Madras High Court
Sri. Pradeep Dayanand Kothari vs The Deputy Commissioner Of Income Tax on 8 April, 2025
Author: G.K.Ilanthiraiyan
Bench: G.K.Ilanthiraiyan
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED:08.04.2025
CORAM
THE HONOURABLE MR. JUSTICE G.K.ILANTHIRAIYAN
Crl OP Nos.15988 & 16013 of 2023
Sri. Pradeep Dayanand Kothari ..Petitioner in Crl.OP.No.15988 of
2023
... ..Petitioner in Crl.OP.No.16013 of 2023
vs.
The Deputy Commissioner of Income Tax,
Corporate Circle 4(2),
Chennai -600 034 ... Respondent in Crl.OP.No.15988 of
2023/R2 in Crl.OP.No.16013 of 2023
PRAYER : Criminal Original Petitions have been filed under Section 482
of Cr.PC, to call for the records relating to the impugned complaint in
E.O.C.C Nos.113 of 2015 & ........., pending on the file of the learned
Additional Chief Metropolitan Magistrate(EO-I) Court, Egmore, Chennai
and quash the same.
For Petitioners(in both): Mr.Nithesh Nataraj for
Mr.G.Suresh Babu
For Respondent(in both): Mr.L.Muralikrishnan, Spl.PP
1/14
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COMMON ORDER
These Criminal Original Petitions have been filed, seeking to call for
the records relating to the impugned complaint in E.O.C.C Nos.113 of 2015
and 112 of 2015, pending on the file of the learned Additional Chief
Metropolitan Magistrate(EO-I) Court, Egmore, Chennai and quash the
same.
2.The petitioner is common in these Criminal Original Petitions. The
second respondent lodged a complaint against the petitioner for the
offcences alleged under Sections 276C (1) & 277 of the Income Tax Act,
1961 alleging that for the income tax assessment years 2006-07 & 2007-08,
the petitioner had carried out certain transactions through an undeclared
account with HSBC Private Bnk (Suissa) SA, Guisan 2, P.O.Box 3580, CH-
1211, Geneva-3, Switzerland, but these transactions were not recorded in
the regular books of accounts and the petitioner failed to disclose the same
to the respondent Department for taxation. According to the petitioner, he
is a salaried person and assessed his income tax for the assessment years
2006-07 & 2007-08 and filed income tax returns on 27.06.2006 &
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30.07.2007 with admitted income of Rs.16,98,710/- and 29,56,470/-
respectively. The said accounts stand in the name of two trusts wherein, the
petitioner was one of the beneficiaries. It was observed that certain
transactions were carried out during period 01.04.2005 to 31.03.2007,
which are pertaining to the assessment years 2006-07 & 2007-08.
Therefore, the petitioner was issued with summons dated 29.08.2011 and
the petitioner submitted his reply dated 13.09.2011, whereby, he admitted
that he had and account in HSBC Private Bank and claiming ignorance, he
stated that the said amounts lying to his credit, was prior to the assessment
years 2006-07 & 2007-08 and hence, the same was not liable to tax. Further,
he explained that these amounts were deposited from his father's account in
the year 2002 and no further amounts were deposited by them in the said
account after 01.04.2006. Thereafter, the petitioner was issued with notice
under Section 148 of the Income Tax Act (herein after referred to as “the
Act”).
After conclusion of the scrutiny of assessment, the petitioner was
issued with summons under Section 131 (1A) of the Act. On receipt of the
same, sworn statement of the petitioner was recorded and he admitted the
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existence of the Bank account in Switzerland. The petitioner being the
beneficiary of the said account in Switzerland, had an obligation under the
Act, to show the sources of the income. However, the petitioner failed to
show the same for the assessment years 2006-07 & 2007-08. Therefore, the
said act is liable to be punishable under Section 276C(1) of the Act.
Thereafter, the petitioner was served with show a cause notice dated
14.01.2015 as to why the prosecution proceedings should not be initiated
against him. On receipt of the same, the petitioner submitted a reply stating
that the assessment order dated 30.03.2013 is under Appeal before the
Appellate Authority. Once again, the petitioner was served with notices in
order to give him an opportunity of hearing to him. On receipt of the same,
once again the petitioner reiterated the same vide reply dated 25.03.2025.
3.The learned counsel for the petitioner submits that on receipt of
notice under Section 131 of the Act, the petitioner verified with the details
of the accounts in Switzerland. His father died on 05.06.1992, who had
maintained the bank accounts and the petitioner being only the legal heir,
he is entitled for the benefits derived from the accounts of his father.
However, the petitioner came to the knowledge about those accounts only
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after receipt of the summons. Further, he got benefits only on transfer of the
balance amount during the financial year 2011-12. Accordingly, the
petitioner had paid income tax for the assessment year 2012-13. In the
meanwhile, the assessment for the year 2007-08 was re-opened by issuance
of notice under Section 148 of the Act. In the meanwhile, the petitioner was
also served with notice under Section 143(2) of the Act. Thereafter, the
Assessing Officer proceeded with the reassessment and passed assessment
order under Section 143(3) r/w 147 of the Act on 30.03.2013. Aggrieved by
the assessment order, dated 30.03.2013, the petitioner preferred Appeals
before the Appellate Authority/Commissioner of Income Tax. However, the
Appellate Authority vide order dated 31.03.2015, dismissed the appeals.
Aggrieved by the same, the petitioner preferred appeals vide ITA Nos.1302
& 1303 of 2015 before the Income Tax Appellate Tribunal. The Tribunal
also, vide order dated 27.04.2016, confirmed the order of re-opening and
the assessment order. Subsequent to the reassessment, the department
initiated penalty proceedings for the assessment years 2006-07 and 2007-08
by issuing show cause notices to the petitioner. While that being so, the
petitioner served with notice for prosecution under Section 276C(1) of the
Act. The learned counsel further submits that subsequently, the assessment
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orders for the assessment years 2006-07 & 2007-08 were dropped by the
Income tax authority vide order dated 05.06.2024.Therefore, the entire
prosecution for the offence punishable under Section 276C(1) cannot be
sustained as against the petitioner and liable to be quashed.
4. On the other hand, the learned counsel for the respondent would
submit that the petitioner had carried out the transactions through an
undeclared account maintained by him in Switzerland during the assessment
years 2006-07 & 2007-08 and he concealed the huge amount while filing
the income tax returns and evaded the income tax payment. He further
submits that setting aside the order of assessment has nothing to do with the
present prosecution and though the penalty proceedings are set aside, the
prosecution for the offence punishable under Section 276C(1) is very much
maintainable and hence, he sought for dismissal of the present petitions.
5. Heard the learned counsel for the petitioner and the learned Special
Public Prosecutor (Income Tax) for the respondent and perused the entire
materials available on record.
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6. The submissions made by either side would reveal that the
petitioner is facing prosecution for the alleged concealment of his income
for the financial assessment years 2006-07 & 2007-08. According to the
respondent, there was an undeclared account with HSBC Private Bank
(Suissa) SA, Guisan 2, P.O.Box 3580, CH-1211, Geneva-3, Switzerland and
the petitioner carried out certain transactions through the said account and
those transactions were not recorded in the regular books of accounts and
those accounts were not disclosed for taxation. Those accounts are in the
name of the two trusts wherein the petitioner was a beneficiary, which were
created on 24.10.2002. It was observed by the respondent that certain
transactions were carried out during the period 01.04.2005 to 31.03.2007
which are relevant to the assessment years 2006-07 & 2007-08. After
issuance of show cause notice, the Assessment Officer assessed the income
tax payable by the petitioner. Simultaneously, on receipt of the reply from
the petitioner, the respondent initiated penalty proceedings and also initiated
prosecution as against the petitioner. It is pertinent to note that insofar as the
penalty proceedings are concerned for the assessment years 2006-07 &
2007-08, the same are dropped by the Income tax Appellate Tribunal in
ITA Nos.26 & 27 of 2024 vide order dated 05.06.2024. The relevant
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portion as found in paragraphs 5 to 9 of the said order, is extracted
hereunder:
5. As noted earlier, we find that the penalty notice
for both AY's dated 31.03.2013 didn't explicitly convey to
the assessee the specific fault/charge the assessee is being
proceeded for levy of penalty. Resultantly, the show
cause notice is found to be defective/invalid, and
therefore it is held to be bad in law. For doing that we
also rely on the decision of the Hon'ble Karnataka High
Court in the case of CIT v. Manjunatha Cotton and
Ginning Factory reported in (2013) 359 ITR 565 (Kar)
and the Department's SLP against it has been dismissed
by the Hon'ble Supreme Court. We also find that Hon'ble
Karnataka High Court in the case of CIT Vs. SSA's
Emerald Meadows, reported in (2016) 73 taxmann.com
241 (Kar) endorsed the same view in Manjunatha Cotton
and Ginning Factory (supra) and held as under:-
3. The Tribunal has allowed the appeal
filed by the assessee holding the notice Income
Tax Act, 1961 (for short 'the Act'), to be bad in
law as it did not specify which limb of Section
271(1)(c) of the Act, the penalty proceedings had
been initiated i.e., whether for concealment of
particulars of income or furnishing of inaccurate
particulars of income. The Tribunal, while
allowing the appeal of the assessee, has relied on
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the decision of the Division Bench of this Court
rendered In the case of CIT Vs. Manjunatha
Cotton & Ginning Factory (2013) 359 ITR
565/218 Taxman 423/35 taxmann.com 250(Kar).
4. In our view, since the matter is covered
by judgment of the Division Bench of this Court,
we are of the opinion, no substantial question of
law arises in this appeal for determination by this
Court. The appeal is accordingly dismissed."
6. Respectfully following the judicial precedents as well
as the binding decision of the Hon'ble jurisdictional High
Court in the case of Babuji Jacob (supra), the Full bench
of the Hon'ble Bombay High Court's in the case of Mohd.
Farhan A. Shaikh (supra), we hold the impugned notices
issued for both AYS 2006-07 & 2007-08 to be bad in law
and consequently, we direct the deletion of the penalty
levied in this case.
7. Before parting, as far as the Ld.DR's contention that
there is no requirement of notice before imposing penalty,
we note that such a contention has been dealt with by this
Tribunal in the case of S.J.Suryah in ITA
No.806/Chny/2023 dated 29.05.2024 as under:
17. And the Ld.DR's contention that no
notice was required to be issued against the
assessee while initiating penalty cannot be
countenanced. Because, the principles of natural
justice concerns procedural fairness and ensures a
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fair decision is reached by an objective decision
maker. It should be remembered that by
maintaining procedural fairness protects the right
of individuals and enhances public confidence in
the process.
18. The legal maxims (i) audi alterm partem (the
right to be heard) & (ii) memo judex in parte suo
(no person shall be a judge in his own cause) are
two legal principles which is the core of
principles of natural justice.
19. The Hon'ble Supreme Court in the case of
M.S.Gill v. The Chief Election Commission
reported in [1978] AIR 851 held as under:
The dichotomy between administrative
and quasi-judicial functions vis-à-vis the
doctime or Ural justice is presumably
obsolescent after A.K.
Kraipak v. Uol reported in 1970 SC ISO
which marks the water-shed in the
application of natural justice to
administrative proceedings. The rules of
natural justice are rooted in all legal systems,
and are not any 'new theology. They are
manifested in the twin principles of nemo
and audi. It has been pointed out that the aim
of natural justice is to secure justice, or, to
put it negatively to prevent miscarriage of
justice.
20. And it is no longer res integra that penalty
proceedings and assessment proceedings are
distinct; and merely, because addition has been
made in the assessment order does not mean that
AO has to levy penalty; and since Imposing
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penalty Involves civil consequences (the
expression civil consequences encompasses
infraction of property/personal rights/civil
liberties/material deprivation/pecuniary and non
pecuniary damages), therefore, notice need to be
given because sec.271(1)(c) of the Act
specifically says about two distinct faults (1)
concealment of the particulars of income (il)
furnishing of inaccurate particulars of such
income; and therefore, concept of reasonable
opportunity guaranteed u/s.274 of the Act would
be illusory if specific charge on which penalty is
proposed is not given by AO by way of issuing
notice; and as noted above, the principles of
natural justice is implied and notice need to be
given to assessee before levy of penalty; and
therefore, notice issued to assessee has to spell
out the specific charge/fault which AO proposes
to levy, and should not be vague and should not
put the assessee guessing as to what is in the
mind of the AO viz whether he proposes
concealment of particulars of income or
furnishing inaccurate particulars of Income.
Therefore, the contentions of the Ld.DR cannot
be accepted and is held to be devoid of merits
and therefore rejected. And since the notices
issued by AO itself is invalid & legally
untenable, consequent penalty Itself is null in
eyes of law. Therefore, Revenue appeal falls and
assessee succeeds and the penalty levied is
directed to be deleted.
8. As far as Ground No.2 is concerned, we note that the
AO in the course of assessment proceedings did not made
any endorsement of his satisfaction that the assessee has
concealed particulars of his income or furnished
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Inaccurate particulars of such income, failure to do so le,
satisfaction of the AO in the assessment order that
assessee had concealed the particulars of income or
furnished Inaccurate particulars of Income was sine qua
non for Initiation of penalty u/s.271(1)(c)/274 of the Act,
which is absent in this case, therefore the consequent levy
of penalty law as confirmed by the Hon'ble Supreme
Court in the case ofPCIT v. Golden Peace Hotel &
Resorts reported in [2021] 124 taxmann.com 249 (SC).
Assessee succeeds in Ground No.2 also.
9. In the result, appeals filed by the assessee are allowed
for statistical purposes.”
6. The Hon'ble Supreme Court held in the case of “Radheshyam
Kejriwal versus Vs State of West Bengal” reported in (2011) 3 SCC 581
that 'in the case of exoneration, however, on merits where the allegation is
found to be not sustainable at all and the person held innocent, criminal
prosecution on the same set of facts and circumstances cannot be allowed
to continue, the underlying principle being the higher standard of proof in
criminal cases'.
7. In view of the facts and circumstances of the present case, the
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above ratio laid down by the Hon'ble Supreme Court is squarely applicable
to the case on hand. Therefore, the entire proceedings initiated to prosecute
the petitioner, cannot be sustained and liable to be quashed. Both the
penalty proceedings as well as the prosecution proceedings are initiated by
virtue of the same show cause notice. Therefore, the prosecution initiated
for the offence punishable under Section 276C(1) of the Act cannot be
continued, in the light of the penalty proceedings initiated under Section
276C(1) of the Act have been already terminated by the Appellate Tribunal.
Hence, continuation of the trial of the petitioner is nothing but clear abuse
of process of Court.
8. In the light of the above discussion, the impugned complaint in
E.O.C.C Nos. 112 and 113 of 2015 pending on the file of the learned
Additional Chief Metropolitan Magistrate, (EO-I) Court, Egmore, Chennai
cannot be sustained and liable to be quashed.
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G.K.ILANTHIRAIYAN, J.
dn
9. Accordingly, these Criminal Original Petitions are allowed and the
impugned complaint in E.O.C.C Nos.112 and 113 of 2015 pending on the
file of the learned Additional Chief Metropolitan Magistrate, (EO-I) Court,
Egmore, Chennai are hereby quashed.
08.04.2025
Index : Yes/No
Speaking order:Yes/No
dn
To
The Deputy Commissioner of Income Tax,
Corporate Circle 4(2),
Chennai -600 034
Crl OP Nos.15988 & 16013 of 2023
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