Puneet Sabharwal vs Cbi

2024 INSC 221 REPORTABLE

IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. OF 2024 (@ SPECIAL LEAVE PETITION (CRIMINAL) NO. 2044 OF 2021)

PUNEET SABHARWAL …Appellant (s)

Versus

CBI ...Respondent(s)

WITH

CRIMINAL APPEAL NO. OF 2024 (@ SPECIAL LEAVE PETITION (CRIMINAL) NO. 2685 OF 2021)

R.C. SABHARWAL …Appellant (s)

Versus

CBI ...Respondent(s)

JUDGMENT

Signature Not Verified K.V. Viswanathan, J.

Digitally signed by Deepak Singh Date: 2024.03.19

1.

16:25:23 IST Reason: Leave granted.

1

2. The present appeals call in question the correctness of the

judgment of the High Court of Delhi at New Delhi dated

01.12.2020 in Writ Petition (Criminal) No. 200 of 2010 and

Writ Petition (Criminal) No. 339 of 2010. These proceedings

in the High Court, in turn, challenged the Order on charge

dated 21.02.2006, as well as the charges framed on

28.02.2006, by the Special Judge, Delhi. While the charge

against the appellant Puneet Sabharwal was under Section 109

IPC read with Section 13(1)(e) and 13(2) of the Prevention of

Corruption Act, 1988, the charge against appellant R.C.

Sabharwal was under Section 13(1)(e) read with 13(2) of the

Prevention of Corruption Act, 1988. In substance, the charge

was that appellant R.C. Sabharwal owned assets

disproportionate to known sources of income and the appellant

Puneet Sabharwal, son of R.C. Sabharwal, has abetted him in

the commission of the said offence. The High Court, by the

impugned order, dismissed the petitions. Aggrieved, the

appellants are before us.

2 Brief Facts:

3. On 23.08.1995, based on source information, the Anti-

Corruption Bureau, New Delhi, District New Delhi registered

a First Information Report in Crime No.RC-74(A)/95-DLI.

4. On 28.08.1995, a charge-sheet was filed against both the

appellants. In substance, the allegations, as set out in the

charge-sheet, were as follows:

(i) That the appellant R.C. Sabharwal was Additional

Chief Architect in New Delhi Municipal Corporation;

(ii) That while being posted in various capacities from the

year 1968 onwards, he had amassed huge assets which

are disproportionate to his known sources of income;

(iii) That the assets were acquired by R.C. Sabharwal

either in his name or in the name of his family

members. Details of the assets were set out.

(iv) The check period was taken from the date when the

appellant R.C. Sabharwal joined as an Assistant

3 Architect in NDMC i.e. 20.08.1968 to the date of the

search i.e. 23.08.1995.

(v) That the total income of the appellant R.C. Sabharwal

from salary was Rs. 10,00,042/-. Detailed breakup of

salary for the years was given. The income from the

salary of his spouse was Rs. 8,72,249.42

(vi) Apart from the above salaried income, income

accruing to the accused R.C. Sabharwal from several

enterprises, companies and trusts was also set out.

Rental income was also mentioned as well as income

from insurance policies and income arising out of

interest. After computing all the income, it was

mentioned that the total income was of Rs.

1,23,18,091/-

(vii) Expenditure was provided to the extent of Rs.

18,23,108/-. Movable assets to the tune of Rs.

4,25,450/- was mentioned. It was also alleged that

there were bank balances in the name of appellant 4 R.C. Sabharwal and in the name of his family

members to the tune of Rs. 82,63,417/-.

(viii) As far as the immovable assets are concerned, a set of

twenty-four properties were set out which were in all

valued at Rs. 2,27,94,907/-.

(ix) That the appellant R.C. Sabharwal could not

satisfactorily account for the assets disproportionate

to his known sources of income.

(x) That the appellant R.C. Sabharwal was a party to the

criminal conspiracy with his son, being appellant

Puneet Sabharwal, who had received Rs. 79 lakhs

through encashment of Special Bearer Bonds and he

facilitated commission of the offence as a conspirator.

(xi) That in furtherance of the said criminal conspiracy,

assets were acquired by R.C. Sabharwal in the name

of M/s Morni Devi Brij Lal Trust, M/s Morni

Merchants and other firms in which the sole

beneficiary was appellant Puneet Sabharwal, his son. 5 It was further alleged that appellant R.C. Sabharwal

dealt with all the financial matters of the said

trusts/firms.

(xii) It was concluded that a criminal case was made out

against appellant R.C. Sabharwal and Puneet

Sabharwal for offence punishable under 120-B IPC

r/w 5(2) r/w 5(1)(e) of PC Act, 1947 corresponding to

13(2) r/w 13(1)(e) of PC Act, 1988.

(xiii) Further, it was concluded that against R.C. Sabharwal

a case under Section 5(2) r/w 5(1)(e) of PC Act, 1947

corresponding to 13(2) r/w 13(1)(e) of PC Act, 1988

was made out for possession of assets worth Rs.

2,05,63,341/- disproportionate to his known sources

of income.

Order on Charge:

5. On 21.02.2006, the Special Judge pronounced an order on

charge after elaborately discussing the principles governing

6 discharge. The learned Judge rendered the following findings

in the order on charge:

(i) The expression “known sources of income” can only

have reference to the sources known to the

prosecution;

(ii) The prosecution cannot be expected to know the firms

of the accused persons;

(iii) The income from firms of the accused persons would

be within the special knowledge of the accused, under

Section 106 of the Evidence Act and it was for the

accused to ‘satisfactorily account’ for the charge of

owing disproportionate assets, which can only be

discharged at trial;

(iv) Insofar as the appellant Puneet Sabharwal is

concerned, reliance was placed on the statement of

Chartered Accountant Anil Mehta to the effect that

the properties were purchased benami by appellant

R.C. Sabharwal in the name of his son and sister; 7

(v) The learned judge relied upon P. Nallamal v. State,

(1996) 6 SCC 559, wherein this Court held that a non-

public servant can be tried in the same trial along with

the public servant for abetment of offence under

Section 13(1)(e) r/w 13(2) of the PC Act.

(vi) There was sufficient material to show the existence of

grave suspicion arising out of the material placed

before the Court regarding involvement of both the

appellants for commission of offences under Section

109 IPC read with Section 13(1)(e) r/w 13(2) of the

PC Act as far as the appellant Puneet Sabharwal was

concerned and under Section 13(1)(e) read with 13(2)

of the Prevention of Corruption Act, 1988 as far as

R.C. Sabharwal was concerned.

Charges:

6. Thereafter, by order dated 28.2.2006, charges were also

framed. For the sake of convenience, the charges against both

the appellants are set out hereinbelow:

8 “CHARGE NO. 1

That you being a public servant employed as Additional Chief Architect, NDMC, New Delhi, during the period 20.8.1968 to 23.08.1995 were found in possession of assets to the tune of Rs. 3,10,58,324/- as against your income and that of your family members Income, to the tune of Rs.

1,23,18,091/- and expenditure of Rs. 18,23,108/-and you were found in possession of total assets to the tune of Rs. 2,05,63,341/- which were disproportionate to your known sources of income and which you could not satisfactorily account for and thereby you committed an offence U/s. 13(1)(e) punishable U/s. 13(2) of the PC Act, 1988 and within my cognizance.

And I hereby direct you to be tried by this court for the said offence.

CHARGE NO. 2 That while your father Shri R.C. Sabharwal being a public servant employed as Additional Chief Architect, NDMC, New Delhi during the period 20.08.1968 to 23.08.1995 you intentionally aided him in commission of the offence U/s 13(1)(e) read with 13(2) of the PC Act as he was found in possession of assets to the tune of Rs. 3,10,58,324/- as against his income and that of his family members income, to the tune of Rs. 1,23,18,091/- and expenditure of Rs. 18,23,108/- and he was found in possession of total assets of the tune of Rs. 2,05,63,341/, which were disproportionate to his known sources of income and which he could not satisfactorily account for and thereby you committed an offence, of abetment U/s 109 IPC read with 13(1)(e) and Sec. 13(2) of the PC Act, 1988 and within my cognizance.

And hereby direct you to be tried by this court for the said offence.” [emphasis supplied]

9 Orders on the income tax front:

7. After the order of the Trial Court, both with regard to the order

on charge and the framing of charges, and before the High

Court disposed of the Petitions before it, leading up to the

impugned order, certain developments took place on the

income tax front.

8. The Income Tax Appellate Tribunal pronounced its judgment

on 31.08.2007 in appeals and cross appeals filed by the

assessees [which included the Appellants herein] and the

department, with regard to the reopening of the assessments

for the years 1989-1990 to 1995-1996 and 1997-1998 to 2001-

2002.

9. Earlier, the Assessing Officer had reopened the assessment for

Assessment Year 1996-1997 and made certain additions and

deletions in the hands of the Appellants herein and other

assessees. Thereafter, the CIT (Appeals) had upheld the

validity of the reopening while approving or disapproving

some of the additions and deletions made by the Assessing 10 Officer. However, the Tribunal had, on 07.03.2005, held that

the reopening of the assessment for the Assessment Year

1996-1997 was not justified since the conditions precedent for

reopening the assessment were not fulfilled. Consequently, the

issues regarding the merits of additions or deletions were not

adjudicated by the Tribunal in the said Order.

10. However, the Tribunal in its order dated 31.08.2007, while

hearing appeals and cross-appeals concerning the reopening of

assessment for the years 1989-1990 to 1995-1996 and 1997-

1998 to 2001-2002, found that materials did exist for

reopening the assessment for the said assessment years.

Thereafter, it examined the merits of the additions made on

substantive basis and additions denied, in the years under

consideration in the hands of appellant R.C. Sabharwal. It

noted that the Tribunal was required to examine the additions

and deletions carried out by the Assessing Officer and the CIT

(Appeals) in the assessment year 1996-1997 because, in the

view of the Tribunal, the issue of additions in all the other 11 years under consideration flowed from the base assessment

year of 1996-1997.

11. While considering the various additions and deletions, the

Tribunal inter alia considered the addition carried out by the

Assessing Officer [which was thereafter deleted by the CIT

(Appeals)] in the hands of the appellant R.C. Sabharwal herein

with respect to income of M/s Morni Devi Brij Lal Trust. The

Assessing Officer had justified these additions on the grounds

that:

(i) The source of investment made by the founders of the

said trust being Smt. Morni Devi and Sh. Brij Lal was

not explained.

(ii) The special bearer bonds which were encashed in the

account of the said Trust were not out of investments

from the Trust since the said bonds were purchased

prior to the formation of the Trust itself. Some other

person had invested the amount and encashed it in the

hands of the trust.

12

(iii) The founder of the trust was not shown to have the

income necessary to purchase the said bonds.

12. The CIT (Appeals) had deleted these additions. In examining

this issue and approving the said deletion, the Tribunal

rendered the following findings:

(i) The Appellant R.C. Sabharwal had no obligation to

explain the source of investment of the founders of the

trust being Smt. Morni Devi and Sh. Brij Lal.

(ii) The Trust itself had been filing its return of income

since it came into existence and had been assessed

separately. No evidence was produced to show that

the assessee was the benami owner of the trust.

(iii) As regards the credits representing deposits of Special

Bearer Bonds, relying upon Section 3 of the Special

Bearer Bonds (Immunities and Exemptions) Act,

1981 it was held that no person who has subscribed to

or has otherwise acquired Special Bearer Bonds shall

be required to disclose, for any purpose whatsoever, 13 the nature and source of acquisition of such bonds and

that complete immunity has been granted to the bond

holders. The presumption of the Assessing Officer

that the bearer bonds were acquired by the trust was

held to be not correct;

(iv) Reference is made by the Tribunal to the findings of

the CIT (Appeals) that the special bearer bonds were

tendered for encashment by the trust and that

Assessing Officer exceeded his jurisdiction in making

an enquiry and calling upon the trust to explain the

nature and source of acquisition of such bonds.

(v) Reference is made by the Tribunal to the findings of

the CIT (Appeals) that the trust would be a person

within the meaning of the Special Bearer Bonds

(Immunities and Exemptions) Act, 1981.

(vi) The Tribunal then quotes the findings of the CIT

(Appeals) whereunder it was held that once the

assessment has been made and the department has 14 accepted the existence of the trust it could not be

reversed without bringing on record any adverse

material. The onus was on the department to show that

the trust was benami and there was no evidence in that

regard.

(vii) The Tribunal then quotes the findings of the CIT

(Appeals) whereunder it was concluded that the

Assessing Officer had not been able to prove that the

Trust was benami and that the income of the trust

belonged to R.C. Sabharwal. Holding so, the additions

to the tune of Rs. 8,14,230/- was deleted. No further

comments were given by the Tribunal in regard to this

addition/deletion.

13. Thereafter, on the issue of appellant Puneet Sabharwal having

received funds from the Morni Devi Brij Lal Trust which was

held to belong to appellant R.C. Sabharwal, it was found that

since Morni Devi Brij Lal Trust was a separate entity and since

the appellant Puneet Sabharwal was running its business, its 15 income could not be added in the hands of the appellant R.C.

Sabharwal. The Tribunal also considered the

additions/deletions with regard to various other firms and

assessees which we do not seek to set out herein for the

purposes of brevity.

14. Ultimately, only on the aspect of deposits in the joint bank

accounts of minors, so far as it fell within the limitation period,

the Tribunal restored the matter back to the Assessing Officer

for deciding the issue afresh and the appeal of the revenue was

allowed to that limited extent. Holding so, the appeals were

disposed of. Consequently, on 30.12.2009, the Assessing

Officer passed an assessment order accepting the explanation

of the assessee on the aspect remitted and the income of the

assessee Puneet Sabharwal was fixed at Rs. 67,550/-.

Proceedings in the High Court:

15. These orders which came subsequent to the orders of the Trial

Court were placed before the High Court. It was contended

that in view of the orders made by the Income Tax Appellate 16 Tribunal in the reopening proceedings, which reopening was

based on the search conducted by the CBI, there is absolutely

no ground to proceed with the criminal trial. It was further

argued, with respect to the appellant Puneet Sabharwal, that he

was a minor for a large portion of the check period and

therefore could not be made an accused.

16. Repelling the contentions, the High Court held as follows:

(i) Simply because for a large part of the period of

investigation, the appellant Puneet Sabharwal was a

minor, would not by itself be a reason to disregard the

fact that at least for the seven years of the

investigation period he was a major;

(ii) Under Section 3(2) of Special Bearer Bonds

(Immunities and Exemptions) Act, 1981, the

immunities under the Act are inapplicable to offences

committed under the Prevention of Corruption Act or

similar offences;

17

(iii) Prosecution has sought to rely upon statements of

several witnesses;

(iv) In State of Karnataka v. Selvi J. Jayalalitha & Ors.

(2017) 6 SCC 263, this Court had held that income tax

assessment orders are apropos tax liability on income

and they do not necessarily attest to the lawfulness of

the sources of income;

(v) That what was relevant was whether there was a

strong suspicion that the accused has committed the

offence and that in the view of the High Court there

was indeed a case for trial. Holding so, the Writ

Petitions were dismissed.

Contentions:

17. Before us Mr. Mukul Rohatgi and Mr. Siddharth Agarwal,

learned senior counsel for the appellants reiterated the

contentions raised before the High Court.

18. Insofar as the appellant Puneet Sabharwal was concerned, it

was contended as follows:

18

(i) That the High Court erred in holding that merely

because for a large part of the period of investigation,

the appellant was a minor, it would not be by itself a

reason to disregard the fact that for at least seven years

of the investigation period he was a major;

(ii) That the courts below erred in, without more,

endorsing the allegations against the appellant(s)

solely on account of being named as a beneficiary in

the trust deed of M/s Morni Devi Brij Lal Trust.

Further, the Court erred in endorsing the allegation

that the trust was holding benami properties of which

appellant R.C. Sabharwal was a beneficial owner;

(iii) That since out of the twenty years of the check period

except 7 years of the said period the appellant Puneet

Sabharwal was a minor, it belied logic as to how the

said appellant could have conspired with his father.

This indicated gross abuse of process of law.

19

(iv) That the charge as framed indicates that criminal

proceedings have been saddled against appellant

Puneet Sabharwal merely by virtue of being his

father’s son and none of the ingredients under Section

109 of the Indian Penal Code were attracted;

(v) That the High Court erred in not taking into account

the exoneration of the appellant’s father by the

Income Tax Appellate Tribunal; that the Income Tax

Appellate Tribunal, by its order of 31.08.2007,

rendered a categorical finding that the father did not

hold the properties of the said trust as benami and

even the limited issue on which the Income Tax

Appellate Tribunal remanded the matter, by the order

of 30.12.2009, the assessment officer found the

deposits to be income of the son.

19. Insofar as the appellant R.C. Sabharwal is concerned, the

argument was substantially on the basis of the Income Tax

20 Appellate Tribunal order of 31.08.2007. The contentions were

as follows:

(i) The order of Income Tax Appellate Tribunal

categorically held that income arising from properties

of various entities were wrongly added to the income

of the appellant;

(ii) The appellant was not the owner of those entities and

consequently the properties and money held by those

entities could not be held to be under the ownership

of the appellant R.C. Sabharwal;

(iii) The reassessment for thirteen years was carried out on

the complaint of CBI itself;

(iv) The courts below misapplied the judgment of this

Court in Selvi J. Jayalalitha (supra) and failed to

notice the distinguishing feature namely that, in the

present case, it was not a case of reliance on income

tax return but the returns which were subjected to an

inquisition.

21

(v) The High Court exercising power under Article 226,

227 of the Constitution of India and Section 482 of

Cr.P.C. has power to look into material placed by the

accused in arriving at its conclusion for discharge.

20. For both the appellants, reliance was placed on Radheshyam

Kejriwal v. State of West Bengal & Anr., (2011) 3 SCC 581,

Ashoo Surendranath Tewari v. CBI & Anr. (2020) 9 SCC

636 and J. Sekar v. Directorate of Enforcement, (2022) 7

SCC 370 to contend that where there is exoneration on merits

in a civil adjudication, criminal prosecution on the same set of

facts and circumstances cannot be allowed to continue since

the underlying principle is that the standard of proof in

criminal cases is higher.

21. The submissions of the appellants were strongly refuted by

Mr. K.M. Nataraj, learned Additional Solicitor General.

Learned ASG contended as follows:

22

(i) That at the stage of framing of charges what is

relevant is material as is available on the date of

framing of the charge;

(ii) That a court of law is not required to appreciate

evidence at the stage of framing of charges to

conclude whether the materials produced are

sufficient or not for convicting the accused;

(iii) That it was settled law that probative value of material

on record cannot be gone into at the stage of framing

of charges since the court was not conducting a mini

trial;

(iv) Relying on Sheoraj Singh Ahlawat & Ors. v. State of

U.P. & Anr., (2013) 11 SCC 476, it was contended

that all that has to be seen is whether there is a ground

for presuming that the offence has been committed

and not whether there was ground for convicting the

accused;

23

(v) That even a strong suspicion founded on material

which leads the court to form a presumptive opinion

as to the existence of the factual ingredients

constituting the offence would justify the framing of

the charge.

(vi) Reliance placed on the order of the Income Tax

Appellate Tribunal dated 21.08.2007 is subsequent to

the framing of charges and even otherwise cannot be

the basis for the discharge of the accused;

(vii) That the criminal prosecution does not depend upon

the order passed by the Income Tax Appellate

Tribunal and, most importantly, the prosecution was

not and could not have been a party before the Income

Tax Authorities and the ITAT;

(viii) That the Income Tax Appellate Tribunal order can be

at best, if permissible in law, used as a piece of

evidence and the Income Tax Appellate Tribunal

order will not have the effect of nullifying the order 24 framing charges by a criminal court. Reliance has

been placed on Selvi J. Jayalalitha (supra),

Vishwanath Chaturvedi (3) v. Union of India & Ors.,

(2007) 4 SCC 380 and State of T.N. v. N. Suresh

Rajan & Ors., (2014) 11 SCC 709 to contend that the

findings of the Income Tax Authorities are not

binding on a criminal court to readily accept the

legality or lawfulness of the source of income.

(ix) The power to quash a proceeding and nip the same in

the bud has to be exercised with great caution and

circumspection.

So contending, the learned ASG prayed that no case has been

made out to set aside the order on charge and the charges and

the appeals deserve to be dismissed.

Question:

22. Under the above circumstances, the question that arises for

consideration is: Whether the courts below were justified in

25 refusing to quash and set aside the order on charge dated

21.02.2006 and the charges as framed on 28.02.2006?

Analysis:-

23. Having heard learned counsels for the parties and perused the

records, we are of the opinion that the appellants have not

made out a case for interference with the order on charge

dated 21.02.2006 and the order of framing charge dated

28.02.2006. We say so for the following reasons.

24. The case of the prosecution is that the appellant R.C.

Sabharwal, the father of appellant Puneet Sabharwal, owned

assets to the tune of Rs. 2,05,63,341/- and that this was

disproportionate to his known sources of income which was

computed at Rs. 1,23,18,091/-. The allegation against the son

Puneet Sabharwal was that he had received Rs. 79 lakhs

through encashment of Special Bearer Bonds and he facilitated

commission of offence inasmuch as assets were acquired by

appellant R.C. Sabharwal in the name of M/s Morni Devi Brij

Lal Trust, M/s Morni Merchants and other firms in which the 26 sole beneficiary was appellant Puneet Sabharwal. The order

framing charge invokes Section 109 IPC to be read with

Section 13(1)(e) read with Section 13(2) of the PC Act against

Puneet Sabharwal.

25. The main plank of the arguments of the appellants is that the

Income Tax Appellate Tribunal order dated 31.08.2007, has,

while allowing the appeals of the assessees and dismissing the

cross appeals of the department (except to a small extent which

too got settled with the assessment order of 30.12.2009), held

that no case was made out to justify that the income and assets

of the entities such as the Morni Lal Brij Trust were to be

added to the income of R.C. Sabharwal. In view of the same,

it is argued that there is no case for prosecuting them for own-

ing disproportionate assets.

26. It is argued that per se the Income Tax Appellate Tribunal

order should result in quashment of proceedings and the

discharge of the accused. Additionally, it is argued that on the

ground that analogous tax proceedings have ended in favour of 27 the appellants, a criminal prosecution on identical facts cannot

continue. For this, reliance is placed on the judgments

mentioned hereinabove.

27. We have already discussed the substance of the Income Tax

Appellate Tribunal order of 31.08.2007. In law, the

submissions of the appellants ought to fail on both the counts

as there is no basis to nip the criminal prosecution in this case

in its bud.

28. As far as the first argument about the criminal proceedings

losing its efficacy in view of the Income Tax Appellate

Tribunal order of 31.08.2007 is concerned, we accept the

submission of the respondent CBI that the prior rulings of the

court ending with the judgment in Selvi J. Jayalalitha (supra)

have clearly concluded the issue against the appellants.

29. This Court, in Selvi J. Jayalalitha (supra), was

concerned with an appeal against an order of acquittal passed

in a case of disproportionate assets under Section 13 of the

Prevention of Corruption Act. The accused persons therein had 28 sought to place reliance on income tax returns and income tax

assessment orders. In that context the Court had concluded

that income tax returns and orders are not by themselves

conclusive proof that they are lawful sources of income under

Section 13 of the Prevention of Corruption Act and that

independent evidence to corroborate the same would be

required. The Court held:

“188. In Anantharam Veerasinghaiah & Co. v. CIT, 1980 Supp SCC 13 : 1980 SCC (Tax) 274] , the return filed by the petitioner assessee, who was an Abkari contractor, was not accepted by the ITO as amongst others, excess expenditure over the disclosed available cash was noticeable and further several deposits had been made in the names of others. The assessee's explanation that the excess expenditure was met from the amounts deposited with him by other shopkeepers but were not entered in his book, was not accepted and penalty proceedings were taken out against him holding that the items of cash deficit and cash deposit represented concealed income resulting from suppressed yield and low selling rates mentioned in the books. The Appellate Tribunal, however, allowed the appeal of the assessee and set aside the penalty order. The High Court reversed [CIT v. Anantharam Veerasingaiah & Co., 1971 SCC OnLine AP 262 : (1975) 99 ITR 544] the decision of the Appellate Tribunal and the matter reached the Supreme Court.

189. It was held that as per Section 271(1)(c) of the Income Tax Act, 1961, penalty can be imposed in case where any

29 person has concealed the particulars of his income or has deliberately furnished inaccurate particulars of such income. The related proceeding was quasi-criminal in nature and the burden lay on the Revenue to establish that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars. The burden of proof in penalty proceedings varied from that involved in assessment proceedings and a finding in assessment proceedings that a particular receipt was income cannot automatically be adopted as a finding to that effect in the penalty proceedings. In the penalty proceedings, the taxing authority was bound to consider the matter afresh on the materials before it, to ascertain that whether a particular amount is a revenue receipt. It was observed that no doubt the fact that the assessment year contains a finding that the disputed amount represents income constitutes good evidence in the penalty proceedings, but the finding in the assessment proceedings cannot be regarded as conclusive for the purpose of penalty proceedings. Before a penalty can be imposed, the entirety of the circumstances must be taken into account and must lead to the conclusion that the disputed amount represented income and that the assessee had consciously concealed the particulars of his income or had deliberately furnished inaccurate particulars.

190. The decision is to convey that though the IT returns and the orders passed in the IT proceedings in the instant case recorded the income of the accused concerned as disclosed in their returns, in view of the charge levelled against them, such returns and the orders in the IT proceedings would not by themselves establish that such income had been from lawful source as contemplated in the Explanation to Section 13(1)(e) of the PC Act, 1988 and that independent evidence would be required to account for the same.

191. Though considerable exchanges had been made in course of the arguments, centring around Section 43 of the 30 Evidence Act, 1872, we are of the comprehension that those need not be expatiated in details. Suffice it to state that even assuming that the income tax returns, the proceedings in connection therewith and the decisions rendered therein are relevant and admissible in evidence as well, nothing as such, turns thereon definitively as those do not furnish any guarantee or authentication of the lawfulness of the source(s) of income, the pith of the charge levelled against the respondents. It is the plea of the defence that the income tax returns and orders, while proved by the accused persons had not been objected to by the prosecution and further it (prosecution) as well had called in evidence the income tax returns/orders and thus, it cannot object to the admissibility of the records produced by the defence. To reiterate, even if such returns and orders are admissible, the probative value would depend on the nature of the information furnished, the findings recorded in the orders and having a bearing on the charge levelled. In any view of the matter, however, such returns and orders would not ipso facto either conclusively prove or disprove the charge and can at best be pieces of evidence which have to be evaluated along with the other materials on record.

Noticeably, none of the respondents has been examined on oath in the case in hand. Further, the income tax returns relied upon by the defence as well as the orders passed in the proceedings pertaining thereto have been filed/passed after the charge-sheet had been submitted. Significantly, there is a charge of conspiracy and abetment against the accused persons. In the overall perspective therefore neither the income tax returns nor the orders passed in the proceedings relatable thereto, either definitively attest the lawfulness of the sources of income of the accused persons or are of any avail to them to satisfactorily account the disproportionateness of their pecuniary resources and properties as mandated by Section 13(1)(e) of the Act.

199. The import of this decision is that in the tax regime, the legality or illegality of the transactions generating 31 profit or loss is inconsequential qua the issue whether the income is from a lawful source or not. The scrutiny in an assessment proceeding is directed only to quantify the taxable income and the orders passed therein do not certify or authenticate that the source(s) thereof to be lawful and are thus of no significance vis-à-vis a charge under Section 13(1)(e) of the Act.

200. In Vishwanath Chaturvedi (3) v. Union of India, (2007) 4 SCC 380 : (2007) 2 SCC (Cri) 302], a writ petition was filed under Article 32 of the Constitution of India seeking an appropriate writ for directing the Union of India to take appropriate action to prosecute R-2 to R-5 under the 1988 Act for having amassed assets disproportionate to the known sources of income by misusing their power and authority. The respondents were the then sitting Chief Minister of U.P. and his relatives. Having noticed that the basic issue was with regard to alleged investments and sources of such investments, Respondents 2 to 5 were ordered by this Court to file copies of income tax and wealth tax returns of the relevant assessment years which was done. It was pointed out on behalf of the petitioner that the net assets of the family though were Rs 9,22,72,000, as per the calculation made by the official valuer, the then value of the net assets came to be Rs 24 crores. It was pleaded on behalf of the respondents that income tax returns had already been filed and the matters were pending before the authorities concerned and all the payments were made by cheques, and thus the allegation levelled against them were baseless. It was observed that the minuteness of the details furnished by the parties and the income tax returns and assessment orders, sale deeds, etc. were necessary to be carefully looked into and analysed only by an independent agency with the assistance of chartered accountants and other accredited engineers and valuers of the property.It was observed that the Income Tax Department was concerned only with the source of income and whether the tax was paid or not and, therefore, only an independent agency or CBI could, 32 on court direction, determine the question of disproportionate assets. CBI was thus directed to conduct a preliminary enquiry into the assets of all the respondents and to take further action in the matter after scrutinising as to whether a case was made out or not.

201. This decision is to emphasise that submission of income tax returns and the assessments orders passed thereon, would not constitute a foolproof defence against a charge of acquisition of assets disproportionate to the known lawful sources of income as contemplated under the PC Act and that further scrutiny/analysis thereof is imperative to determine as to whether the offence as contemplated by the PC Act is made out or not.” [Emphasis Supplied]

30. The appellants herein have contended that the decision in J.

Jayalalitha (supra) would not be applicable to the present

case since, according to them, that decision involved only an

assessment order, while the present case involves the findings

by an Appellate Tribunal after an inquisition into the issues

involved. The Appellants herein seek to rely on Paragraph 309

of the decision in J. Jayalalitha (supra) in support of the

same. Paragraph 309 is set-out hereunder:

“309. In contradistinction, the High Court quantified the amount of gifts to be Rs 1.5 crores principally referring to the income tax returns and the orders of the authorities passed thereon. It did notice that there had been a delay in the submission of the income tax returns but accepted the plea of

33 the defence acting on the orders of the Income Tax Authorities. It seems to have been convinced as well by the contention that there was a practice of offering gifts to political leaders on their birthdays in the State. Not only is the ultimate conclusion of the High Court, dehors any independent assessment of the evidence to overturn the categorical finding of the trial court to the contrary, no convincing or persuasive reason is also forthcoming. This assumes significance also in view of the state of law that the findings of the Income Tax Authorities/forums are not binding on a criminal court to readily accept the legality or lawfulness of the source of income as mentioned in the income tax returns by an assessee without any semblance of inquisition into the inherent merit of the materials on record relatable thereto. Not only this aspect was totally missed by the High Court, no attempt seems to have been made by it to appraise the evidence adduced by the parties in this regard, to come to a self-contained and consummate determination.”

31. These submissions do not appeal to us for the following

reasons:

(i) First of all, the inquisition mentioned in Paragraph

309 of the said decision, is the inquisition to be made

by the criminal court. That is clear from a complete

reading of the above-said paragraph. In that case, the

High Court, while acquitting the accused, had merely

gone by the income tax records which were produced

by the accused persons. However, the Trial Court had

34 independently examined the issue and had not

mechanically gone by the income tax records. It was

while commenting on this that this Court said an

inquisition ought to have been made on the material.

(ii) Secondly, this Court in J. Jayalalitha (supra), before

arriving at a conclusion regarding the probative value

of the income tax returns, has examined in detail the

previous decisions of this Court where there were not

only assessment orders but also decisions of the

Appellate Tribunal and the High Court. It is only after

considering this aspect that the Court laid down that

the Income Tax Returns and Orders passed in IT

Proceedings are not conclusive proof.

(iii) Thirdly, this Court has categorically held that while

income tax returns/orders may be admissible as

evidence, the probative value of the same would

depend on the nature of the information furnished and

35 findings recorded in the order, and would not ipso

facto either conclusively prove or disprove a charge.

(iv) Fourthly, it is important to note that the decision in J.

Jayalalitha (supra) was in a matter involving a full-

fledged trial and the Court was hearing an appeal

against an Order of acquittal passed by the High

Court. The Court also noted that income tax returns or

orders could at best be evidences which have to be

evaluated along with the other materials on record.

(v) This Court, in cases involving either discharge

[State of Tamil Nadu v. N. Suresh Rajan & Ors.

(2014) 11 SCC 709 Paragraph 32.3] or quash [CBI &

Anr. v. Thommandru Hannah Vijayalakshmi &

Anr. (2021) 18 SCC 135 Paragraph 63-64] has noted

that Income Tax Returns are not conclusive proof

which can be relied upon either to quash the criminal

proceeding or to discharge the accused persons. 36

32.Therefore, in the present case, the probative value of the

Orders of the Income Tax Authorities, including the Order of

the Income Tax Appellate Tribunal and the subsequent

Assessment Orders, are not conclusive proof which can be

relied upon for discharge of the accused persons. These

orders, their findings, and their probative value, are a matter

for a full-fledged trial. In view of the same, the High Court,

in the present case, has rightly not discharged the appellants

based on the Orders of the Income Tax Authorities.

33. Insofar as the submission that where there is exoneration in a

civil adjudication, criminal prosecution on the same set of

facts and circumstances cannot be allowed to continue is

concerned, the same is also without merit as far as the present

case is concerned.

34. The appellants herein have placed reliance on the decisions of

this Court in Radheyshyam Kejriwal (supra), Ashoo Suren-

dranath Tewari (supra) and J. Sekar (supra) to argue that

once there is an exoneration on merits in a civil adjudication, 37 a criminal prosecution on the same set of facts and circum-

stances cannot be allowed to continue. In our opinion, none

of the above-referred decisions are applicable to the facts of

the present case.

35. In Radheshyam Kejriwal (supra), this Court was concerned

with a fact situation where the Petitioner therein was being

prosecuted under the Foreign Exchange Regulation Act, 1973

for payments made by him in Indian currency in exchange for

foreign currency without any general or specific exemption

from the Reserve Bank of India. The Enforcement Directorate

had commenced both an adjudication proceeding and a

prosecution under the provisions of the Foreign Exchange

Regulation Act, 1973. It so transpired that the Adjudicating

Officer found that no documentary evidence was available to

prove the foundational factum of the Petitioner therein

entering into the alleged transactions which fell foul of the Act

and thereafter directed that the proceedings be dropped. The

question which fell for the consideration before this Court was 38 whether the result of this adjudication proceeding would lead

to exoneration of the Petitioner in the criminal prosecution.

36. In this background, this Court noticed that the adjudication

proceedings under the Foreign Exchange Regulation Act,

1973 involved an adjudication on whether a person had

committed a contravention of any provisions of the Act. It is

in this context, that the Court went on to hold that where the

allegation in an adjudication proceeding and proceeding for

prosecution is identical and the exoneration in the former is on

merits i.e. that there is no contravention of the provisions of

the Act, then the trial of person concerned would be an abuse

of process of the Court.

37. The decision in Radheyshyam (supra) was in a fact situation

where the adjudicatory and criminal proceedings were being

commenced by the same authority in exercise of powers

under the same Act. Further, as this Court had noted, the civil

adjudication proceedings related to an adjudication as to

whether there was contravention of provisions of the Act and 39 the Rules thereunder, which had an impact on the prosecution

under the Act. However, in the present case, the appellants

herein are being prosecuted under the provisions of the

Prevention of Corruption Act while they seek to rely on an

exoneration under the Income Tax Act. The scope of

adjudication in both of these proceedings are vastly different.

The authority which conducted the income tax proceedings

and the authority conducting the prosecution is completely

different (CBI). The CBI was not and could not have been a

party to the income tax proceeding. Given the said factual

background, the decision in Radheyshyam (supra) is not

applicable to the present case.

38. In Ashoo Surendranath (supra), the Petitioner therein was

working as a DGM at the Small Industries Development Bank

of India while there was diversion of funds from the Bank. The

allegation against the Petitioner therein was that he had shared

the RTGS details for the account to which the amount was

diverted, to another official who was the purported kingpin of 40 the crime. The competent authority of the Bank had refused to

provide a sanction for prosecution of the Petitioner therein,

which was supported by the report of the Central Vigilance

Commission. The question therefore posed before the Court

was whether the report of the Central Vigilance Commission

should lead to discharge of the Petitioner therein.

39. In the above-mentioned factual background, this Court set-out

the findings of the Central Vigilance Commission which had

recorded that the e-mail sent by the Petitioner therein had

clearly been sent to the principal accused for the purpose of

verification since the latter was the officer for verification and

that this showed that there was no role that the Petitioner

played in perpetrating the offence. Thereafter, relying upon

the decision in Radheyshyam (supra), the Court concluded

that since the allegation has been found to be “not sustainable

at all”, the criminal prosecution could not be continued.

40. The decision in Ashoo Surendranath (supra) is not

applicable to the present case because the decision in Ashoo 41 Surendranath (supra) concerned a singular prosecution

under the provisions of the Indian Penal Code where the

sanctioning authority had, while denying sanction, recorded

on merits that there was no evidence to support the

prosecution case. In that context, the Court was of the opinion

that a criminal proceeding could not be continued. However,

in the present case, the charges were framed under the

Prevention of Corruption Act, while the appellants seek to rely

upon findings recorded by authorities under the Income Tax

Act. The scope of adjudication in both the proceedings are

markedly different and therefore the findings in the latter

cannot be a ground for discharge of the Accused Persons in

the former. The proceedings under the Income Tax Act and its

evidentiary value remains a matter of trial and they cannot be

considered as conclusive proof for discharge of an accused

person.

41. The appellants herein have further sought to place reliance on

J. Sekar (supra) to argue that the letter of the Income-Tax 42 Department was relied upon to quash prosecution under the

Prevention of Money Laundering Act, 2002. In our opinion,

this decision is again inapplicable to the present case. In J.

Sekar (supra), the criminal proceedings had arisen based

upon the information furnished by the Income Tax

Department regarding recovery of unauthorized cash and

other items during their search. It so transpired that the Income

Tax Department accepted the explanation of the accused

regarding the recovered cash which led to closure of the

Income Tax proceedings. Thereafter, even the criminal

proceedings led to filing of a closure report on the ground that

no sufficient evidence was found for continuation of prosecu-

tion. The proceedings under the Prevention of Money Laun-

dering Act, being based on the Income Tax Department’s in-

formation after their search and the registration of FIR, were

found to be unsustainable in view of no violation being found

either by the Department or in the criminal proceeding. 43

42. The decision in J. Sekar (supra) is therefore distinguishable

on facts. In the abovementioned case, there was an

exoneration by not only the Income Tax Department, to the

effect that no case was made, there was also an exoneration in

the criminal proceedings which involved the Scheduled

Offence. In the present case, the proceedings under the Income

Tax Act which are sought to be relied upon relate to the

assessment of income of the assessee and not to the source of

income and the allegation of disproportionate assets under the

Prevention of Corruption Act. The said Orders cannot be the

basis to abort the criminal proceeding in the present case.

43. We are not to conduct a dress rehearsal of the trial at this stage.

The tests applicable for a discharge are well settled by a catena

of judgments passed by this Court. Even a strong suspicion

founded on material on record which is ground for presuming

the existence of factual ingredients of an offence would justify

the framing of charge against an accused person [Onkar Nath

Mishra & Ors. v. State (NCT of Delhi) & Anr. (2008) 2 SCC 44 561 Paragraph 11]. The Court is only required to consider

judicially whether the material warrants the framing of charge

without blindly accepting the decision of the prosecution

[State of Karnataka v. L. Muniswamy & Ors. (1977) 2 SCC

699 Paragraph 10]. Applying these principles to the present

case, we accept the submission of the learned ASG that the

appellants have not made out the case to say that the charge is

groundless.

44. The other argument about the minority of the appellant Puneet

Sabharwal also need not detain the Court since for the last

seven years of the check period admittedly he was not a minor.

All the defences are available for the appellants to be placed

before the Trial Court.

45. In view of what we have held hereinabove, we are not called

upon to answer the argument raised by the learned ASG that

the Income Tax Appellate Tribunal order being a document

which has emerged subsequent to the framing of the charge,

it cannot be taken into consideration at all. 45

46. For all the above reasons, we find no merit in these appeals

and the appeals are dismissed. The interim orders stand

vacated. All pending applications stand closed. The trial has

been pending for nearly 25 years. We direct that the trial be

expeditiously concluded and, in any case, on or before

31.12.2024. Needless to mention that the observations made

herein are only in the context of the discharge proceedings.

…....…………………J. (Vikram Nath)

..…………………J. (K.V. Viswanathan) New Delhi;

March 19, 2024.

46