In Disproportionate Assets Cases, Income Tax Returns Presumed To Be Accurate; Must Consider Inflation & Dynamic Factors : Supreme Court

In a noteworthy ruling, the Supreme Court recently underscored that income tax returns filed by public servants in cases of alleged disproportionate assets should be presumed accurate and credible unless specifically contested or proven false. Quashing a disproportionate assets case against the former UP's Assistant Excise Commissioner, the Court called for a dynamic and nuanced approach while calculating assets/income over extended periods. It said that factors like inflation and natural appreciation of property values must be considered, particularly when reviewing decades-long finances.The bench comprising Justice Vikram Nath and Justice Prasanna B Varale was hearing the case where the Appellant, a former Assistant Excise Commissioner, challenged an FIR registered against him under the Prevention of Corruption Act, 1988. The FIR alleged that he had amassed disproportionate assets worth ₹21.74 lakh beyond his known sources of income from 1996 to 2020. The Appellant's disproportionate assets (DA) were calculated by comparing the appellant's legitimate income during 1996–2020 with his declared assets. The prosecution claimed assets worth ₹1,16,02,669/-, against an assessed legitimate declared asset of ₹94,28,605/-, resulting in the alleged excess of Rs. 21,74 Lakhs. Following the High Court's refusal to quash the FIR, the Appellant-Pandey preferred an appeal before the Supreme Court. Before the Supreme Court, the Appellant argued that the case did not involve disproportionate assets, as the combined income declared in the income tax returns of himself and his wife amounted to ₹1,21,06,268/- (Rupees One Crore Twenty-One Lakh Six Thousand Two Hundred Sixty-Eight only), exceeding the assets amounting to ₹1,16,02,669/- claimed by the department. This, however, was not taken into account by the Vigilance Department.The Appellant sought to account for the assets by including his wife's income from yoga teaching, agriculture, and rental earnings, along with proceeds from jewelry sales and a life insurance policy. He argued for considering factors like inflation, economic changes, and the natural appreciation of property over 25 years. Accepting the Appellant's contention, the Court observed that since both the Appellant and his wife have submitted income proofs to show their respective incomes and assets to be ₹1,21,06,268/-, which was not denied by the department, therefore the income/assets declared by him through an income tax returns, should be presumed to be true and correct.“Both the Appellant and his wife have filed the relevant income tax returns in order to show their respective incomes and assets. The Respondents in their Counter-Affidavit have not denied these income tax returns or alleged them to be forged or fabricated. Therefore, when a public servant is submitting his income tax returns, they should be presumed to be true and correct. If you duly consider the income tax returns of the Appellant and his wife for the check period of the year 1996-2020, the total income is coming up to be Rs.1,21,06,268/-(Rupees One Crore Twenty One Lakh Six Thousand Two Hundred Sixty Eight only) which is in fact more than the assets amounting to Rs.1,16,02,669/- (Rupees One Crore Sixteen Lakh Two Thousand Six Hundred Sixty Nine only) which is said to be the disproportionate assets in question under the present FIR.”, the court observed. "Nuanced" and "Dynamic" Approach To Assessing Disproportionate Assets Over Extended Periods Noting that the department calculated the income of the Appellant and his wife for the check period of 1996-2020, the Court called for a dynamic and nuanced approach to calculating assets/income over extended periods. It said that factors like inflation and natural appreciation of property values must be considered, particularly when reviewing finances spanning decades. “Further, we have considered that the check period is from the year 1996 to 2020, which is almost twenty five years. It must be taken into account that over such a long period of time, there is inflation and a natural progression in the changing economy that affects the value of assets such as property. This can understandably lead to discrepancies in declaring the value of assets over the years. Therefore, there should be a more dynamic approach while considering an individual's income and assets over the span of two decades, such as in the present case. The notion that the declared value of an asset such as property or gold will remain static is flawed. This has to be considered while examining an individual's assets and income while making a determination regarding disproportionate assets. Such an examination needs to reflect such adjustments and changes as is natural 6 with the progression of time” The Court said the calculation of income over the extended periods should be based on rigid calculations based on bank account statements, rather an assessment would take place keeping in mind the economic fluctuations...

In Disproportionate Assets Cases, Income Tax Returns Presumed To Be Accurate; Must Consider Inflation & Dynamic Factors : Supreme Court

Yash Mittal

Tags