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Income Tax Orders cannot be a ground to discharge the accused from Corruption Charges: Supreme Court

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Case title: Puneet Sabharwal Vs CBI and R.C. Sabharwal Vs CBI

Case no.: SLP (Criminal) No. 2044 OF 2021

Decision on: March 19th, 2024

Quoram: Justice Vikram Nath and Justice K.V. Viswanathan

Facts of the case

R.C. Sabharwal, an Additional Chief Architect at NDMC, owned assets disproportionate to his known sources of income. It was alleged that he was party to criminal conspiracy wherein, he amassed assets disproportionate to his income, with his son, Puneet Sabharwal who allegedly received Rs. 79 lakhs through encashment of Special Bearer Bonds and abetted the commission of the offence as a conspirator.  This act contributed to the crime, as R.C. Sabharwal managed to purchase properties in the name of entities such as the M/s Morni Devi Brij Lal Trust and M/s Morni Merchants, among others which affirmed Puneet Sabharwal as the sole beneficiary. While Puneet Sabharwal was charged under Section 109 IPC read with Section 13(1)(e) and 13(2) of the Prevention of Corruption Act, 1988, the charge against appellant R.C. Sabharwal was under Section 13(1)(e) read with 13(2) of the Prevention of Corruption Act, 1988.

The appellants approached the Delhi High Court to dismiss the charges against them. The Court dismissed the petitions based on the following reasons. (i) Puneet Sabharwal being a minor, would not by itself be a reason to disregard the fact that he was a major for 7 long years of investigation; (ii) Immunities under S. 3(2) of Special Bearer Bonds (Immunities and Exemptions) Act, 1981 do not cover charges framed under the PCA; (iii) In State of Karnataka v. Selvi J. Jayalalitha & Ors., the Supreme Court held that IT orders are apropos tax liability on income and would not mandatorily establish the lawfulness of the sources of income and thereby, the Court upheld the charges framed against the appellants. The matter was preferred before the Apex Court challenging the decision of High Court.

Issue – Whether the Courts were justified in refusing to quash the charges against the appellants?

Legal Provisions

The appellants were convicted under Section 120B IPC and Section 109 IPC read with Section 13(1)(e) and 13(2) of the Prevention of Corruption Act, 1988.

Section 13 of PCA – This provision deals with the Criminal Misconduct by a Public Servant.

Contentions of the Appellant

The Counsel for Puneet Sabharwal submitted that the Court has erred in discarding the fact that he was minor and endorsing the allegation solely on account of being named as a beneficiary in the trust deed of M/s Morni Devi Brij Lal Trust. It was contended that the criminal proceedings were saddled against appellant merely by virtue of being his father’s son. Moreover, the Court has ignored the exoneration of the appellant’s father by the ITAT. The Counsel for R.C. Sabharwal heavily relied on the ITAT order, asserting that he was not the owner of entities whose properties were wrongly added to his income. They quoted several authorities and contended that where there is exoneration on merits in a civil adjudication, criminal prosecution on the same set of facts and circumstances cannot be allowed to continue since the underlying principle is that the standard of proof in criminal cases is higher.

Contentions of the Respondents

The Counsel submitted that at the stage of framing the charges, the availability of relevant material would suffice and the Court is not required to ascertain probative value of the evidence for convicting the accused. It was contended that the criminal prosecution does not depend upon the order of ITAT and hence, the same cannot be effectuated to nullify the order of framing charges by a criminal court. He also relied on various authorities and asserted that the findings of the IT authorities are not binding on a criminal court to readily accept the legality of the source of income.

Court’s Analysis and Judgement

The Court upon perusal of the submissions and evidence presented noted that the appellants have not made out a case for interference with the order on framing of charges. The Court observed that the decision in Selvi Jayalalitha would be fully applicable, as it examined in detail about previous rulings which laid down that the IT Returns and the Orders passed in IT Proceedings are not conclusive proof as mentioned under S.13 of Prevention of Corruption Act. The income tax returns/orders may at best be admissible as evidence, but the probative value of the same would depend on the nature of the information furnished and findings recorded. Hence, the same would not ipso facto either conclusively prove or disprove a charge.

The Court thereby held that the probative value of the Orders of the IT Authorities, including the Order of the ITAT and the subsequent Assessment Orders, are not conclusive proof which can be relied upon for discharge of the accused persons. In view of the same it upheld the decision of the High Court.

The Court, further refused accept the argument of the appellants that when there is an exoneration on merits in a civil adjudication, a criminal prosecution on the same set of facts and circumstances would not be permitted. Therefore, dismissing the appeal, the Court directed the trial to be concluded expeditiously considering its pendency for nearly 25 years.

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Judgement Reviewed by – Keerthi K

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Assessing Officer not entitled to make additions again, when the same had been deleted by the CIT(A): Bombay High Court

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Case title – CCIT (OSD)/Pr. Commissioner of Income Tax VS Bhupendra Champaklal Dalal

Case no. – Income Tax Appeal No.1491 OF 2019 (A.Y. 1989-1990)

Decision on – March 06, 2024

Quoram – Justice K. R. Shriram & Justice DR. Neela Gokhale

Facts of the case

The Respondent/Assessee, an individual, was carrying on business as sole proprietor in the name and style of M/s B.C. Devidas. Assessee, who was a registered broker of Bombay Stock Exchange, was also engaged in trading in securities and shares. In addition to the profit, assessee also received salary and commission from CIFCO Limited and Food and Inns Limited in which he was a director.

The Assessee having been involved in the multicrore securities transactions scam of 90’s infamously known as Harshad Mehta Scam, got labelled as notified party on 2nd July 1992 under the Special Court’s (TORTS) Act, 1992. The investigation of Assessee by CBI was followed by a search and seizure action by the IT Department.

The assessment was originally completed after the search operations. Both assessee as well as Revenue filed appeals before the ITAT. The ITAT restored the matters to the file of the Assessing Officer for denovo assessments. Consequently, the assessment order was passed under Section 143(3) read with Section 254 of the IT Act 1961, wherein, certain additions to the income were made.

The Assessee aggrieved by the said order, filed an appeal before Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) partly allowed the appeal. The parties being discontented by the order preferred appeals before ITAT. The ITAT by a common order partly allowed the contentions of assessee for the AY-1989-1990.

The Revenue challenging this decision filed an appeal under Section 260A of the Act before the Bombay High Court.

Court’s Analysis and Judgement

The first issue relates to the disallowance of interest expenses incurred for non-business purposes. The AO disallowed interest of Rs. 12,19,181/- paid to banks and others on the ground that the assessee diverted interest-bearing funds for giving interest-free advances.

The ITAT came to a factual finding that the assessee had huge interest-free debts with him and the assessing officer has failed to recognize the same. The Court agreeing with the findings of ITAT opined that when interest-free funds and interest-bearing funds are mixed together, they lose their respective identities, and hence, the presumption should be that the assessee has used interest-free funds to give interest-free advances.

The ITAT order concluded that even for AY 1989–1990, interest-free funds available with the assessee were sufficient to take care of interest-free advances made. The Court held that ITAT right in concluding that the interest expenditure claimed by the assessee was allowable.

The final issue is related to the deletion of various additions aggregating to Rs. 10,89,30,545/. It is noted by the ITAT that various types of additions aggregating to this amount were made by the Assessing Officer in the original assessment proceedings, and in the appeal filed by the assessee, the CIT(A) deleted these additions.

The department did not prefer an appeal challenging the order of the CIT (A), and hence, the same has attained finality. Only the assessee challenged the additions confirmed by the CIT(A). The ITAT has also restored those additions, which were confirmed by the CIT(A), to the file of the Assessing Officer for fresh examination.

The Bombay High Court upholding the ITAT’s ruling held that the Assessing Officer could not have assessed additions again since the CIT (A) had deleted the same in the first round of proceedings and the concerned matters have attained finality. The Court re-affirmimg the ruling of ITAT held that Assessing Officer was not legally entitled to make these additions again in the second round of proceedings.

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Judgement Reviewed by – Keerthi K

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