Facts of the Case

The petitioner, Raj Kumar Kedia, filed two petitions under Section 482 of the Code of Criminal Procedure read with Article 227 of the Constitution seeking quashing of Criminal Complaint Nos. 516654/2016 and 516655/2016 filed under Sections 276C(1) and 277A of the Income-tax Act, 1961 for Assessment Year 2015–16, along with the order dated 14.09.2017 passed by the Additional Sessions Judge affirming the order on charge dated 28.06.2017.

A search and seizure operation under Section 132 was conducted at the petitioner’s premises on 13.06.2014, which concluded on 17.06.2014. During the search, incriminating documents were seized and statements of the petitioner were recorded under Section 132(4), wherein he admitted to acting as an accommodation entry provider and explained the modus operandi adopted for routing unaccounted cash through share transactions.

Issues Involved

Whether sanction for prosecution granted by the Principal Director of Income Tax (Investigation) was valid under Section 279, whether criminal complaints filed by the Deputy Director of Income Tax (Investigation) were without jurisdiction, whether prosecution under Sections 276C(1) and 277A could be initiated prior to completion of assessment proceedings, and whether the sanction suffered from non-application of mind or vagueness.

Petitioner’s Arguments

The petitioner contended that sanction under Section 279 could only be granted by the Principal Commissioner or Commissioner and not by the Principal Director of Income Tax (Investigation). It was argued that the complaint was filed without jurisdiction as the Deputy Director could not institute prosecution once jurisdiction had shifted to the Assessing Officer. The petitioner further contended that the sanction was vague, did not specify the precise sub-section invoked, was granted mechanically without consideration of relevant records, and that prosecution was premature since assessment proceedings had not been completed.

Respondent’s Arguments

The Revenue argued that the definition of “Commissioner” under Section 2(16) expressly includes a Principal Director of Income Tax and therefore sanction granted by the Principal Director was valid. It was contended that the filing of the complaint by the Deputy Director was authorised under Section 279 and that pendency of assessment or reassessment proceedings does not bar initiation of prosecution. The Revenue relied upon settled law that criminal proceedings under the Income-tax Act can proceed independently of assessment proceedings.

Court Order / Findings

The Delhi High Court held that a combined reading of Sections 2(16), 116 and 279 of the Income-tax Act makes it clear that the term “Commissioner” includes a Principal Director of Income Tax, and therefore the sanction granted by the Principal Director (Investigation) was valid. The Court distinguished the decision in Dr. Nalini Mahajan vs. DIT (Inv.) as being confined to authorisation for search under Section 132 and not applicable to sanction for prosecution.

The Court further held that under Section 279, criminal complaints may be filed by authorised officers and there was no material to conclude at this stage that the Deputy Director lacked authority. On the issue of prematurity, the Court relied on the Supreme Court decision in P. Jayappan vs. S.K. Perumal, holding that pendency of assessment proceedings does not bar prosecution under Sections 276C and 277A. The Court rejected the contention that the sanction was vague or granted without application of mind, noting that the sanction order clearly referred to Section 276C(1).

Important Clarification

The Court clarified that prosecution under the Income-tax Act is not dependent on completion of assessment proceedings and can be initiated where there is material indicating wilful attempt to evade tax. Sanction granted by an authority included within the statutory definition of “Commissioner” is legally valid even if described under a different nomenclature.

Final Outcome

The petitions were dismissed. The Delhi High Court upheld the validity of the sanction for prosecution and the continuation of criminal proceedings under Sections 276C(1) and 277A of the Income-tax Act, 1961. All pending applications were disposed of, and the decision was rendered in favour of the Revenue and against the petitioner.

 

Link to Download Order- https://www.mytaxexpert.co.in/uploads/1769595168_RAJKUMARKEDIAVsINCOMETAXOFFICE.pdf 

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