Income Tax Orders Not Conclusive Proof For Discharge In Case Under Prevention Of Corruption Act : Supreme Court

The Supreme Court on March 19, in a recent judgment held that exoneration in Income Tax proceedings by itself would not become a valid ground for the discharge of an accused under the provisions of The Prevention Of Corruption Act, 1988 (PCA).The bench comprising Justice Vikram Nath and Justice KV Viswanathan was sitting in appeal against an order of the Delhi High Court which refused the discharge of offences under PCA. The bench observed that an Order under the Income Tax Act favouring the accused would not be conclusive proof of 'lawfulness' of 'source of income'. The court in its decision dwells into the settled position of law as held in the Case of State of Karnataka v. Selvi J. Jayalalitha & Ors. to understand the probative nature of such orders passed by the income tax tribunals and authorities from the lens of criminal prosecution.32. Therefore, in the present case, the probative value of the Orders of the Income Tax Authorities, including the Order of the Income Tax Appellate Tribunal and the subsequent Assessment Orders, are not conclusive proof which can be relied upon for discharge of the accused persons. These orders, their findings, and their probative value, are a matter for a full-fledged trial…..On Facts The facts of the present case are that the appellant R.C. Sabharwal (an Architect serving the New Delhi Municipal Corporation), Puneet Sabharwal's father in the case, possessed assets worth Rs. 2,05,63,341. This amount significantly overshadowed his declared income of Rs. 1,23,18,091. The allegations involving his son, Puneet Sabharwal, revolve around the latter securing INR 79 lakhs through the redemption of Special Bearer Bonds. 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. On 21.02.2006 and 28.02.2006 charges were framed by the Special Judge, Delhi. While the charge against the appellant Puneet Sabharwal was under Section 109 IPC read with Section 13(1)(e) and 13(2) of the Prevention of Corruption Act, 1988 (PCA), the charge against appellant R.C. Sabharwal was under Section 13(1)(e) read with 13(2) of the PCA. Put summarily, appellant RC Sabharwal was charged with owning disproportionate assets while his son and second appellant were charged with abetting his father in the said offence. In the interim, another order by the Income Tax Appellate Tribunal (ITAT) dated 31.8.2007 allowed the appeals of the appellant-assessees and dismissed the cross-appeals of the IT department. These appeals were regarding the reopening of the assessments for the years 1989-1990 to 1995-1996 and 1997-1998 to 2001- 2002. The Appellate Tribunal broadly held that (1) Appellant R.C. Sabharwal had no obligation to explain the source of investment of the founders of the trust Smt. Morni Devi and Sh. Brij Lal; (2) Trust had been paying its share of the income since its existence and there was no evidence to prove that the appellants were benami owners of the trust; (3) since Morni Devi Brij Lal Trust was a separate entity and since the appellant Puneet Sabharwal was running its business, its income could not be added in the hands of the appellant R.C. SabharwalAs a consequence, the Assessing Officer (AO) on 30.12.2009 acknowledged and approved the reasoning given by the assessee on the subject being examined. As a result, the income declared by Puneet Sabharwal was fixed at an entire sum of Rs. 67,550.It was in light of the above developments that the Order framing charges by the Special Judge were challenged before the High Court in a writ petition. Relying upon the finding of the ITAT, it was contended that there existed a case of discharge of the appellants. Since the reopening proceedings were based on the search done by CBI, there was no valid ground to proceed with the trial. With regards to appellant Puneet Sabharwal, it was argued since he was a minor for a large portion of the check period and therefore could not be made an accused. Refusing to discharge the appellants, the Delhi High Court enunciated the following reasons : (1) Puneet Sabharwal being a minor in the larger period of the check would not undermine the fact he was legally an adult for 7 years of the time frame concerning the crime; (2) Immunities under S. 3(2) of Special Bearer Bonds (Immunities and Exemptions) Act, 1981 do not cover charges framed under the PCA; (3) In State of Karnataka v. Selvi J. Jayalalitha & Ors. (2017) 6 SCC 263 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. The matter then traversed before the Apex Court on the question of whether the Order of the ITAT be relied upon for quashing the proceedings under PCA. Arguments By The Appellant Senior Advocate Mr. Mukul Rohatgi and Mr. Siddharth Agarwal, for the appellants,...

Income Tax Orders Not Conclusive Proof For Discharge In Case Under Prevention Of Corruption Act : Supreme Court

Anmol Kaur Bawa

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