Swatik Dyechem Industries,Maddox Street, Choolai,Chennai - 600 112 v. The Deputy Director Of Income Tax (Inv)Unit - 4(3)

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 28.10.2020CORAM: THE HONOURABLE MR.JUSTICE G.K.ILANTHIRAIYAN CRL.O.P.No.3891 of 2020and Crl.M.P.Nos.2232 & 2233 of 2020 Rohit Kumar Nemchand PipariaPAN- AKZPP0661MNo.34, Old No.77, Swatik Dyechem Industries,Maddox Street, Choolai,Chennai - 600 112.... Petitioner Vs. The Deputy Director of Income Tax (Inv)Unit - 4(3),No.46 (Old No.108)1st Floor, Room No.125,Nungambakkam High Road,Chennai - 600 034. ... Respondent PRAYER: Criminal Original Petition filed under Section 482 ofCr.P.C. praying to call for the entire records in E.O.C.C.No.401of 2018 on the file of the Court of the Additional ChiefMetropolitan Magistrate, Economic Offences-II, Egmore, Chennaiand quash the entire proceedings as against the petitioners. For Petitioner : Mr.P.Kumar, Senior Counsel For Mr.P.Meghana Nair ORDER This petition has been filed to quash the proceedingsin E.O.C.C.No.401 of 2018 on the file of the Court of theAdditional Chief Metropolitan Magistrate, Economic Offences-II,Egmore, Chennai, thereby taken cognizance for the offence underSection 276C(1) of the Income Tax Act, 1961, as against thepetitioner. https://hcservices.ecourts.gov.in/hcservices/ 2.Mr.P.Kumar, learned Senior Counsel appearing for thepetitioner would submit that the respondent lodged complaint forthe offence under Section 276C(1) of the Income Tax Act, 1961,alleging that during the course of the enquiry by theinvestigation wing it was noticed that in the bank accountmaintained by the petitioner, there was unusual credit of largeamount through RTGS and funds were debited for investment in thestock market. The petitioner had entered into 165 sharetransaction during the financial year 2007-08 and filed hisreturn of income for the assessment year 2008-09 on 05.02.2009declared taxable income of Rs.3,10,226/-. However, thepetitioner has not disclosed any capital gain in the return ofincome filed for financial year 2007-08 relevant to theassessment year 2008-09. 2.1. Further alleged that the petitioner entered into 165share transactions to the tune of Rs.155.20 crores and shortterm capital gain arose from the said transactions is Rs.52.13crores. Though the tax has been deducted, it was not fullydeducted and the petitioner did not disclose in his return ofincome under the head Capital Gain and paid the tax. Thus, thepetitioner failed to show the same in his return of income andattempted to evade payment of tax. Only after deduction by theincome tax department, the petitioner had share transactionsduring the relevant financial year and accepted the same.Therefore, the petitioner committed the offence punishable underSection 276C(1) of the Income Tax Act, 1961. 2.2. The learned Senior Counsel further submitted that thecomplaint has been filed only based on the assessment orderdated 25.02.2018 passed by the Income Tax Officer. The saidassessment order has been challenged by the petitioner beforethe Income Tax Appellate Authority and by an order dated28.08.2018, the said assessment order has been set aside.Therefore, the very basis of the lodgement of the complaintitself set aside and as such the petitioner is not at all liableto be prosecuted. He further submitted that while being so,suppressing the said fact that the said assessment order itselfwas set aside, the respondent herein granted sanction orderdated 16.10.2018 to prosecute the petitioner under the IncomeTax Act. Before the date of sanction, the assessment orderitself set aside and it was wantonly suppressed by therespondent and obtained sanction from the authority concerned.Therefore, on this ground alone, the complaint cannot besustained as against the petitioner, since the sanctionauthority without application of mind, without perusal ofrecords, and without any reasonable satisfaction, accord Page 2 of 11 Page 2 of 11 sanction to prosecute the petitioner herein. When the assessmentorder for the assessment year 2008-09 is the basis for thelodgement of complaint, the order of set aside ought to havebeen disclosed before the authority concerned before grantingsanction to prosecute the petitioner herein. 2.3. He further submitted that if the criminal prosecutionis allowed to be continued, the respondent could not be able toproduce the assessment order before the trial Court as suchthere is absolutely no possibility for convicting for theoffence under Section 276C(1) of Income Tax Act, since theassessment order itself was set aside by the Income TaxAppellate Authority. The very basis of lodgement of thecomplaint itself now set aside as such, there is no basis toproceed the complaint further. He further submitted that theIncome Tax Appellate authority set aside the assessment orderpertaining to the assessment year 2008-09 and remitted thematter back to the Assessing Officer. Further directed theAssessing Officer to re-examine the matter afresh and bring onrecord all the transaction correctly, thereafter decide theissue afresh in accordance with law. The Assessing Officer foundthat the petitioner entered into 165 share transactions for thetotal sum of Rs.Rs.155.20 crores, and subsequent short termcapital gain arose from the said transaction is Rs.52.13 crores.After remitted the matter back for fresh consideration, theentire quantum of tax has been deducted and reduced the incometax. In fact, in the reduced amount major portion is interestfor the tax and it is challenged by way of appeal. Therefore,the impugned complaint is nothing but clear abuse of law and itcannot be sustained as against the petitioner. Hence, he soughtfor quashment of the entire proceedings. 3.Per contra, the learned counsel appearing for therespondent filed counter and submitted that the complaint is notfiled on the basis of any assessment order or assessmentproceedings and it is in consequence of the concealment of sharetransactions in the return of income. The complaint has beenfiled after analysing the materials with the return of incomeand concluded that the transactions were suppressed and notbrought in the return of income with a view to evade the paymentof income tax due to the exchequer, thereby committed offenceunder Section 276C(1) of the Income Tax Act. 3.1. She further submitted that the petitioner had enteredinto 165 share transactions to the tune of Rs.155.20 croreswhich was not disclosed in the return of income filed for theassessment year 2008-09. The petitioner filed his return of Page 3 of 11 income for the assessment year 2008-09 only for Rs.3,10,226/-.The above said transactions having taxable income ofRs.52,13,72,203/- and it was not brought as capital gain in thereturn of income by the petitioner herein. Simultaneously, theassessment proceedings was also initiated under Section 147 &148 of the Income Tax Act, and taxable income ofRs.52,13,72,203/- was determined and accordingly, the demand wasraised by the Assessing Officer. Therefore, the petitioner wasissued show cause notice, why prosecution proceeding should notbe initiated for concealing the particulars of income. Afterreceipt of the same, the petitioner submitted his explanationthat he was under impression that the TDS Rs.3,53,22,371/-deducted on such income will be sufficient to meet the Taxliability. He also submitted that on enquiry further revealedthat TDS amount disclosed in the Income Tax Return was onlyRs.10,000/- and computation of the Total Income and Tax Memo didnot show these share transactions. The act of the petitioner isnothing but to evade the payment of tax. 3.2. She further submitted that the complaint is notconsequent to any assessment order and it is only based on theenquiry of the Investigation Wing of the Income Tax Department.The complaint is off shoot of investigation and is not on thebasis of assessment order. More over, the assessment order isnot set aside on merits but is remanded back by the Tribunalonly on the technical aspect to decide the issue afresh.Accordingly, the Assessing Officer completed the assessmentproceedings where the total demand was reworked atRs.40,36,84,241/- and new amount payable was determined atRs.4,21,31,164/-. After adjusting the TDS amount the taxliability and penalty stood at Rs.1,45,23,900/- andRs.4,56,94,344/- respectively, by the assessment order dated28.06.2019. Thus it is established that there was a concealmentof income with a view to evade the payment of taxes. In supportof her contention, she relied upon the following reportedjudgments :- i) (2011) 3 SCC 437 - Radheshyam Kejriwal Vs. State of WestBengal and anr ii) 1992 195 ITR 137 Mad - G.S.R.Krishnamurthi Vs. M.Govindaswamyiii) 1984 AIR SC 1693 - P.Jayappan Vs. S.K.Perumal, I.T.O.iv) CRMC.No.205 of 2015 dated 28.09.2018 - Arun Arya Vs.Income Tax Officerv) Crl.O.P.No.28469 of 2018 batch dated 18.03.2019 -J.Dinakaran Vs. Deputy Director of Income Tax Page 4 of 11 Therefore, she sought for dismissal of the quash petition. 4.Heard Mr.P.Kumar, learned Senior Counsel appearing forthe petitioner, and Ms.M.Sheela, learned Special PublicProsecutor for IT cases appearing for the respondent. 5.The petitioner is a sole accused in the complaintlodged by the respondent for which the offence punishable underSection 276C(1) of the Income Tax Act, 1961, alleging that thepetitioner had entered into 165 share transactions to the tuneof Rs.155.20 crores and it was not disclosed in the return ofincome filed for the assessment year 2008-09. The petitioner hasfiled return of income for the assessment year 2008-09 forRs.3,10,226/-. However, the above said transactions have beentaxable income of Rs.52,13,72,203/- and it was not brought asCapital Gain in the return of income by the petitioner. Furtheralleged that the petitioner being a Non Resident of India,residing in Dubai and carrying gold business in the name ofM/s.Al Rayan Jewellery, Dubai and he assessed the tax under thejurisdiction of International Taxation Department, Chennai. Hehad two NRI bank accounts in Mumbai viz., Abudhabi CommercialBank, Mumbai and HDFC Bank, Mumbai. He invested shares throughM/s. Ventura Securities Ltd., Mumbai and HDFC Securities,Mumbai. On the show case notice issued by the Principal Directorof Income Tax Investigation, Chennai, the petitioner repliedthat he was under impression that the TDS Rs.3,53,22,371/-deducted on such income will be sufficient to meet the taxliability. On enquiry, it revealed that the TDS amount disclosedin the income tax return was only Rs.10,000/-. Therefore, thepetitioner evaded the payment of taxes which was due to theexchequer. 6.The learned Senior Counsel raised grounds on threefolds. First one is that the complaint lodged only on the basisof the assessment order dated 25.02.2018 and the said assessmentorder itself was set aside by an order dated 28.08.2018 by theIncome Tax Appellate Authority as such, there is no basis forthe respondent to proceed further in the impugned complaint. Thesecond one is that the respondent suppressed the above fact andobtained sanction from the authority concerned by an order dated16.10.2018, to prosecute the petitioner for the offencepunishable under Section 276C(1) of the Income Tax Act, 1961.The third point is that the sanction authority withoutconsidering the above order passed by the Appellate Authorityand mechanically accorded sanction to prosecute the petitionerby the sanction order dated 16.10.2018, since the basis forlodgement of complaint viz., assessment order itself was set Page 5 of 11 aside by the Income Tax Appellate Authoirty, the respondentcould not proceed the complaint further. 7.It is seen from the records, the complaint is notfiled on the basis of any assessment order or assessmentproceedings. On perusal of complaint, it is filed in consequenceof the concealment of share transactions in the return ofincome. During the enquiry, it was noticed that the petitionerhad entered into 165 share transactions during the year 2007-08.But he did not disclose any capital gain in the income tax filedfor the financial year 2007-08 relevant to the assessment year2008-09. The petitioner filed his return of income forRs.3,10,226/-. But the said transactions having taxable incomeof Rs.52,13,72,203/- was not brought as capital gain in thereturn of income by the petitioner. The act of the petitionerestablished that he was with a view to evade the payment of taxwith was due to the exchequer. Therefore, the order ofassessment is nothing to do with the present proceeding. 8.Subsequently, the Income Tax department initiatedassessment proceedings under Section 147 & 148 of the Income TaxAct, and determined the taxable income is would beRs.52,13,72,203/- and accordingly the demand was raised. Thoughit was set aside by the Income Tax Appellate Authority by anorder dated 28.08.2018, it was observed that the sharetransactions were admittedly not disclosed by the assesse viz.,the petitioner herein. Further observed that since the figureswith regard to share transactions are claimed to be wronglymentioned by the CIT(Appeals), the matter need to be re-examined. Accordingly remanded the mater back to the AssessingOfficer and directed to re-examine the matter a fresh.Accordingly the Assessing Officer completed the assessmentproceedings and total demand was reworked as Rs.40,36,84,241/-and the net amount payable was determined at Rs.4,21,31,164/-.After adjusting the TDS amount the tax liability and the penaltystood at Rs.1,45,23,900/- and Rs.4,56,94,344/- respectively, byan assessment order dated 28.06.2019. Thus it is establishedthat there was a concealment of income with a view to evade thepayment of taxes. Therefore, the order of assessment is nothingto do with the present complaint and it is simultaneousproceeding of the Income Tax Department. 9.That apart, the sanctioning authority viz., thePrincipal Director of Income Tax Investigation, Chennai, issuedshow cause notice to the petitioner, why prosecution proceedingunder Section 276C(1) of the Income Tax Act, would not beinitiated against the petitioner for wilful attempt to evade thetax, interest/penalty, chargeable or imposable under the Act. On Page 6 of 11 9.That apart, the sanctioning authority viz., thePrincipal Director of Income Tax Investigation, Chennai, issuedshow cause notice to the petitioner, why prosecution proceedingunder Section 276C(1) of the Income Tax Act, would not beinitiated against the petitioner for wilful attempt to evade thetax, interest/penalty, chargeable or imposable under the Act. On Page 6 of 11 receipt of the same, the petitioner appeared through hisChartered Accountant viz., Kalyanasundaram, under authorizationand submitted his written submission stating that theprosecution proceedings may be kept in abeyance until thedisposal of the appeal filed before the Income Tax AppellateTribunal, Cehnnai. Therefore, the authorized representative ofthe petitioner informed the sanctioning authority about thependency of the appeal. The learned Principal Director of IncomeTax, after careful consideration of the submission made by thepetitioner through his authorized representative stated asfollows:- "6. The submissions made by theassessee have been carefully considered.The submissions made are not acceptable forthe following reasons:- i) The assessee has not disclosed theCapital Gain arising on sale of shares inthe Return of Income field for theAssessment Year 2008-09. But for theenquiries made by the Deputy Director ofIncome Tax, the income chargeable to taxwould have escaped assessment.ii) The volume of transactions arehigh; assessee has entered into 165 sharetransactions for a total sum of Rs.155.20crores. The short term capital gain arisingfrom the said transaction is Rs.52.13crores. There is wilful failure on the partof the assessee in not disclosing theincome under head Capital Gains in thereturn of income filed and paying due taxesthereon. Though tax has been deducted, asper assess's own admission, taxes have notbeen fully deducted. iii) Prosecution proceedings areseparate and distinct from assessment/reassessment proceedings. There is norequirement in the Act that assessmentproceedings should be completed beforelaunching of prosecution. One of thefunctions of the Investigation Wing of theIncome-tax Department is to take deterrentaction against large tax evaders.Prosecution being the most potent weapon inthe fight against the tax evasion, it isrequired that prosecution should be filed Page 7 of 11 at the earliest. The proposition thatprosecution can be launched without waitingfor assessment to be completed is upheld bythe Hon'ble Supreme Court in the case ofJayappan Vs. S.K.Perumal, First ITO 1984AIR 1693." The sanctioning authority further stated that the petitioner haswillfully attempted to evade tax by not filing true and correctreturn of income and thereby not disclosing the correct turnoverand the income derived by him. Therefore, the presumptioncontemplated under Section 278 E of the Income Tax Act comesinto play and Court is to presume that the assessee has notadmitted the true and correct income and thereby the assesseehas committed an offence under Section 276C(1) of the Income TaxAct, 1961. Therefore, the Principal Director of Income Taxconsidered the submission made by the petitioner and stated thereasons in detail manner and accorded sanction to prosecute thepetitioner. The sanctioning authority further stated that the petitioner haswillfully attempted to evade tax by not filing true and correctreturn of income and thereby not disclosing the correct turnoverand the income derived by him. Therefore, the presumptioncontemplated under Section 278 E of the Income Tax Act comesinto play and Court is to presume that the assessee has notadmitted the true and correct income and thereby the assesseehas committed an offence under Section 276C(1) of the Income TaxAct, 1961. Therefore, the Principal Director of Income Taxconsidered the submission made by the petitioner and stated thereasons in detail manner and accorded sanction to prosecute thepetitioner. 10.In support of this contention, the learned SpecialPublic Prosecutor relied upon the judgment reported in 1984 AIR(SC) 1693 in the case of P.Jayappan Vs. S.K.Perumal, I.T.O., asfollows :-".........we are of the view that thependency of the reassessment proceedingscannot act as a bar to the institution ofthe criminal prosecution for offencespunishable under section 276C or section277 of the Act. The institution of thecriminal proceedings cannot in thecircumstances also amount to an abuse ofthe process of the court...... "She also relied upon the judgment of the Hon'ble Jammu & KashmirHigh Court made in CRMC.No.205 of 2015 dated 28.09.2018 in thecase of Arun Arya Vs. Income Tax Officer, as follows :-".............In the fight against taxevasion, monetary penalties are not enough.When a calculating tax dodger finds it aprofitable proposition to carry on evadingtaxes over the years, if the only risk towhich he is exposed is a monetary penaltyin the year in which he happens to becaught. The public in general also tends tolose faith and confidence in taxadministration when a tax evader is caught,but the administration lets him get awaylightly after paying only a monetarypenalty- when money is no longer a major Page 8 of 11 consideration with him if it serves hisbusiness interest.............." She also relied upon the judgment reported in (2011) 3 SCC 437in the case of Radheshyam Kejriwal Vs. State of West Bengal &anr, in which the Hon'ble Supreme Court of India held as follows:- "(i) Adjudication proceeding and criminalprosecutioncanbelaunchedsimultaneously; (ii)Decision in adjudication proceeding isnot necessary before initiating criminalprosecution; (iii)Adjudication proceeding and criminalproceeding are independent in nature toeach other; (iv)The finding against the person facingprosecution in the adjudication proceedingis not binding on the proceeding forcriminal prosecution; (v) Adjudication proceeding by theEnforcement Directorate is not prosecutionby a competent court of law to attract theprovisions of Article 20 (2) of theConstitution or Section 300 of the Code ofCriminal Procedure; (vi)The finding inthe adjudication proceeding in favour ofthe person facing trial for identicalviolation will depend upon the nature offinding.Iftheexonerationinadjudication proceeding is on technicalground and not on merit, prosecution maycontinue; and (vii) In case of exoneration, however, onmerits where allegation is found to be notsustainable at all and person heldinnocent, criminal prosecution on the sameset of facts and circumstances can not beallowed to continue underlying principlebeing the higher standard of proof incriminal cases. In our opinion, therefore, theyardstick would be to judge as to whetherallegation in the adjudication proceedingas well as proceeding for prosecution isidentical and the exoneration of theperson concerned in the adjudicationproceeding is on merits. In case it isfound on merit that there is no Page 9 of 11 contravention of the provisions of the Actin the adjudication proceeding, the trialof the person concerned shall be in abuseof the process of the court. " Page 9 of 11 contravention of the provisions of the Actin the adjudication proceeding, the trialof the person concerned shall be in abuseof the process of the court. " She also relied upon the judgment of this Court passed inCrl.O.P.No.28469 of 2018 batch cases dated 18.03.2019 in thecase of J.Dinakaran Vs. Deputy Director of Income Tax, whichheld as follows:- "........The petitioner willfullymade false statement of return of incomeand willfully under reported the incomeearned. Therefore, the entire proceedingscannot be quashed.........." It is held that the adjudication proceedings and the criminalprosecution can be launched simultaneously and the decision inadjudication proceeding is not necessary before initiatingcriminal prosecution. 11.In the case on hand, the assessment order passed bythe Assessing Officer has been set aside by the Income TaxAppellate Authority by an order dated 28.08.2018. Even when theappeal was pending, the authorized representative of thepetitioner submitted before the sanctioning authority and it wasduly considered and accorded sanction for the reason that theprosecution proceedings are separate and distinct from theassessment or re-assessment proceedings. There is no requirementunder the Act that the assessment proceedings should becompleted before lunching prosecution. Therefore, the abovejudgments are squarely applicable to the case on hand and therespondent is rightly lodged the complaint as against thepetitioner for the offences under Section 276C(1) of the IncomeTax Act, 1961. 12.In fact, after the order passed by the Income TaxAppellate Authority, the Assessing Officer completed theassessment proceedings, where the total demand was reworded forRs.40,36,84,241/- and the net amount payable was determined atRs.4,21,31,164/-. After adjusting the TDS amount the taxliability and the penalty stood at Rs.1,45,23,900/- andRs.4,56,94,344/- respectively by an assessment order dated28.06.2019. It is categorically established that there was aconcealment of income with a view to evade the payment of taxes.Therefore, the grounds raised by the learned Senior Counselappearing for the petitioner are not helpful to the case onhand. Page 10 of 11 13.In view of the above discussions, this Court is notinclined to quash the proceedings in E.O.C.C.No.401 of 2018 onthe file of the Court of the Additional Chief MetropolitanMagistrate, Economic Offences-II, Egmore, Chennai. Thepetitioner is at liberty to raise all the grounds before thetrial Court. Considering the facts and circumstances of case,the personal appearance of the petitioner is dispensed with andhe shall be represented by a counsel after filing appropriateapplication. However, the petitioner shall be present beforethe Court at the time of furnishing of copies, framing charges,questioning under Section 313 Cr.P.C. and at the time of passingjudgment. The trial Court is directed to complete the trialwithin a period of six months from the date of receipt of copyof this Order. 14. Accordingly, this Criminal Original Petition standsdismissed. Consequently, connected miscellaneous petitions arealso closed. -s/d- Assistant Registrar True CopySub-Assistant Registrar rtsTo1. The Additional Chief Metropolitan Magistrate, Economic Offences-II, Egmore, Chennai.2. The Deputy Director of Income Tax (Inv) Unit - 4(3), No.46 (Old No.108) 1st Floor, Room No.125, Nungambakkam High Road, Chennai - 600 034.3. The Public Prosecutor Madras High Court, Chennai.+3 ccs to Mr.P.Meghana Nair Advocate sr34864 CRL.O.P.No.3891 of 2020 andCrl.M.P.Nos.2232 & 2233 of 2020 Page 11 of 11