‘Prosecution can’t be launched until evaded tax is known based on I-T search disclosures’

There is no presumption under law that every unaccounted transaction would lead to imposition of tax, and therefore, no prosecution can be launched on the ground of “attempt to evade such tax, penalty and interest”, until and unless it is determined that the unaccounted transactions unearthed during search were liable for payment of tax, penalty or interest, the High Court of Karnataka has said.

Justice John Michael Cunha made these observations in his April 5 order dismissing revision petition filed by the Income Tax Department challenging the February 28, 2019, order of a Special Court in discharging former Minister D.K. Shivakumar from income tax evasion case.

“These allegations, even if accepted as true, do not prima facie constitute offences under section 276C(1) of the Income Tax Act,” the court observed while ruling that “the very prosecution launched against the respondent [Mr. Shivakumar] being premature and illegal, cannot be allowed to continue.”

The High Court also said that “the allegations made in the complaints and the material produced in support there of prima facie do not make out the ingredients of the offences under section 276C(1) of the I-Tax Act.”

Interestingly, the High Court also held that that I-T Department could not have filed its complaint against Mr. Shivakumar under Section 276C of the I-T Act before the Special Court for Economic Offences as the law mandates filling of complaint only before the jurisdictional magistrate.

In usual course, the I-T Department regularly lodges complaints of I-T evasion before the Special Court for Economic Offences, which orders for issuance of summons to the accused persons if it accepts the complaint filed by the department’s authorised officers.

In Mr. Shivakumar’s case, the Special Court for Economic Offence had on February 14, 2018, issued summons to him on the department’s complaint, and after a year, the case was transferred to the Special Court set up to exclusively deal with criminal cases against MPs and MLAs in Karnataka, which had discharged him from the case.

Though the High Court upheld the Special Court’s order of discharging Mr. Shivakumar, it did not agree with the latter’s finding that Deputy Director, I-T Investigations, who was the authorised officer to conduct the searches, had no jurisdiction to estimate the undisclosed income, interest and penalty payable by Mr. Shivakumar.

The case was initiated against Mr. Shivakumar based on financial transactions that he had scribbled on a sheet of paper that he tore during search conducted at a resort on the outskirts of the city during August 2017, and the department had alleged evasion of tax to the tune of ₹13 crore spread over the assessment years 2015-18.

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