AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 1382
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....the Respondent Nos. 3 to 6 and M/s Stockguru India, a Partnership Firm of the Respondent Nos. 3 and 4, for the Assessment Years (AY) 2010-2011 and 2011-2012. 2. The brief facts of the case as per the Petition are that a search and seizure operation under Section 132 of the IT Act, 1961, was carried out by the Investigation Wing of Income Tax Department on 18.01.2011, at the residential and office premises of the Respondent Nos. 3 to 6 and the Firm M/s Stockguru India in which number of incriminating documents, details of all Bank Account/s deposit/s with all kind properties, articles, etc. in their names including the cash of Rs. 34,69,00,000/-, were seized by the Investigation Wing of the Income Tax Department, under Section 132(3) of IT Act. A Seizure Order was also served upon their HDFC Bank, Dwarka Branch, New Delhi on 18.01.2011 qua their Bank Accounts with the direction not to deal with them, without prior approval. 3. The FIR No. 84/2011 under Sections 406/409/419/420/467/468/471/120-B/34 IPC and Sections 3/4/5 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 dated 07.04.2011. and FIR No. 152/2011 under 406/409/419/420/467/468/471/120-B/34 IPC and ....
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....deposit of 11 FDRs made of the amounts lying in the different Bank Accounts of the Accused. HDFC Bank and Standard Chartered Bank also filed similar Applications. 9. Learned CMM (West) while considering the Applications of the Banks, took a view on 16.08.2013 that though the amounts lying with the various Banks had been under attachment by different Departments, the amounts be converted into FDRs with existing lien of the Department on those amounts. 10. On 09.09.2013, Commissioner of Income Tax (Central)-II, New Delhi and EOW issued a Notice, in view of the claim of the Income Tax Department against the Respondent No. 3 and M/s Stockguru India (Judgment Debtor). 11. Subsequently, the investors/depositors of M/s Stockguru India filed W.P. (Crl.) No. 632/2012 titled as Victims of Stock Guru India vs. UOI & Ors. in May, 2012, wherein Income Tax Department was impleaded as one of the Respondent. A prayer was made that the Income Tax Department be directed to return the seized money to the depositors of the said Firm. Subsequently, the Writ Petition was withdrawn on 03.08.2012. 12. In the meanwhile, in CS(OS) No. 2866/2011 the ex-parte money Decree for Rs.1.60 Crore was pas....
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....6(4) of IT Act dated 12.12.2013 was filed by the Petitioner before learned CMM (West) in FIR No. 152/2011. Certain objections had been filed by the accused persons (Ulhas Prbhakar and Raksha, J. Urs @ Priyanka Saraswat Dev). However, a Joint Application dated 26.11.2016 was filed, for withdrawal of the said objections. 20. The Application of the Petitioner/ACIT under Section 226(4) IT Act, for release of FDRs, was rejected by the learned Special Judge vide the impugned Order dated 05.02.2018. 21. This Order has been challenged by the Petitioner/ACIT on the grounds that the Order is contrary to the settled precedents of the Apex Court and the High Courts. In the case of State vs. Manjit Singh, Crl. M.C. No. 4485/2013, it was held that the mere fact that an article has been seized or that it furnishes evidence of the commission of an offence, is no ground to delay or decline its release. The learned CMM (West) has created a chaotic situation by dismissing the Recovery Application filed by the Petitioner under the IT Act, which is a Special statute. 22. Section 136 of IT Act provides that all the proceedings before the Income Tax Authorities, are judicial proceedings and the ....
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....uld have the precedence over the Revenue liability of the Assessee. Neither the Respondent No. 2 nor the investors of M/s Stockguru India are the secured creditors who can take precedence over the legally recoverable debt against the Assessee, who has already withdrawn its Objections to the Application for the recovery. 30. Further reliance has been placed on Imperial Chit Funds (P) Ltd. vs. Income Tax Officer, (1996) 85 Taxmann 513 (SC) wherein the Income Tax Department has been held to be the secured creditor. It has also been held that the situation may arise where the authorities under the IT Act and Central Sales Tax Act may lay their claims, in which case the question of priority shall be with respect to the date of receipt of Orders. 31. In the present case, Income Tax Department seized cash of Rs.34.69 Crore and passed the Seizure Order under Section 132B of IT Act in respect of all the Bank Accounts of the M/s Stockguru India and its partners on 18.01.2011, which are still in force. Further, the Tax Demand Notices dated 08.11.2013 was served on the Respondent Nos. 3 to 6 and their Firm M/s Stockguru India and the Application under Section 226(4) of IT Act, was filed ....
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.... assessment of undisclosed income against the Respondent Nos. 3 to 6. The provision of Section 132B of IT Act provides the mechanism for application of the seized money after the assessment of the income, in the search cases. 37. The proviso to Section 132B of IT Act gives similar power to the Assessing Officer to adjudicate upon the Objections of the interested person where the nature and source of the acquisition of such Asset, is explained qua the seized money and is disposed of. This provision was duly considered by the learned CMM (West) in the Order dated 27.03.2015 when the Petitioner was allowed to apply the seized money from the Respondent No. 3, as per the provisions of the Income Tax Act, 1961. 38. Reliance has been placed on CIT vs. Piara Singh, reported in Volume 124 of Income Tax Reporter 40, wherein it was held that if a business is illegal, neither the profits earned nor the losses incurred, would be enforceable in law; however, that does not take profit out of Taxing statute. Similarly, the taint of illegality of the business cannot detract from the losses being taken into account for computation of the amount which can be subjected to tax as "profits" under ....
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....gations revealed that the seized Indian currency of Rs. 34,69,00,000/- was obtained by Accused, Lokeshwar Dev and Priyanka Saraswat Dev as a result of criminal activities under scheduled offences i.e. Section 419, 420, 467, 471, 120B IPC and this amount is proceeds of crime as well as the subject matter of the ongoing investigations. 45. Section 71 of PMLA has an overriding effect over the provisions of the IT Act because PMLA got assent from the President on a later day. Therefore, the Authority is competent to pass an Provisional Attachment Order, after following due procedure prescribed under the Act. 46. In Solidaire India Ltd. vs. Fair Growth Financial Services Ltd. and Others, (supra), the Apex Court held that the special law shall prevail over the earlier special law for the reason that "at that time of enactment of the latter statute, the legislature was aware of the earlier legislation and its non-obstante clause". 47. The Prayer of the Income Tax Department for release of amount kept as FDRs and other deposits in different Banks under Section 226(4) IT Act, is untenable and deserves to be dismissed. 48. The conflict had arisen due to Section 226(4) of IT Act b....
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....s in M/s Stockguru India, had purchased 14 properties and 12 vehicles out of cheated money. 14 Bank Drafts of State Bank of India totalling Rs.19,9631,000/-, 15 Bank Drafts of ICICI Bank totalling Rs. 17,85,33,373/- and eight Bank Drafts of HDFC Bank totalling to Rs. 4,71,00,000/- recovered from the residence of Accused No. 1 and 2/Respondent No. 3 and 4, were frozen. During the investigations, a sum of Rs. 2,93,00,000/- was seized by Income Tax Department during the search of premises of Nitin Sinha; a sum of Rs. 4,88,00,000/- during the search of premises of Naresh Kumar Kharab. 54. The Complaint under Section 45 of PMLA was filed against the Respondent No. 3 and 4 and other accused. In the said Complaint, the Income Tax Department moved an Application under Section 226(4) of IT Act stating that the tax liability of M/s Stockguru India was assessed at Rs. 3,45,97,46,885/-; the tax liability of Respondent No. 3/Ulhas Prbhakar was assessed as Rs. 63,28,19,554/-; and of Respondent No.4/Priyanka Saraswat as Rs. 23,69,12,735/-. 55. By the Order of the Court dated 07.06.2013, the substantial amounts seized from the accused persons and lying in their Accounts in various banks incl....
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....d to the rightful persons. This determination is crucial because if the funds constitute proceeds of crime rather than legitimate income, no tax liability can arise on money that never legally belonged to the accused persons and which is liable to be confiscated or restored to its legitimate claimants. 62. As per the case of the Prosecution, M/s Stockguru India floated a Scheme promising high returns on a minimum investment of Rs. 10,000/- plus Registration Fee of Rs. 1,000/-. The investor was assured to get Rs. 2,000/- per month for six months on every investment of Rs. 10,000/- and return of principal amount after six months. Post-dated cheques for repayment of monthly instalment plus a promissory note as security was given to the investors on registration. There were referral bonus as well, running upto to 27 levels which were given as an extra incentive. It also provided terminal handling service for investors for a minimum capital amount of Rs. 5 lakhs. The modus operandi adopted for inducing and alluring people to invest in such Ponzi scheme, was to guarantee exorbitant returns i.e. 220% return to investors within a short span of six months. 63. It was stated in the Com....
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....pply to an Income of an individual. 68. The proceeds of crime as in the present case, can in no way be termed as the income of the Accused at this stage, as trial in PMLA case is yet to be concluded. As has been contended by EOW, the money never belonged to the Accused persons as it was only the entrusted money which was sought to be returned with higher returns. As contended by Respondent No. 2, the accused persons had got possession of money of the investors by deception and malice, which can never be termed as their income. 69. The embezzled money by the Director of a Company cannot constitute a benefit of pre-requisite obtained from the Company and cannot be called his income. In the present case, the money is the defrauded/embezzled amounts of innocent investors acquired by the Accused through illegal means. These funds would not come within the income of the Accused. 70. In Sayed Khaja vs. Raghavendra Rao & Ors., [1976] 103 ITR 294 (AP), decided on 22.07.1974, the High Court of Andhra Pradesh held that the purpose, spirit and intendment of Section 226(4) of IT Act makes it patent that only such amount can be proceeded against over which the Assessee has full propriet....
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....ade" or business"; there can be no "trade" or "business" in crime. 76. The Petitioner has relied on the case of Commissioner of Income Tax Patiala vs. Piara Singh, (supra) which relates to claim of deduction due to confiscation of goods while smuggling, which was allowed as a business deduction as arising out of a business of smuggling i.e., a loss which sprung directly from carrying on of his business and was incidental to it. This judgement is distinguishable and not applicable to the present facts. 77. Recently, the Supreme Court in Commissioner of Income Tax Jaipur vs. Prakash Chand Lunia, Civil Appeal Nos.7689-90 of 2022 decided on 24.04.2013, distinguished the facts in Piara Singh, (supra) which involved confiscation losses incurred in an illegal business (smuggling), from those of Prakash Chand Lunia, (supra) where the Assessee was engaged in a legitimate business and the confiscation was incidental to an infraction or illegal act. The Court further held that any loss or expenditure arising from illegality or offence (including confiscation or penalty) is not allowable as a business loss, irrespective of whether the underlying business is lawful or unlawful. This princ....