Facts of the Case

The petitioner, Shravan Gupta, voluntarily disclosed the existence of a foreign bank account maintained with HSBC Private Bank, Geneva, Switzerland, before the Income Tax Department through a letter dated 17 November 2011. The peak amount in the said account during the relevant financial period was approximately USD 1.3 million, and the account had already been closed in the year 2007.

Following this disclosure, his statements were recorded under Section 131 of the Income-tax Act. Thereafter, reassessment proceedings were initiated under Section 148, and the petitioner filed returns disclosing the peak balance of the foreign account.

Subsequently, the Income Tax Department issued multiple notices under Section 142(1) requiring the petitioner to furnish bank account statements and related transactional records. The petitioner submitted replies on various dates and later, with considerable effort, procured and submitted complete bank statements of the foreign account through replies dated 9 February 2015 and 11 February 2015.

Despite this, the Principal Commissioner granted sanction under Section 279(1), and criminal prosecution under Section 276D was initiated alleging wilful failure to furnish information.

 

Issues Involved

  1. Whether prosecution under Section 276D of the Income-tax Act could be sustained when the assessee had subsequently furnished the required documents before the filing of complaint.
  2. Whether sanction under Section 279(1) was valid when material replies and documents submitted by the assessee were not considered.
  3. Whether the summoning order passed by the Trial Court could survive when relevant material facts were not disclosed before it.

 

Petitioner’s Arguments

The petitioner contended that:

  • The foreign bank account was voluntarily disclosed by him without coercive action by the department.
  • Complete bank statements and relevant details had already been furnished through replies dated 9 February 2015 and 11 February 2015.
  • The sanctioning authority failed to consider these replies while granting sanction for prosecution.
  • The prosecution complaint was instituted by suppressing material facts.
  • Once the Department had received all relevant documents, continuation of criminal prosecution was unwarranted.
  • The Department could proceed for tax assessment and recovery, and the petitioner was willing to pay all applicable tax liabilities.

 

Respondent’s Arguments

The Income Tax Department argued that:

  • There had been repeated non-compliance by the petitioner despite multiple notices under Section 142(1).
  • The replies submitted earlier did not contain complete details as required.
  • At the time of sanction, the Department did not have knowledge of the reply dated 9 February 2015.
  • The prosecution was validly initiated based on existing material showing wilful default.

 

Court Findings / Court Order

The Delhi High Court observed that:

  • The sanction order dated 10 February 2015 did not mention or consider the petitioner’s replies dated 9 February 2015 and 11 February 2015.
  • These replies contained the bank statements sought by the Department.
  • Even if the sanctioning authority had not seen the first reply, the Department admittedly received the subsequent reply before filing the complaint.
  • Material facts were withheld both at the stage of filing the complaint and during pre-summoning evidence.
  • The Trial Court passed the summoning order without complete disclosure of facts.

Accordingly, the Court held that the summoning order suffered from procedural infirmity.

The Delhi High Court quashed the summoning order on technical grounds.

However, liberty was granted to the Department to issue fresh sanction after considering the petitioner’s replies and to initiate fresh proceedings in accordance with law.

Relevant Sections Involved

  • Section 276D, Income-tax Act, 1961
  • Section 279(1), Income-tax Act, 1961
  • Section 142(1), Income-tax Act, 1961
  • Section 148, Income-tax Act, 1961
  • Section 131, Income-tax Act, 1961
  • Section 482, Code of Criminal Procedure, 1973
  • Section 278E, Income-tax Act, 1961

 Important Clarification

The Court clarified that:

  • Quashing of the summoning order was not on merits of tax liability.
  • The Department retained full authority to reassess tax, impose penalties, and initiate prosecution afresh after proper consideration of all materials.
  • Sanction for criminal prosecution must reflect due application of mind and consideration of all relevant records.

Relevant Sections Involved

  • Section 276D, Income-tax Act, 1961
  • Section 279(1), Income-tax Act, 1961
  • Section 142(1), Income-tax Act, 1961
  • Section 148, Income-tax Act, 1961
  • Section 131, Income-tax Act, 1961
  • Section 482, Code of Criminal Procedure, 1973
  • Section 278E, Income-tax Act, 1961

 

Legal Principle Evolved

For prosecution under Section 276D of the Income-tax Act:

  • Sanction under Section 279(1) must be based on complete and relevant material.
  • Suppression or omission of material facts vitiates prosecution.
  • Proper disclosure before the court is mandatory at pre-summoning stage.


Link to download the order - https://delhihighcourt.nic.in/app/case_number_pdf/2015:DHC:3080/MAN06042015CRLMM11002015.pdf

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