IT Act proceedings cannot be relied upon to abort criminal proceedings: SC

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Court said that the proceedings under the Income Tax Act relate to the assessment of income of the assessee and not to the source of income

The Supreme Court has on March 19, 2024 said that the proceedings under the Income Tax Act cannot be relied upon to abort the criminal proceeding related to allegation of disproportionate assets under the Prevention of Corruption Act as the scope of adjudication in both the proceedings is vastly different.

A bench of Justices Vikram Nath and K V Vishwanathan said that the proceedings under the Income Tax Act relate to the assessment of income of the assessee and not to the source of income or the allegation of disproportionate assets.

The court dismissed appeals filed by R C Sabharwal, additional chief architect in New Delhi Municipal corporation and his son Puneet Sabharwal against the Delhi High Court's order of December 1, 2020 rejecting their plea for discharge.

"In the present case, the appellants herein are being prosecuted under the provisions of the Prevention of Corruption Act while they seek to rely on an exoneration under the Income Tax Act. The scope of adjudication in both of these proceedings are vastly different. The authority which conducted the income tax proceedings and the authority conducting the prosecution is completely different (CBI). The CBI was not and could not have been a party to the income tax proceeding," the bench said.

In the case, the bench said that 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 that 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. In view of the same, the High Court, in the present case, has rightly not discharged the appellants based on the Orders of the Income Tax Authorities," the bench said.

"Insofar as the submission that where there is exoneration in a civil adjudication, criminal prosecution on the same set of facts and circumstances cannot be allowed to continue is concerned, the same is also without merit as far as the present case is concerned," the bench added.

Referring to J Jayalalithaa's case (2017), the bench pointed out that the Supreme Court has categorically held that while income tax returns/orders may be admissible as evidence, the probative value of the same would depend on the nature of the information furnished and findings recorded in the order, and would not ipso facto either conclusively prove or disprove a charge.

The court also noted that income tax returns or orders could at best be evidences which have to be evaluated along with the other materials on record.

"There is no basis to nip the criminal prosecution in this case in its bud," the bench said.

The appellants contended the Income Tax Appellate Tribunal had on August 31, 2007, allowed the appeals of the assessees, which per se should result in quashment of proceedings and the discharge of the accused. Since analogous tax proceedings have ended in favour of the appellants, a criminal prosecution on identical facts cannot continue, they argued. 

The court, however, held the appellants had not made out a case for interference with the order on charge of February 21, 2006 and the order of framing charge on February 28, 2006. It said that since the trial has been pending for 25 years, it should expeditiously be concluded on or before December 31, 2024.

According to the CBI, the appellant R C Sabharwal, the father of appellant Puneet Sabharwal, owned assets to the tune of Rs 2,05,63,341 and that this was disproportionate to his known sources of income which was computed at Rs 1,23,18,091. 

The allegation against the son Puneet Sabharwal was that he had received Rs 79 lakhs through encashment of Special Bearer Bonds and he facilitated commission of offence inasmuch as assets were acquired by appellant R C Sabharwal in the name of M/s Morni Devi Brij Lal Trust, M/s Morni Merchants and other firms in which the sole beneficiary was appellant Puneet Sabharwal. The order framing charge invoked Section 109 IPC to be read with Section 13(1)(e) read with Section 13(2) of the PC Act against Puneet Sabharwal.

R C Sabharwal was Additional Chief Architect in New Delhi Municipal Corporation and it was alleged while being posted in various capacities from year 1968 onwards, he had amassed huge assets, disproportionate to his known sources of income.

The CBI registered the case on August 23, 1995 and filed the charge sheet on August 28, 1995.

Case Title: Puneet Sabharwal Vs CBI