Delhi HC Upholds Order of Income Tax Settlement Commission as Assesee made True and Full Disclosure of Income [Read Order]

The Delhi High Court upheld the order of Income Tax Settlement Commission ( ITSC ) as assesee made true and full disclosure of income. It was observed that this 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 Principal Commissioner of Income Tax seeks to invoke our jurisdiction conferred by Article 226 of the Constitution and impugned the order passed by the Income Tax Settlement Commission(ITSC). In terms of the aforesaid order, the ITSC has settled the total liabilities payable by the respondent-assessee, M/S Trent East West LPG Bottling Ltd for the block assessment period of 1995-96 to 25 May 2000. In addition to settling the total tax liability, it has also accorded immunity to the respondent from prosecution and penalties imposable under the Income Tax Act, of 1961.

The principal ground of challenge that was addressed before us flowed from the manner of disclosure made by the respondent and insofar as it related to the purchase of a land parcel admeasuring 20 acres. The 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 the settlement is clearly vitiated and the order passed by the ITSC liable to be quashed on this ground alone. They contended that the petitioner had struck contradictory stands before the authority undertaking the assessment and before the ITSC insofar as this aspect is concerned and thus having clearly failed to make a “full and true” disclosure of its income. It is on the aforesaid primary ground that the order is impugned before us. 

In the course of that search, certain documents came to be seized in which the name of the respondent company was also reflected. This led to a consequential search and seizure being conducted upon the business premises of the respondent as well as the residential premises of some of its Directors on 25 May 2000. In the course of that operation, statements of the Directors of the respondents were recorded, cash, jewellery and various other documents and papers seized and inventoried. 

The petitioner contended before the ITSC that as per the agreement asserted to exist, fifty percent of the sale consideration had already been received in advance and that though sought to be portrayed as a sale, it was a mere accommodation entry. The petitioner also highlighted the incompatible stand taken by the respondent who had at one stage described the receipts as pertaining to share subscription and subsequently before the ITSC adopting a case of sale of immoveable property. They also appear to have borne in consideration the statement of S.K. Jain who outrightly disavowed the sale transaction. According to the petitioner, additions made in the hands of the respondent was thus clearly justified. 

The ITSC apart from exercising its adjudicatory function upon the application as made, is also empowered by law to reopen any proceedings connected with the case pending before it and which may have been completed. If the ITSC be of the opinion that for the proper disposal of a case pending before it, it would be expedient to reopen any proceedings, it may move forward in that direction with the concurrence of the applicant. This power stands placed in its hands by virtue of Section 245E of the Act. 

Section 245F of the Act provides that in addition to the powers specifically conferred on the Settlement Commission and which are set out in Chapter XIX-A, the Settlement Commission would be entitled to exercise all powers that are otherwise vested in an “Income Tax Authority” under the Act. An order of settlement once rendered is conferred finality by virtue of Section 245I of the Act.

A division bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav observed that this 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.

The writ petition fails and shall stand dismissed. 

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