The doctrine is often stated as “those seeking equity must do equity” or “equity must come with clean hands’’. It is settled law that a person who approaches the Court for granting relief, equitable or otherwise, is under a solemn obligation to candidly & correctly disclose all the material/important facts which have bearing on the adjudication of the issues raised in the case. He owes a duty to the court to bring out all the facts and desist from concealing/suppressing any material fact within his knowledge or which he could have known by exercising diligence expected of a person of ordinary prudence. If a petitioner/appellant/applicant is found guilty of concealment of material facts or making an attempt to pollute the pure stream of justice, the court not only has the right but a duty to summarily deny relief to such person to prevent an abuse of the process of law and reject the Petition/Appeal on this ground alone without going to the merits of the case.

The Apex Court has repeatedly invoked and applied the rule that a person who does not disclose all material facts has no right to be heard on the merits of his grievance – State of Haryana v. Karnal Distillery Co. Ltd. (1977) 2 SCC 431, Vijay Kumar Kathuria v. State of Haryana (1983) 3 SCC 333, Welcome Hotel and others v. State of Andhra Pradesh and others etc. (1983) 4 SCC 575, G. Narayanaswamy Reddy (dead) by LRs. and another v. Government of Karnataka and another (1991) 3 SCC 261, S.P. Chengalvaraya Naidu (dead) by L.Rs. v. Jagannath (dead) by LRs. and others (1994) 1 SCC 1, Agricultural and Processed Food Products v. Oswal Agro Furane and others (1996) 4 SCC 297, Union of India and others v. Muneesh Suneja (2001) 3 SCC 92, Prestige Lights Ltd. v. State Bank of India (2007) 8SCC 449, Sunil Poddar and others v. Union Bank of India (2008) 2 SCC 326, K.D. Sharma v. Steel Authority of India Ltd. and others (2008) 12 SCC 481, G. Jayshree and others v. Bhagwandas S. Patel and others (2009) 3 SCC 141 and C.A. No. 5239/2002 – Dalip Singh v. State of U.P. and others, decided on 3.12.2009.

 In Hari Narain v. Badri Das AIR 1963 S.C. 1558, the Apex Court while revoking the leave granted to the appellant made the following observations:

“It is of utmost importance that in making material statements and setting forth grounds in applications for special leave made under Article 136 of the Constitution, care must be taken not to make any statements which are inaccurate, untrue and misleading. In dealing with applications for special leave, the Court naturally takes statements of fact and grounds of fact contained in the petitions at their face value and it would be unfair to betray the confidence of the Court by making statements which are untrue and misleading. Thus, if at the hearing of the appeal the Supreme Court is satisfied that the material statements made by the appellant in his application for special leave are inaccurate and misleading, and the respondent is entitled to contend that the appellant may have obtained special leave from the Supreme Court on the strength of what he characterizes as misrepresentations of facts contained in the petition for special leave, the Supreme Court may come to the conclusion that in such a case special leave granted to the appellant ought to be revoked.”

The Apex Court in S.P. Chengalvaraya Naidy vs. Jagannath AIR 1994 SC 853 at p. 855 has elucidated this doctrine thus:

 “The Courts of law are meant for imparting justice between the parties. One, who comes to the Court, must come with clean hands. We are constrained to say that more often than not, process of the Court is being abused. Property grabbers, tax evaders, bank loan dodgers and other unscrupulous persons from all walks of life find the Court process a convenient lever to retain the illegal gains indefinitely. We have no hesitation to say that a person, whose case is based upon falsehood, has no right to approach the Court. He can be summarily thrown out at any stage of the litigation.”

In Dalip Singh’s case (Supra), the petitioner’s grievance was that before finalizing the case under the U.P. Imposition of Ceiling on Land Holdings Act, 1960, the prescribed authority did not give notice to the tenure holder. On a scrutiny of the records, this Court found that the prescribed authority had issued notice to the tenure holder, which was duly served upon him and held that the petitioner is not entitled to relief because he did not approach the High Court with clean hands inasmuch as he made a misleading statement in the writ petition giving an impression that the tenure holder did not know of the proceedings initiated by the prescribed authority. The Court held as under:

“For many centuries, Indian society cherished two basic values of life i.e., `Satya’ (truth) and `Ahimsa’ (non-violence). Mahavir, Gautam Buddha and Mahatma Gandhi guided the people to ingrain these values in their daily life. Truth constituted an integral part of justice delivery system which was in vogue in pre-independence era and the people used to feel proud to tell truth in the courts irrespective of the consequences. However, post-independence period has seen drastic changes in our value system. The materialism has over-shadowed the old ethos and the quest for personal gain has become so intense that those involved in litigation do not hesitate to take shelter of falsehood, misrepresentation and suppression of facts in the court proceedings. In last 40 years, a new creed of litigants has cropped up. Those who belong to this creed do not have any respect for truth. They shamelessly resort to falsehood and unethical means for achieving their goals. In order to meet the challenge posed by this new creed of litigants, the courts have, from time to time, evolved new rules and it is now well established that a litigant, who attempts to pollute the stream of justice or who touches the pure fountain of justice with tainted hands, is not entitled to any relief, interim or final.”

The Allahabad High Court in the case of Babu Lal vs. Director of Income Tax (2006) 281 ITR 0070, (2005) 147 Taxman 0318 further elaborated the doctrine of clean hand and held thus:

”When a person approaches a Court of equity in exercise of its extraordinary jurisdiction under Art. 226/227 of the Constitution, he should approach the Court not only with clean hands but also with clean mind, clean heart and clean objective.”

It is a misconception that the Doctrine of Clean Hands is only applicable in matters before the Apex Court & the High Courts and not before the District Courts, ITAT, CESTAT & other Judicial Forums. Yet another fallacy is that Tax Litigation is not amenable to the Doctrine of Clean Hands. It is often seen that in Tax matters the Assessee/Department sometimes do not approach the Court/Judicial Forum with clean hands and knowingly state wrong facts to mislead the Court to get relief. This practice is particularly rampant at the time of Admission of Writ Petitions or while obtaining Interim Order/Stay of Demand or Stay of operation of the earlier orders.

It would be trite to refer to the case of Ramjas Foundation v. Union of India & others in Civil Appeal No. 6662 of 2004 decided on November 9, 2010, wherein the Apex Court has removed the misconception that these principles are only applicable to Writs & SLP’s before the Apex Court & the High Courts. The Phrase but also to the cases instituted in others courts and judicial forums” in the said judgment specifically lays down that the principle that it is obligatory for a petitioner/appellant/applicant to approach any court or judicial forum with clean hands or face the ire of the courts/judicial forums who will not hesitate in applying the Doctrine of Clean Hands and rejecting his appeal/revision. Thus statement of untrue & misleading facts in the petition/appeal before the District Courts, ITAT or CESTAT could entail rejection of the petition/appeal on this ground alone. The Apex Court, in this case, propounding this principle observed as under:

“The principle that a person who does not come to the Court with clean hands is not entitled to be heard on the merits of his grievance and, in any case, such person is not entitled to any relief is applicable not only to the petitions filed under Articles 32, 226 and 136 of the Constitution but also to the cases instituted in others courts and judicial forums. The object underlying the principle is that every Court is not only entitled but is duty bound to protect itself from unscrupulous litigants who do not have any respect for truth and who try to pollute the stream of justice by resorting to falsehood or by making misstatement or by suppressing facts which have bearing on adjudication of the issue(s) arising in the case”.

Various High Courts & ITAT have followed the Doctrine of Clean Hands and dismissed Income Tax Writs/Appeals on this ground alone. Reference may be made to the cases of Poona Galvanizers Pvt. Ltd. vs. Deputy Commissioner of Income Tax (2014) 150 ITD 780(Mumbai), (2015) 167 TTJ 677 (Mumbai), Income Tax Officer vs. Bhagwan Agarwal (2014) 147 ITD 186 (Agra), (2013) 27 ITR (Trib) 704 (Agra), Ved Prakash Raheja vs. Income Tax Officer (2013) 35 CCH 417 DelTrib, Shree Balaji Woolen Mills vs. Assistant Commissioner of Income Tax (2012) 34 CCH 62 DelTrib, Laxminarayan Agarwal (HUF) vs. Income Tax Officer (2011) 30 CCH 379 MumTrib (2012) 143 TTJ 175, Tarapore & Co. vs. Tax Recovery Officer & Anr (2008) 218 CTR 697, (2008) 174 Taxman 461(Madras High Court), J&K Small Scale Inds. Dev. Corp. Ltd. vs. Assistant Commissioner of Income Tax (2008) 9 DTR 524, (2008) 115 ITD 11, (2008) 117 TTJ 510 Amritsar Trib, G.S. Atwal & Co. (Asansol) vs. Income Tax Officer (2007) 213 CTR 565, (2007) 292 ITR 561(Calcutta High Court), Surya Pharmaceuticals Ltd. vs. Commissioner of Income Tax & Ors., (2007) 295 ITR 427, (2008) 171 Taxman 163, Sohan Singh Basi & Anr. vs. Inspecting Assistant Commissioner of Wealth Tax (1991) 99 CTR 0223, (1992) 194 ITR 0339 (Delhi High Court) & Mahendra Financial Corporation vs. Income Tax Officer (1989) 29 ITD 0302 (HydTrib).

 

It would be pertinent to refer to the case of Avenue Realities and Developers Private Limited vs. Appropriate Authority of IT Department(2012) 80 CCH 0124 wherein the Delhi High Court while dismissing the Writ Petition held as under:

Writ jurisdiction is discretionary. It is an equitable jurisdiction meant to do justice to the parties and remedy to injustice suffered by the petitioner at the hands of the Government/State. Concealment of material facts can disentitle a petitioner from seeking relief under a discretionary remedy. The petitioner must come to the Court with clean hands and state truly and correctly the material facts. The present case is clearly one where the petitioner has failed and has not stated the material fact that they, i.e., the petitioner and the respondent Nos. 3 and 4 had received the full apparent sale consideration….”

The High Court of Karnataka in Ratnachudamani S. Utnal vs. Income Tax Officer (2004) 269 ITR 272, (2004) 139 TAXMAN 377 dismissed the Writ as the Petitioner had not approached the Court with clean hands & held thus:

“Further, it is significant to note here itself that, the petitioner himself has appeared before the assessing authority on 16th Aug., 2000 and stated that : “I have converted the lands into NA and paid Rs. 1,21,410 as development charges and Rs. 2,00,000 as cost of land. The cost of land was paid to above two persons in 1987. I sold so far 56 plots from 1984 to 1996. But, this aspect of the matter has not at all whispered by the petitioner in the present writ petitions. The petitioner has intentionally and deliberately suppressed the material facts. If the petitioner wants any relief at the hands of this Court, he has to approach the Court with clean hands and it is duty cast on the petitioner to state the true facts and make out a case, as rightly pointed out by the learned senior standing counsel for the respondent. Therefore, the writ petitions are liable to be dismissed on the ground of suppression of material facts.”

The Karnataka High Court in the case of Commissioner of Income Tax vs. Electronic Research Ltd. & Anr. (2003) 262 ITR 361, (2003) 130 TAXMAN 216, while dismissing the Writ Petition of the assessee vehemently criticized the conduct of the assessee in not approaching the Court with clean hands & held thus:

“It is rather unfortunate that the Tribunal has not focused the after effect of fraudulent pleas and fraudulent acts by litigants while passing the impugned order. I must also point out at this stage that the wheels of justice can move only on true facts. Any mischief including a fraud on the Tribunal would result in derailing the wheels of justice. Justice is based on truth and truth cannot be trampled by an act of fraud. A litigant has to come to the Court with clean hands and an unclean hand has to be shown the door by a Court and not an entry to the Court. Such entries to such persons would pollute the true atmosphere of a temple of justice. All these necessary material unfortunately is not considered by the Tribunal, while rejecting the petition.”

The High Court of Kerala in Hajee P. Hussain Khan vs. Agricultural Income-Tax Officer & Ors. (2000) 241 ITR 308 has held thus:

“Thus there is a clear case of material suppression of facts and lack of bona fides in coming to the Court without disclosing them. The jurisdiction under art. 226 of the Constitution of India cannot be invoked in favour of a person who has not come to this Court with clean hands. In Marappa Gounder vs. Central R.T. Board (1956) 1 MLJ 324, the learned judge of the Madras High Court has held that the Court shall refuse a writ on the basis of suppression of facts. It was observed as follows :

“It is a well-settled proposition of law that it is the duty of a person invoking the special writ jurisdiction of a Court to make a full and true disclosure of all relevant facts. He should not suppress any facts. An applicant for a writ under art. 226 of the Constitution must come in the manner prescribed and must be perfectly frank and open with the Court. It he makes a statement which is false or conceals something which is relevant from the Court the Court will refuse to go into the matter. If the Court comes to the conclusion that the affidavit in support of the application was not candid and did not fully state the facts, but either suppressed the material facts or stated them in such a way as to mislead the Court as to the true facts, the Court ought, for its own protection and a prevent an abuse of its process, to refuse to proceed any further with the examination of the merits.

The reason for the adoption of this rule is not to arm the applicant’s opponent with a weapon of technicality against the former, but to provide an essential safeguard against abuse of the process of the Court.

Where the petitioner is clearly found to have suppressed material and relevant facts which, if brought to the notice of the Court when applying for a rule nisi, should certainly have influenced the Court in deciding one way or the other, and such suppression was certainly calculated to deceive the Court into granting the order of the rule nisi, the petition should on that short ground be dismissed.”

For all these reasons, the original petition is not maintainable and is liable to be dismissed and accordingly it is dismissed with costs.”

Similarly the Indore Bench of the Madhya Pradesh High Court in Ajit Kumar Pitaliya vs. Income Tax Officer (2008) 215 CTR 0533, (2009) 318 ITR 0182, (2008) 167 Taxman 0024 dismissed the appeal of the assessee in limine for failure to come with clean hands & held as under:

“……He must come to the Court with clean hands. Accordingly and in view of foregoing discussion, which alone is sufficient, the appeal is found to be devoid of any merit. It fails and is dismissed in limine.”

It is no more Res Integra that the Doctrine of Clean Hands is applicable with full force to Taxation Proceedings before any Judicial Forum and therefore it is obligatory on the Petitioner/Appellant to stringently state the true & complete facts of the case so that no allegation of falsehood is made and the Petition/Appeal is not rejected at the first instance itself on this ground alone.

(Author – Inder Chand Jain, Agra, Mobile:9319215672, Email: inderjain2007@rediffmail.com)

Read Other Articles of Inder Chand Jain

More Under Income Tax

Posted Under

Category : Income Tax (25333)
Type : Articles (14824)
Tags : Inder Chand Jain (12)

0 responses to “Doctrine of Clean Hands in Taxation Proceedings”

  1. A.K SINGH says:

    very nice and detailed. thanks

Leave a Reply

Your email address will not be published. Required fields are marked *