Delhi HC Raps I-T Dept Over Procedural Violations | Says Unverified Swiss Bank Records Can’t Be Basis For Criminal Action
Isabella Mariam
The High Court of Delhi Single Bench of Justice Neena Bansal Krishna quashed two criminal complaints initiated under Sections 276C(1)(i), 276(D), and 277(1) of the Income Tax Act, observing that the prosecution rested solely on unauthenticated foreign bank documents and lacked prima facie evidence. The court held that the complaints could not be sustained as the foundational assessment order had already been set aside by the Income Tax Appellate Tribunal (ITAT), and no independent incriminating material was found to support the allegations. The court directed that both criminal complaints against the petitioner be quashed, stating there was an absence of any credible or corroborative evidence linking the petitioner with the alleged Swiss bank accounts.
The petitioner filed original income tax returns for the financial years 2006-07 and 2007-08, which were accepted and finalized. A refund was issued under Section 143(1) of the Income Tax Act on 25.05.2007. However, in 2011, the Income Tax Department received information from the French Government under the Double Taxation Avoidance Agreement (DTAA) that indicated the petitioner allegedly held accounts in HSBC Private Bank (Suisse), SA, Switzerland. The information also linked the petitioner to four other accounts held by entities such as Portland Holdings Ltd., Shagun 21, Willaston Investments Ltd., and Chotuman 21.
Based on this information, a search under Section 132 of the Income Tax Act was conducted on the petitioner’s premises on 20.01.2012. No incriminating documents were recovered during the search. Further information was requested from the Swiss authorities via the FT & TR Division of the Central Board of Direct Taxes. The petitioner was confronted with the documents, and his statement was recorded under Section 132(4) of the Income Tax Act, in which he denied any association with the alleged Swiss accounts.
A notice under Section 153A of the Income Tax Act dated 17.10.2012 was issued, requiring the petitioner to file returns. In his reply dated 05.11.2012, he declared the same income as in the earlier returns. Subsequent notices under Section 142(1) dated 18.07.2013 were served, requiring the petitioner to submit details about the HSBC accounts and to sign a Consent Waiver Form to facilitate information retrieval from the Swiss bank. The petitioner refused to sign the Consent Waiver Form.
Due to non-compliance, a penalty of Rs. 10,000 was imposed under Section 271(1)(b) on 01.10.2013, which was upheld by the Commissioner of Income Tax (Appeals) on 06.05.2014. Despite repeated opportunities to comply, the petitioner maintained that he had no connection with the alleged foreign accounts and questioned the authenticity of the information received.
On 23.03.2015, the Assessing Officer completed the assessment proceedings under Sections 153A/143(3) and added income under Section 69 of the Act, based on alleged foreign bank accounts and presumed interest earned therefrom. A penalty and interest were also levied on 30.06.2015. The petitioner challenged this order before the CIT(A), which upheld the AO's order on 11.08.2017.
The petitioner then appealed to the ITAT, which on 15.02.2018 set aside the AO's assessment, holding that no incriminating material was found during the search and the information relied upon lacked authentication. Consequently, the penalty under Section 271(1)(c) was also cancelled by the CIT(A) on 20.02.2018.
Despite this, on 27.01.2016, two criminal complaints were filed against the petitioner under Sections 276C(1)(i), 277(1), and 276(D) for attempting to evade tax, making false statements, and failing to comply with statutory notices. The petitioner moved to quash these complaints under Sections 482 and 483 of the Code of Criminal Procedure, read with Article 227 of the Constitution of India.
The petitioner contended that the complaints were based entirely on an assessment order that had been quashed by the ITAT. The petitioner cited various Supreme Court decisions including State of Haryana v. Bhajan Lal, Uttam Chand v. ITO, and K.C. Builders v. ACIT to support the proposition that once the foundation of a prosecution is removed, the prosecution cannot be sustained.
In response, the Income Tax Department argued that criminal proceedings were not solely dependent on assessment orders and could proceed if the ingredients of the offence were otherwise made out. They cited Sasi Enterprises v. ACIT, Karan Luthra v. ITO, and Jayappan v. SK Perumal, stating that non-cooperation and refusal to sign the consent form were independent grounds for prosecution.
The department maintained that the information received under DTAA was credible and that the petitioner’s refusal to sign the Consent Waiver Form indicated a culpable mental state.
The court recorded that "the entire basis rested on unauthenticated documents received from French Government under DTAA. These documents have not been verified and without verification, no authenticity can be attached to these documents received by the Respondent and cannot be a basis to even make out any case, what to talk of prima facie case."
It was further stated, "on the basis of the information so received, the Respondent had conducted raid at the premises of the Petitioner, but again no incriminating evidence of any kind was recovered."
Regarding the Consent Waiver Form, the court observed, "the Petitioner cannot be compelled to be a witness against himself. Had there been some concrete incriminating evidence with authenticated details of Foreign account, the non-signing of Consent waiver Form may have led to some adverse inference, but in the given circumstances, non-signing of Consent Waiver Form, cannot be considered as a basis for criminal prosecution."
On the offence under Section 276C, the court noted, "there was no evidence or reason whatsoever to even prima facie establish that there was any evasion of tax punishable under Section 276C(1) of the IT Act."
On the applicability of Section 277, the court found, "there is no basis on which it can be concluded that the Petitioner had made false statements for verification or false accounts knowing them to be false."
With regard to the argument that ITAT’s order was on technical grounds, the court clarified, "the contention that the Order of ITAT was on technical ground, is absolutely incorrect." It referred to the ITAT’s specific observations that there was no incriminating material recovered and the documents were not authenticated.
The court cited Ram Jethmalani v. Union of India to support its position that unauthenticated foreign documents cannot form the basis of criminal prosecution. It recorded, "merely on some unauthenticated information received from a third Country with no material evidence, is not sufficient to make out a prima facie case and there cannot be a presumption that a person has committed any wrongdoing."
The court concluded that the conditions for prosecuting the petitioner under Sections 276C(1)(i), 277(1), and 276(D) of the Income Tax Act were not satisfied. It held, "considering the totality of the circumstances and the absence of any credible or corroborative evidence, the essential ingredients required to attract the provisions of Sections 276(1), 277(1), and 276D of the IT Act, cannot be said to have been established."
It then directed, "The Petitions are therefore, allowed and the Two Complaints No536622/2016 and 517460/2016, are hereby quashed."
Additionally, the court recorded, "Pending Applications, if any, are disposed of accordingly."
Advocates Representing the Parties:
For the Petitioners: Mr. Manish Kumar Singh and Ms. Nusrat Hossain, Advocates
For the Respondents: Mr. Shlok Chandra, Senior Standing Counsel with Ms. Naincy Jain and Ms. Madhavi Shukla, Junior Standing Counsels
Case Title: Anurag Dalmia v. Income Tax Office
Neutral Citation: 2025: DHC:5659
Case Number: CRL.M.C. 1575/2018 & CRL.M.C. 1576/2018
Bench: Justice Neena Bansal Krishna
