2022 (9) TMI 1101 - HC - Income Tax

Court denies petition to set aside order quashing Look Out Circular. Respondent's travel restricted with investigation conditions.

Deputy Director of Income Tax (Inv) Unit-4 (3) Versus Xiongwei Li

Deputy Director of Income Tax (Inv) Unit-4 (3) Versus Xiongwei Li - [2022] 448 ITR 193 (Del) Issues Involved:1. Legality of the Look Out Circular (LOC) issued against the respondent.2. Compliance with the provisions of the Income Tax Act, 1961.3. Conditions under which LOC can be issued and its validity.4. The economic interest of India and its impact on the issuance of LOC.5. The respondent's right to travel and the conditions imposed by the court.Detailed Analysis:1. Legality of the Look Out Circular (LOC) issued against the respondent:The petitioner, Deputy Director of Income Tax (Inv) Unit-4(3), New Delhi, sought the setting aside of the impugned order dated 29.08.2022 by the ACMM, Special Acts, Tis Hazari Courts, which quashed the LOC issued against the respondent. The court observed that the LOC was issued not due to the pendency of the complaint case but for the ongoing investigation against the company. The court noted that the respondent was not evading arrest or failing to appear before the court, and the offense alleged was non-cognizable and bailable, which did not justify the issuance of the LOC.2. Compliance with the provisions of the Income Tax Act, 1961:The petitioner alleged that the respondent, as the CEO of M/s Huawei Telecommunications (India) Company Private Limited (HTICPL), failed to comply with Section 132(1)(iib) of the Income Tax Act, 1961, by not providing the necessary facility to inspect the books of accounts during the search operation. The court noted that the complaint filed by the petitioner related to non-cognizable and bailable offenses under Section 275B read with Section 278B of the Income Tax Act, 1961.3. Conditions under which LOC can be issued and its validity:The court referred to the Office Memorandum dated 27.10.2010 and the amended OM dated 05.12.2017, which allow the issuance of LOC in exceptional cases if the departure of a person is detrimental to the economic interest of India. The court observed that the respondent's departure could not be stated to be detrimental to the sovereignty, security, or integrity of India, nor to the bilateral relations with any country or strategic interest of the country. The court also noted that the respondent was not a flight risk as he had complied with the bail conditions and had no movable or immovable assets in India.4. The economic interest of India and its impact on the issuance of LOC:The petitioner argued that the respondent's departure would affect the economic interest of India, as the investigation into the alleged tax evasion of more than Rs. 600 crores by HTICPL was ongoing. The court noted that the company had already secured Rs. 230 crores as per the directions of the Division Bench of the High Court in W.P.(C) 6352/2022. The court found that the respondent, being an employee and not a shareholder of the company, could not be attributed to have committed acts detrimental to the economic interest of India.5. The respondent's right to travel and the conditions imposed by the court:The court upheld the order of the learned Trial Court quashing the LOC against the respondent but imposed additional conditions. The respondent was directed to submit an undertaking to join the investigation through video conferencing and appear before the Trial Court as and when directed. The respondent was also required to deposit an FDR of Rs. 5 crores, which would be forfeited if he failed to join the investigation or appear before the Trial Court. The court emphasized that the respondent's right to travel could not be restricted solely based on his nationality.Conclusion:The court declined the petition seeking the setting aside of the order dated 29.08.2022 by the ACMM, Special Acts, Tis Hazari Courts, and the stay of its operation. The impugned order was modified to include additional conditions for the respondent's travel and compliance with the investigation and trial proceedings. The court balanced the respondent's right to travel with the need to secure the economic interest of India and ensure his availability for the investigation and trial.