Facts of the Case

The petitioner, Sanjay Bhandari, filed a petition seeking quashing of Criminal Complaint No. 2121/2019 pending before the Court of the learned ACMM, Tis Hazari Courts, Delhi, along with the summoning order dated 10.05.2019. The complaint was filed by the Additional Commissioner of Income Tax (Central), New Delhi, under Section 51(1) of the Black Money (Undisclosed Foreign Income and Assets and Imposition of Tax) Act, 2015.

A search and seizure operation was conducted at the petitioner’s premises on 27.04.2016, during which incriminating material was allegedly found indicating undisclosed foreign bank accounts, foreign properties, and interests in offshore entities. Information was also received from Foreign Tax and Tax Research authorities regarding undisclosed foreign assets.

Further searches were conducted on the premises of the petitioner’s Chartered Accountant and legal advisors, which allegedly revealed a scheme involving fabrication and backdating of documents to project that foreign assets were held in a fiduciary capacity as trustee of an overseas trust and not in the petitioner’s personal capacity. It was alleged that these steps were taken to evade tax liabilities under the Black Money Act.

Based on the material collected, the learned Magistrate took cognizance and issued summons for offence under Section 51(1) of the Black Money Act. Aggrieved, the petitioner approached the High Court seeking quashing of the criminal proceedings.

Issues Involved

Whether prosecution under Section 51 of the Black Money Act can be initiated without completion of assessment proceedings and whether allegations of fabrication and backdating of documents constitute a prima facie case of wilful attempt to evade tax warranting continuation of criminal prosecution.

Petitioner’s Arguments

The petitioner contended that no prima facie case was made out as there was no completed assessment determining tax evasion. It was argued that criminal prosecution could not be initiated before completion of assessment proceedings under the Black Money Act. The petitioner further submitted that mere non-disclosure of foreign assets, if any, would fall under Section 50 of the Act and not Section 51, and that the alleged acts amounted at best to preparation and not an attempt to evade tax.

It was also contended that the summoning order was mechanical and suffered from non-application of mind, and that the alleged foreign assets did not belong to the petitioner either as owner or beneficial owner.

Respondent’s Arguments

The Revenue argued that assessment proceedings and prosecution under the Black Money Act are independent of each other, as expressly provided under Section 48 of the Act. It was submitted that Section 51 penalises wilful attempt to evade tax and does not require completion of assessment proceedings.

The Revenue further contended that fabrication and backdating of documents, creation of sham trust structures, and false representations regarding ownership of foreign assets constitute overt acts amounting to wilful attempt to evade tax. It was argued that at the stage of summoning, only a prima facie case is required to be seen and the allegations clearly disclosed commission of an offence under Section 51.

Court Order / Findings

The Delhi High Court examined the scheme of the Black Money Act and held that Chapter V dealing with offences and prosecution is independent of assessment proceedings under the Act. Relying on Section 48 of the Black Money Act and settled judicial precedents, the Court held that initiation of prosecution under Section 51 does not depend upon completion of assessment or determination of tax liability.

The Court further held that Sections 50 and 51 operate in different fields, with Section 50 dealing with failure to disclose foreign assets in returns and Section 51 addressing wilful attempts to evade tax. The Court observed that fabrication and backdating of documents to conceal ownership of foreign assets squarely fall within the definition of “wilful attempt” under Section 51(3).

The Court held that at the stage of issuing summons, the Magistrate is only required to ascertain whether a prima facie case exists and not to conduct a detailed examination of evidence. The allegations and material placed on record were found sufficient to justify continuation of criminal proceedings.

Important Clarification

The High Court clarified that under the Black Money Act, prosecution for wilful attempt to evade tax is not contingent upon completion of assessment proceedings and that even acts done prior to filing of return of income, if falling within Section 51(3), can attract criminal liability.

Final Outcome

The petition was dismissed. The Delhi High Court upheld the summoning order and refused to quash the criminal complaint under Section 51 of the Black Money Act, holding that a prima facie case was made out and that the criminal proceedings were liable to continue. All pending applications were also dismissed.

Link to download order - https://www.mytaxexpert.co.in/uploads/1769857227_SANJAYBHANDARIVsINCOMETAXOFFICE.pdf

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