Facts of the Case

  1. Petitioners: Ravina and Associates Pvt. Ltd. and Ravina Khurana filed writ petitions seeking a stay on recovery of outstanding income tax demand:
    • Rs. 54,91,15,497/- for assessment years 2004-2005, 2005-2006, 2006-2007 (Ravina & Associates Pvt. Ltd.)
    • Rs. 5,02,17,426/- for assessment years 2000-2001 to 2004-2005 (Ravina Khurana)
  2. They also sought that recovery be made from their NatWest Bank, London accounts.
  3. Income declared initially in original returns was much lower than actual income received from Russian companies; revised returns were filed after registration of a CBI case in 2006 alleging corruption/illegal gratification.
  4. CBI traced funds of over £15 million in the UK, linked to alleged illegal commissions for NTPC contracts with Russian companies.
  5. Petitioners argued that they could not be treated as “assessee in default” under Section 220(7), claiming restriction on remittance from foreign accounts.

Issues Involved

  1. Whether the Income Tax Department can treat the petitioners as “assessee in default” for overseas income.
  2. Applicability of Section 220(7) of the Income Tax Act for income arising outside India.
  3. Whether recovery can be equitably made from overseas bank accounts.
  4. Legitimacy of revised returns filed post-registration of criminal case.

Petitioner’s Arguments

  • Petitioners claimed they were unaware that income earned abroad needed to be declared and taxed in India.
  • Requested recovery of tax along with interest from NatWest Bank accounts in London.
  • Argued protection under Section 220(7) of the Income Tax Act.

Respondent’s Arguments

  • Income was earned abroad but could legally be remitted to India; funds were kept in London clandestinely.
  • Petitioners filed revised returns only after CBI investigations; original returns understated actual income.
  • Funds possibly derived from corruption/illegal gratification; recovery from London accounts could be restricted due to criminal proceedings.
  • Section 220(7) does not apply as there is no restriction in Russia on remittance to India.

Court Order / Findings

  1. Petitioners’ claims of ignorance and reliance on foreign bank accounts were rejected; amounts involved were substantial and professionally managed.
  2. Section 220(7) did not apply, as income arose in Russia with no legal restriction on remittance.
  3. Equitable relief for recovery from overseas accounts was denied.
  4. Writ petitions were dismissed with consolidated costs of Rs. 20,000/- to respondents.
  5. The Court noted the criminal aspect of the funds for CBI investigation; tax authorities cannot be held liable for equitable recovery from foreign accounts.

Important Clarifications

  • Section 220(7) only protects an assessee from default when foreign laws prohibit or restrict remittance to India; mere overseas holding does not invoke this protection.
  • Revised returns filed after detection of undeclared income do not confer immunity from tax demand.
  • Foreign proceeds linked to alleged corruption are subject to legal restraint and forfeiture.

Section involved

   Income Tax Act, 1961

  • Section 139(5): Filing of revised returns
  • Section 147: Reopening of assessment
  • Section 148: Issue of notice for reassessment
  • Section 220(7): Deemed default and protection for income arising outside India

   Indian Penal Code, 1860

  • Section 120-B: Criminal conspiracy

   Prevention of Corruption Act, 1988

  • Sections 7, 8, 13(1)(d), 13(2): Offences related to bribery and criminal misconduct

Link to download the order: https://delhihighcourt.nic.in/app/case_number_pdf/2011:DHC:2228-DB/SKN20042011CW3282010.pdf

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