2025 (7) TMI 1440 - HC - Income Tax

Criminal Prosecution Under IT Act Sections 276C, 276D, 277 Quashed Without Verified Evidence

Anurag Dalmia Versus Income Tax Office.

The HC held that criminal prosecution under Sections 276C(1)(i), 276D, and 277(1) of the IT Act could not be sustained based solely on unauthenticated ... Criminal offence u/s 276C(1)(i), 276(D) and 277(1) Income Tax Act - Reliability of information/ unauthenticated document received from France under DTAA to initiate criminal case against the accused - HELD THAT:- As in the present case, the source of information is the non-authenticated documents received from French Government under DTAA. Petitioner has also relied on a photocopy of the News Report dated 01.02.2012, downloaded from the website ‘www.Swissinfo.ch’and a News Report dated 03.05.2012, published in Nouvel Observateur which stated that the information as received, was stolen and modified and no reliance can be placed upon the said information. The first significant aspect is that the information about unauthenticated documents was received from French Government and not from the original or primary source, namely the Swiss Government, which casts a doubt on its authenticity. Even no prima facie evidence whatsoever, has been placed on record to establish ownership or linkage of any funds in Foreign Bank Accounts, to the Petitioner. Mere presence of his name in unauthenticated document obtained indirectly through a Foreign Government about alleged Swiss Bank Accounts, does not shift the burden of proof onto the Petitioner to rebut the allegations as mentioned therein. As rightly asserted by the Petitioner that the Respondent had sought further information from the Swiss Authorities about the impugned document or the alleged Bank Account, though nothing has been received so far, as is averred in Assessment Order. It cannot be said that it was the responsibility of the Petitioner to verify the correctness of the information received. Respondent has no cogent evidence whatsoever, to establish that the Petitioner has any Swiss Bank accounts and the unauthenticated documents have no evidentiary value, to make out a prime facie case against the Petitioner. Another material aspect is that on the basis of these un-authenticated documents, a raid was conducted in the premises of the Petitioner, but no incriminating document even remotely suggesting existence of foreign Account, was discovered. In the absence of any evidence of there being a concealment of the income or non-disclosure of the complete income for the two Financial Years, it cannot be said that the income Assessment as submitted by the Petitioner, was fraudulent or there was any concealment of true income. There is no denying on the legal proposition that if ITAT Order quashing the Assessment Order has its basis in technical grounds, the offence under Section 276CC for non-filing of Returns is independent of Assessment proceedings as has also been held in the case of Jayappan [1984 (8) TMI 1 - SUPREME COURT]. Furthermore, it is a settled principle of criminal law that prosecution can be initiated only where sufficient evidence exists to justify criminal proceedings to establish a prima facie case. As in the present case, the sole basis to re-open the Assessment and to seek prosecution under S. was the unauthenticated documents received under DTAA claiming that the Petitioner had some accounts in Swiss Bank, but this information never got authenticated by any independent verification as was held in the Order dated 15.02.2018 of ITAT. The basis for charging the Petitioner with the offences in the present criminal proceedings, is solely the unauthenticated information of Bank Accounts, which was held to be not established. The contention that the Order of ITAT was on technical ground, is absolutely incorrect. As decided in Ram Jethmalani v. Union of India [2011 (7) TMI 844 - SUPREME COURT] merely on some unauthenticated information received from a third Country with no material evidence, is not sufficient to make out a prima facie case and there cannot be a presumption that a person has committed any wrongdoing. Thus, mere surmise and conjectures is not enough to prosecute a person alleging a criminal offence under Section 276D. Thus, the unauthenticated documents under DTAA cannot be a basis to conclude that there was no complete disclosure of the income by the Petitioner for the relevant Financial Years. Whether on the basis of the aforesaid information, can the Assessee be compelled to sign the Consent Waiver Form? - Assessment Orders wherein additional assessments were made on the basis of undisclosed HSBC accounts, had been set aside by the Order of ITAT on the ground that there was no basis for making such additions or imposing penalty. Moreover, the penalty for non-signing of Consent Waiver Form had already been imposed under Section 271 of IT Act and the Appeal preferred therein has already been dismissed by CIT(A). Therefore, when the ITAT concluded that there was no basis for making additional Assessment, no adverse inference on account of non-signing of Consent Waiver Form by the Assessee could be termed as an act of concealing his true income. It is therefore, held that non-signing of Consent Waiver Form in the present case, could be penalized under Section 271 of IT Act, which has already been done but this act in itself, especially on basis of some unauthenticated information cannot lead to initiation of criminal proceedings against the accused. Whether the Criminal Complaints under Sections 276(1), 276D, and 277(1) can be sustained when the Assessment Order has been set aside by ITAT for want of incriminating material? - Section 276C (1) which deals with wilful evasion of Tax, Penalty or Interest. It provides that if a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable, or under reports his income under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable with imprisonment as well as fine. Whether there is any basis to conclude concealment of his income, or evasion to pay tax, penalty or interest, for the relevant years or that he was liable for prosecution for acts under the aforementioned Section? - This is an interesting case, where Income Tax Assessment for the financial year 2006-2007 and 2007-2008 not only got finalised, but the excess amount was refunded to the Petitioner on 25.05.2007. The Income Tax Department sought to reopen these ITRs for these two years in January, 2012 on the pretext of having received some unauthenticated documents under DTAA. As already discussed, above in detail, these documents were unproved, unreliable documents, which have even been so held by ITAT in its Order dated 15.02.2018. Therefore, there was no evidence or reason whatsoever to even prima facie establish that there was any evasion of tax punishable under Section 276C(1) of the IT Act. Final Analysis - The criminal prosecution in the present petition rests solely on these non-existent Bank Accounts. The findings of ITAT also confirms and corroborates that there exist no Facts, no Accounts, no False Statement and no Falsification of Record, which merit the prosecution under Sections 376C(1)(i), 276D and 277(1) of IT Act. Similar facts as in hand were considered in the case of CIT vs. Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT] wherein, it has been held that under 153A, Assessment cannot be made arbitrarily or without any relevance or nexus with the seized material. The Assessment has to be made only on the basis of seized material. In the absence of any incriminating material, the completed assessment can be reiterated and the Assessment or reassessment can be abated. It was further explained that where the Assessments are pending, the jurisdiction to make the original Assessment and the Assessment under Section 153A merges into one. Only one assessment shall be made separately for each Assessment Year on the basis of findings of the search and any other material existing or brought on the record by the AO. Thus, the completed Assessments can be interfered with by the AO while making the Assessment under Section 153A, only on the basis of some incriminating material unearthed during the search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced and were not already disclosed or made known in the course of original assessment. In the light of aforesaid discussion, considering the totality of the circumstances and the absence of any credible or corroborative evidence, the essential ingredients required to attract the provisions of Sections 276(1), 277(1), and 276D of the IT Act, cannot be said to have been established. ISSUES: Whether unauthenticated information received from a foreign government under the Double Taxation Avoidance Agreement (DTAA) can be relied upon to initiate criminal proceedings for tax evasion.Whether an assessee can be compelled to sign a Consent Waiver Form under Section 142(1) of the Income Tax Act to enable tax authorities to obtain foreign bank account information.Whether criminal complaints under Sections 276C(1)(i), 276D, and 277(1) of the Income Tax Act can be sustained when the relevant Assessment Order has been set aside by the Income Tax Appellate Tribunal (ITAT) for lack of incriminating material. RULINGS / HOLDINGS: The Court held that the unauthenticated documents received from the French Government under the DTAA, not verified by the Swiss Authorities and unsupported by any incriminating material recovered during search, cannot form the basis to initiate criminal proceedings; mere presence of the assessee's name in such documents does not shift the burden of proof onto the assessee.The Court ruled that non-signing of the Consent Waiver Form, in the absence of any authenticated incriminating evidence, cannot be construed as an offence under Section 276D or as proof of undisclosed income; such non-compliance may attract penalty under Section 271(1)(b) but does not justify criminal prosecution.The Court concluded that criminal complaints under Sections 276C(1)(i), 276D, and 277(1) cannot be sustained when the ITAT has set aside the Assessment Order on grounds including absence of incriminating material, as there is no prima facie case of concealment or false statement warranting prosecution. RATIONALE: The Court applied the statutory framework of the Income Tax Act, particularly Sections 276C(1)(i), 276D, 277(1), 271(1)(b), 132, 142(1), 153A, and relevant procedural provisions of the Cr.P.C. and Article 227 of the Constitution.The Court relied on precedents establishing that prosecution requires a prima facie case supported by credible evidence and that adjudication orders by the highest fact-finding authority (ITAT) are conclusive for sustaining or quashing prosecution.The Court emphasized that information received from foreign governments under DTAA must be authenticated and corroborated before being used as a basis for reopening assessments or initiating prosecution, referencing judgments that mere unauthenticated or media-reported information does not suffice.The Court distinguished the present facts from cases where incriminating material was recovered during search or where non-filing of returns or refusal to cooperate constituted independent offences, noting that here no incriminating evidence was found and penalties for non-compliance were already imposed and adjudicated.The Court observed that the ITAT's order setting aside the Assessment Order was not merely on technical grounds but on the absence of incriminating material, which is binding and negates the foundation for criminal prosecution.The Court reaffirmed the principle that criminal proceedings cannot be sustained in the absence of a prima facie offence and that non-signing of a consent form without corroborative evidence cannot be construed as willful evasion or false statement.The Court referenced authoritative judgments to hold that completed assessments cannot be reopened or used as a basis for prosecution without discovery of incriminating material during search or investigation.