Pending Income Tax Re-assessment Proceedings not a Bar to Institution of Criminal Prosecution: Delhi HC Sustains Complaints [Read Order]
The Petitioner was alleged to have facilitated transactions totalling over ₹700 crores, with the and received an undisclosed commission income of ₹14 crores
The Delhi High Court in a recent matter held that the pendency of income tax reassessment proceedings does not vitiate the institution of criminal prosecution under the Income Tax Act, 1961.
The observation was made by the Court while dismissing petitions filed by Petitioner Raj Kumar Kedia in a plea seeking the quashal of criminal complaints against him, registered under Sections 276-C(1) and 277-A of the Income Tax Act, 1961.
The factual matrix follows a search and seizure operation conducted by the Income Tax Department at the petitioner’s Hauz Khas Enclave premises.
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The operation, conducted between 13 and 17 June, 2014 was initiated pursuant to warrants issued by the Director of Income Tax (Investigation)-I, Delhi. In his statements recorded under Section 132(4), Kedia admitted to engaging in the business of providing accommodation entries alongside share broking, and explained the modus operandi of routing cash through inflated share transactions to illicitly generate bogus long-term capital gains.
It was also found that the complainant had generated huge unaccounted income by way of commission in unaccounted cash from multiple beneficiaries, revealing transactions totalling over ₹700 crores, with the accused having earned an undisclosed commission income of 2% of the quantum amount, totaling ₹14 crores including ₹2.08 crores during the relevant financial year.
Kedia later retracted his statement via a letter dated 14 October, 2014 but reaffirmed parts of it in a subsequent statement recorded under Section 131(1)(A) of the Act.
A show cause notice (SCN) was issued by the department. Following an unsatisfactory reply from the petitioner, sanction for prosecution was obtained on 12 March 2015 and complaints were filed before the Additional Chief Metropolitan Magistrate (ACMM), who took cognizance and issued summons.
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The petitioner’s applications for dismissal and discharge were rejected by the ACMM, leading to criminal revision petitions before the Additional Sessions Judge (ASJ), which were also dismissed leading to the present petition.
Before the High Court, the petitioner, represented by Rahul Singh and Yashvardhan Bisht, raised challenges on multiple grounds. Firstly challenges were made towards the jurisdiction of the Principal Director (Investigation) to grant sanction for criminal prosecution; the authority of the Deputy Director to file the complaint; lack of stating the specific provision under which the sanction order has been moved
The petitioner also claimed that the prosecution was premature as there was no assessment order to reflect that there was evasion of tax
The respondent Income Tax Office was represented by Standing Counsel Sanjay Kumar, Monica Benjamin, Easha Kadian and Nancy Jain.
Justice Neena Bansal Krishna observed that under Sections 2(16) and 116 of the Act, the term “Commissioner” includes the Principal Director of Income Tax, thereby making the sanction valid. On the issue of the Deputy Director’s authority to file the complaint, it held that the matter was premature to be decided upon right now and could be contested at trial.
The Court noted that the sanction order was found to clearly have reproduced Section 276(1) - the provision under which the order was moved, thus not being vague.
Addressing the contention that the prosecution was premature due to pending assessments, the Court referred to the Supreme Court’s decision in P. Jayappan v. S.K. Perumal (1984), where it was held that pendency of reassessment proceedings cannot act as a bar to criminal prosecution under Sections 276-C and 277.
In summation, the Delhi High Court rejected all the contentions of the Petitioner and concluded that there was no merit in the petitions, and dismissed the petitioner, sustaining the impugned criminal complaints and the orders of the lower courts.
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