The High Court of Delhi recently pronounced a significant judgment in the case of Raj Kumar Kedia vs. Income Tax Office, dismissing petitions filed under Section 482 of the Cr.P.C. and Article 227 of the Constitution of India. The petitions sought quashing of criminal complaints and orders related to charges under Sections 276-C(1) and 277-A of the Income Tax Act, 1961. Here’s a detailed breakdown of the case and the court’s decision.
Background of the Case
The case originated from a search and seizure action conducted by the Income Tax Department on June 13, 2014, at the premises of Raj Kumar Kedia, a sharebroker based in New Delhi. During the search, incriminating documents were seized, and Kedia admitted in his statements recorded under Section 132(4) of the Income Tax Act that he was involved in providing accommodation entries to beneficiaries. These entries were used to generate bogus long-term capital gains, enabling tax evasion.
Kedia’s modus operandi involved manipulating share prices of listed companies through dummy entities, routing unaccounted cash, and charging a commission for these services. The Income Tax Department estimated that he dealt with over Rs. 700 crores in unaccounted transactions, earning undisclosed commission income of approximately Rs. 14 crores.
Legal Proceedings and Challenges
After the search, Kedia retracted his initial statements but later reaffirmed them during subsequent recordings. The Income Tax Department filed criminal complaints under Sections 276-C(1) and 277-A of the Income Tax Act, alleging wilful tax evasion and falsification of accounts. Kedia challenged these complaints on multiple grounds:
- Jurisdiction of Sanctioning Authority: Kedia argued that the sanction for prosecution was granted by the Principal Director (Investigation), who lacked the authority under Section 279(1) of the Income Tax Act. He contended that only the Principal Commissioner or Commissioner could grant such sanction.
- Filing of Complaint by Deputy Director: He claimed that the Deputy Director of Income Tax (Investigation) had no jurisdiction to file the complaint after the search action was completed and jurisdiction transferred to the Assessing Officer.
- Vagueness of Sanction Order: Kedia alleged that the sanction order did not specify whether the prosecution was under Section 276-C(1) or 276-C(2), making it vague and invalid.
- Premature Complaint: He argued that the complaint was filed prematurely since no assessment order had been passed to confirm tax evasion.
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The High Court, presided over by Justice Neena Bansal Krishna, rejected all these contentions. Here’s a detailed look at the court’s reasoning:
1. Competence of Sanctioning Authority
The court referred to Sections 2(16) and 116 of the Income Tax Act, which define "Commissioner" to include Principal Directors and Directors of Income Tax. It cited the Karnataka High Court’s judgment in D.K. Shivkumar vs. Income Tax Department (2020), which held that the term "Commissioner" encompasses Principal Directors. The court distinguished the Delhi High Court’s ruling in Dr. Nalini Mahajan vs. DIT (Inv.), clarifying that it pertained to search authorities under Section 132, not prosecution sanctions.
"The combined reading of Sections 2(16) and 116 makes it clear that 'Commissioner' includes Principal Directors. The sanction granted by the Principal Director (Investigation) was thus valid."
2. Jurisdiction of Deputy Director
The court noted that Section 279 of the Income Tax Act allows the Principal Director General to authorize any officer to file complaints. Since there was no evidence that the Deputy Director acted without authorization, the challenge was deemed premature.
3. Clarity of Sanction Order
The court observed that the sanction order explicitly reproduced the text of Section 276-C(1), indicating that the sanction was granted for offences under this provision. The argument of vagueness was dismissed.
4. Premature Filing of Complaint
Relying on the Supreme Court’s judgment in P. Jayappan vs. S.K. Perumal (1984), the court held that pending assessment proceedings do not bar criminal prosecution for tax evasion. The complaint was not premature, as the investigation unit’s findings were independent of the Assessing Officer’s proceedings.
Case Title: Raj Kumar Kedia vs. Income Tax Office
Case Number: CRL.M.C. 219/2018 & CRL.M.C. 222/2018
