. The Settlement Commission's acceptance of additional disclosures during adjudication was seen as a violation of the mandatory requirement for entertaining an application under Section 245(C). The petitioner emphasized that the application must contain true and full disclosure at the first instance, and any additional statements during adjudication invalidated the application.

Conclusion:

The High Court concluded that the Settlement Commission's order was vitiated due to the absence of true and full disclosure by the assessee. The offering of additional income during adjudication confirmed that the initial application was not filed with true and full disclosure. The Court quashed the Settlement Commission's order dated 13.03.2008 and allowed the writ petition, enabling the Department to proceed with further adjudication.

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