Madras High Court
Madurai Srinivasagam Sunther vs Deputy Commissioner / Assistant ... on 29 March, 2023
2023:MHC:1788
W.P.No.9263 of 2023 etc
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 29.03.2023
CORAM :
The HONOURABLE DR.JUSTICE ANITA SUMANTH
W.P.Nos.9263, 9267, 9271, 9274, 9277 & 9280 of 2023
and
W.M.P.Nos.9360, 9364, 9367, 9371, 9374 & 9378 of 2023
W.P.No.9263 of 2023
Madurai Srinivasagam Sunther
No.61, 2nd Street,
Thanthai Periyar Nagar Aynavaram,
Chennai – 600 023. .. Petitioner
vs
Deputy Commissioner / Assistant Commissioner
of Income Tax, Central Circle 3(4),
3rd Floor, Investigation Building,
No.46, (Old No.108),
M.G.Road, Chennai – 600 034. .. Respondent
Prayer in W.P.No.9263 of 2023: Petition filed under Article 226 of
the Constitution of India praying to issue a writ of mandamus
directing the respondent to dispose of the request letter dated
20.03.2023 seeking the copy of the relevant documents,
opportunity to cross examine Shri Rajendra Kothari and Shri Suresh
Khatri.
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W.P.No.9263 of 2023 etc
For Petitioner : Mr.P.S.Raman
Senior Counsel
for Mr.M.Velmurugan
(W.P.Nos. 9263, 9267 & 9271 of
2023)
Mr.Arvind P.Datar,
Senior Counsel
for Mr.M.Velmurugan
(in W.P.Nos. 9274, 9277 & 9280
of 2023)
For Respondent : Mr.A.P.Srinivas,
Senior Standing Counsel
(in all writ petitions)
COMMON ORDER
These writ petitions are filed by an assessee under the
provisions of the Income-Tax Act, 1961(in short, 'Act').
2. The prayer in all writ petitions is for a mandamus
directing the respondent to dispose request under letter dated
20.03.2023 seeking various documents as well as opportunity to
cross examine Mr.Rajendra Kothari and Mr.Suresh Khatri.
3. The matters had come up for admission on 27.03.2023
and Mr.A.P.Srinivas, learned Senior Standing Counsel accepted
notice for the Income-Tax Department and sought some time. The
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matter was adjourned on the basis of the following order:
“Mr.A.P.Srinivas, learned Senior Standing
Counsel accepts notice for the respondent and
seeks a days' time to obtain instructions and file
a counter.
2. Seeing as the matter is time barring as on
31.03.2023, instructions will be obtained on
whether the documents as set out in paragraph
16 (4 (a to e)) of affidavit filed in W.P.No.9274
of 2023 have been furnished.
3.Since he states, on instructions, that the
Assessing Officer does not intend to rely upon
the statements of Rajendra Kothari and Suresh
Kumar Khatri, let the same be reduced to writing
and filed by way of affidavit.
4. List on 29.03.2023 at the end of admission
list.”
4. Today, when it is called, written instructions furnished
by the assessing authority are placed on file. The Officer has
extracted therein the request of the petitioner for documents and in
addition, the petitioners draw attention to their representations.
Read together, the following are the materials that have been
sought for by the assessees, apart from opportunity to cross-
examine the two individuals as aforesaid.
“i. Copies of Satisfaction note made by the
assessing officer of the searched party and also
my Jurisdictional AO so as to assume the
jurisdiction u/s 153C.
ii. Copy of sworn statement recorded from me by
the office of Investigation Department.
iii. Copy of sworn statement recorded from me
by your good office on 11.03.2023.
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iv. Copies of all sworn statements recorded from
Shri Rajendra Kothari since the initiation of the
search on 10.11.2020 and thereafter either
recorded u/s 132(4) or recorded u/s 131 of the
Act.
v. On 18.03.2023, we were provided with the
copies of sworn statement recorded from Shri
Rajendra Kothari u/s 131 of the Act dated
30.11.2020 wherein in Q.12 he has stated as
under:
“SD, Blue (Karti S), Karti S (RTG), TSD – it
belongs to Madurai Sunther Srinivasagam,
Chennai....”
5. Learned counsels for the petitioners confirm that they
have received the material at Sl.Nos. 1, 2 and 3 above. That apart,
it is the stand of the assessing officer that all statements of
Mr.Rajendra Kothari and Mr.Suresh Khatri have been supplied.
However, since there is some difference of opinion on whether the
entirety of the statements have been supplied, this Court makes it
clear that such statements as have been recorded from the two
individuals as aforesaid must be supplied in full to the petitioner.
6. For this purpose, one may make reference to two
judgments of the Hon'ble Supreme Court that has considered the
similar issue as to the material that is to be supplied to an entity
prior to assessment though in the context of the SEBI (Prohibition of
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Fraudulent and Unfair Trade Practices Relating to Securities Market)
Regulations, 2003 and the Code of Criminal Procedure, 1973, (i)
T.Takano v Securities And Exchange Board of India and another
(2022) 8 SCC 162 and (ii) Reliance Industries Limited v Securities
and Exchange Board of India and others (2022) 10 SCC 181.
7. It is the petitioner's case that in order to be able to put
up a complete defence, not just a portion of the statements relied
upon by the Department, but the entire statements must be
furnished. This is to ensure that all material as relating to the
petitioner as would have a bearing upon the proceedings in his case
are made fully available.
8. Per contra, it is the case of Mr.Srinivas, learned Senior
Standing Counsel that it would suffice that those portions of the
statements that the officer intends to rely upon may alone be
furnished as the remaining part of the statements would be of no
relevance to the petitioner. In the case of T.Takano, the Hon'ble
Supreme Court considered the impact of a disclosure for the
purposes of adjudication.
9. The following principles have been culled based on the
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discussion therein:
“50. The following principles emerge from the
above discussion:
50.1 A quasi-judicial authority has a duty to
disclose the material that has been relied upon
at the stage of adjudication; and
50.2 An ipse dixit of the authority that it has
not relied on certain material would not exempt
it of its liability to disclose such material if it is
relevant to and has a nexus to the action that is
taken by the authority. In all reasonable
probability, such material would have
influenced the decision reached by the
authority.
50.3 Thus, the actual test is whether the
material that is required to be disclosed is
relevant for purpose of adjudication. If it is,
then the principles of natural justice require its
due disclosure.”
10. Inter alia, they also took note of their earlier judgments
in the case of Natwar Singh v Director of Enforcement (2010) 13
SCC 255, wherein, the Court had held that all material which was
'relevant' to the subject matter of the proceedings must be
disclosed to the person to whom it relates unless the Scheme of the
statute indicates to the contrary.
11. The Court had held that non-disclosure of such
information would prejudice the proceedings and render them,
prima facie, arbitrary. There are certain exceptions to the duty to
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disclose, that are inbuilt in the SEBI Act or which constitute
privileged information both in terms of Section 129 of the Evidence
Act and the Right to Information Act, 2005.
12. After consideration of such exceptions as above, the
conclusions that have been arrived at by the Court are as follows:
“D. Conclusion
62. The conclusions are summarised below:
62.1 The appellant has a right to disclosure of
the material relevant to the proceedings
initiated against him. A deviation from the
general rule of disclosure of relevant
information was made in Natwar Singh (supra)
based on the stage of the proceedings. It is
sufficient to disclose the materials relied on if it
is for the purpose of issuing a show cause
notice for deciding whether to initiate an
inquiry. However, all information that is
relevant to the proceedings must be disclosed
in adjudication proceedings.
62.2 The Board under Regulation 10 considers
the investigation report submitted by the
Investigating Authority under Regulation 9, and
if it is satisfied with the allegations, it could
issue punitive measures under Regulations 11
and 12. Therefore, the investigation report is
not merely an internal document. In any event,
the language of Regulation 10 makes it clear
that the Board forms an opinion regarding the
violation of Regulations after considering the
investigation report prepared under Regulation
62.3 The disclosure of material serves a three-
fold purpose of decreasing the error in the
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verdict, protecting the fairness of the
proceedings, and enhancing the transparency of
the investigatory bodies and judicial
institutions.
62.4 A focus on the institutional impact of
suppression of material prioritises the process
as opposed to the outcome. The direction of the
Constitution Bench of this Court in Karunakar
(supra) that the non-disclosure of relevant
information would render the order of
punishment void only if the aggrieved person is
able to prove that prejudice has been caused to
him due to non-disclosure is founded both on
the outcome and the process.
62.5 The right to disclosure is not absolute. The
disclosure of information may affect other third-
party interests and the stability and orderly
functioning of the securities market. The
respondent should prima facie establish that
the disclosure of the report would affect third-
party rights and the stability and orderly
functioning of the securities market. The onus
then shifts to the appellant to prove that the
information is necessary to defend his case
appropriately.
62.6 Where some portions of the enquiry report
involve information on third-parties or
confidential information on the securities
market, the respondent cannot for that reason
assert a privilege against disclosing any part of
the report. The respondents can withhold
disclosure of those sections of the report which
deal with third-party personal information and
strategic information bearing upon the stable
and orderly functioning of the securities
market.
63. The Board shall be duty-bound to provide
copies of such parts of the report which concern
the specific allegations which have been
levelled against the appellant in the notice to
show cause. However, this does not entitle the
appellant to receive sensitive information
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regarding third parties and unrelated
transactions that may form part of the
investigation report.”
13. In Reliance Industries Limited, three-Judges of the
Hon'ble Supreme Court considered the same question. They refer to
the attempt of SEBI to select certain documents from among those
seized and disclose only those to the appellant stating in that
context, as follows:
“63. Observing the facts and circumstances of
this case, which have been adumbrated above,
we are of the firm opinion that the defence
taken by SEBI that they need not disclose any
documents at this stage as such a request is
premature in terms of the CrPC, cannot be
sustained.
64. Before we part with the present appeal,
another disconcerting aspect of this case that
comes to the fore is SEBI’s attempt to
cherrypick the documents it proposes to
disclose. There is a dispute about the fact that
certain excerpts of the opinion of Justice (Retd.)
B. N. Srikrishna, were disclosed to the appellant
herein. It is the allegation of the appellant that
while the parts which were disclosed, vaguely
point to the culpability of the appellant, SEBI is
refusing to divulge the information which
exonerate it. Such cherrypicking by SEBI only
derogates the commitment to a fair trial.
65. In Nea Karteria Maritime Co Ltd v. Atlantic
and Great Lakes Steamship Corporation, [1981]
Com LR 138 at 139, Mustill J. held as under:
‘I believe that the principle underlying the
rule of practice exemplified in Burnell v
British Transport Commission [1956] 1 QB
187 is that where a party is deploying in
court material which would otherwise be
privileged, the opposite party and the court
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must have an opportunity of satisfying
themselves that what the party has chosen to
release from privilege represents the whole
of the material relevant to the issue in
question. To allow an individual item to be
plucked out of context would be to risk
injustice through its real weight or meaning
being misunderstood.’
The aforesaid principle is often referred to as
the ‘Cherrypicking’ principle.
66. In the case at hand, SEBI could not have
claimed privilege over certain parts of the
documents and at the same time, agreeing to
disclose some part. Such selective disclosure
cannot be countenanced in law as it clearly
amounts to cherrypicking.”
14. Having heard the parties, my decision is as follows. The
primary premise upon which an assessment must be formulated is
bearing in mind the principles of natural justice. The submission of
the Revenue that the necessary documents, as intended to be relied
upon have been supplied and that they would suffice, is
unacceptable seen in light of the observations of the Apex Court in
the aforesaid two judgments.
15. Selective supply of the documents would be unfair
simply for the reason that the petitioners must know the entire
context in which the statement has been made. Apart from that,
there may be other portions of the statement that might well
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support the assessee that it must not be denied.
16. Typically, seizures give rise to several issues for
consideration in the assessment of a searched entity. Not all of
them would have relevance to a third party in respect of whom also,
incriminating material might be found. The Scheme of the Income-
Tax Act provides for two modes of assessment in such situations; an
assessment under Section 153A in the case of the searched person
and Section 153C in the case of the third party.
17. In the present case, the petitioner was in receipt of
notices under Section 153C and has filed returns. The status as a
third party to the search assessment is not in dispute. Thus, and in
these circumstances, it is incumbent upon the authorities to
handover such allegedly incriminating materials that have been
found by the Revenue in the course of the search and which have
been handed over by the Assessing Officer of the searched entity to
the assessing officer of the third party.
18. After all, it is these materials that are the basis of the
Section 153 proceedings themselves and thus the assessee must
have the benefit of the entirety of the material in order to formulate
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its defence against the proceedings.
19. As a result, the entirety of the statements as recorded
from Mr.Rajendra Kothari and Mr.Suresh Khatri must be supplied to
the petitioner.
20. At this juncture, Mr.Srinivas would protest, stating that
the petitioner has chosen to approach this Court at the eleventh
hour, knowing fully well that the limitation for completion of the
assessments is imminent. This contention is not acceptable for the
reason that the show-cause notices were issued only on
11.03.2023.
21. Issuance of a show-cause notice is a sine qua non for
completion of assessment. Thus mere mention of the issues in the
questionnaires under Section 142(1) or notices under Section
142(3) would not suffice as only the proposals contained in the
show-cause notices can ultimately fructify into an order of
assessment.
22. Thus, and since the show-cause notice have been issued
only on 11.03.2023 proposing reliance on the statements, and the
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petitioner having made its request for the same on 20.03.2023,
there is no delay in the institution of the present writ petitions.
23. The statements shall be handed over within one week
from today and an opportunity to cross-examine shall be provided
thereafter. The assessments shall be completed on or before
31.05.2023.
24. Writ petitions stand disposed in terms of the aforesaid
orders. No costs. Consequently, connected miscellaneous petitions
are closed.
29.03.2023
Index:Yes
Neutral Citation:Yes
ssm
To
The Deputy Commissioner / Assistant Commissioner
of Income Tax, Central Circle 3(4),
rd
3 Floor, Investigation Building,
No.46, (Old No.108),
M.G.Road, Chennai – 600 034.
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W.P.No.9263 of 2023 etc
DR. ANITA SUMANTH,J.
ssm
W.P.Nos.9263, 9267, 9271,
9274, 9277 & 9280 of 2023
29.03.2023
https://www.mhc.tn.gov.in/judis
