Prosecution u/s 276C(1) based on photocopies received under DTAA for third country

Prosecution u/s 276C(1) / 277 based on information / photocopies received under DTAA for third country non sustainable

In the instant case, the Income Tax Department (Revisionist) had filed a revision petition against the impugned order passed by the Court of Additional Chief Metropolitan Magistrate (ACMM) discharging the accused/assessee of the offences punishable under Section 276C (1) and 277 of Income Tax Act 1961 (the Act).

ABCAUS Case Law Citation
ABCAUS 3543 (2021) (08) AC

Important case law relied referred:
Ajoy Kumar Ghose Vs. State of Jharkhand and others (2009) 14 SCC 115
Sunil Mehta and Anr Vs. State of Gujarat and Anr (2013) 9 SCC 209
Ambrish Manoj Dhupelia, Mumbai vs DCIT
Mr. Hasmukh I. Gandhi Vs. Dy. CIT
Suresh Khullar vs Vijay Khullar, 2009 SCC OnLine Del 2010
Manik Chandra Hazarika vs Bibhison Pegu and Anr,(2012) 5 Gau LR
Ram Jethmalani & Ors. vs. UOI & Ors, (2011) 8 SCC
Jayakumari vs Balachander, 2010 (3) CTC 785
Ashok Dulichand vs. Madhavlal Dube & Anr. (1975 4 SCC 664 )
Collector of Customs, Bombay vs. East Punjab Traders & Ors.(1998 9 SCC 115)
Srichand P. Hinduja & Ors. Vs. State through CBI (2005 SCC OnLine Del 676/(2005) 82 DRJ 494 )
UOI vs Shantilal Motilal Mehta( 2006 SCC OnLine Bom 505)
Shyam Sunder Jindal vs. ACIT (2017 SCC OnLine ITAT 11380)
Sudhir Bhuiya vs. National Insurance Co. Ltd. & Ors.(MANU/WB/0507/2004 )
Sris Chandra Nandy vs. Sm Annapurna Ray ( 1949 SCC OnLine Cal 107)
Madholal Sindhu vs. Asian Assurance Co. Ltd. & Ors. – 1945 SCC OnLine Bom 44

The Income Tax Department received information from the Government of Germany under the provisions of DTAA that the assessee was a sole beneficially in a foreign bank account of a trust. The said foreign bank account was stated to be in third country near the Germany.

The Assessing Officer (AO) observed that as per the said information the name of the accused, his date of birth as, his address in India was mentioned in those documents. The Assessing Officer, in the return of income filed by the accused, did not find any disclosure regarding the investment or benefits derived out of the interest accrued or otherwise of such deposits/investment.

Thus, the case was reopened by issuing notice under Section 148 of the Act and the re-assessment was completed making an addition as unexplained money u/s 69A of the Act.  The Penalty proceedings under Section 271C of the Act was also initiated.

The accused preferred an appeal against the assessment order before the CIT appeal which was dismissed. The assessee challenged the order passed by the CIT(A) which was pending before ITAT.

Thereafter, the show cause notice for prosecution for the offence punishable under Section 277C(1) and 277 of Income Tax Act was issued to the accused and finally the prosecution was filed by the Department in the Court of ACCM.

Before the Sessions Court, the Department filed the revision petition u/s 397 r/w 399 of Cr.P.C. for quashing/setting aside the impugned order alleging that it suffered from grave illegality, irregularity and infirmity and had been passed on the basis of surmises and conjectures, without looking into the facts/material brought before the Court.

The main thrust of the arguments of the respondent assessee was that source and method of procurement of the said information/documents relied on by the Revenue was not proved.

It was argued that the alleged documents shared with India under DTAA and relied on to build the case, admittedly did not belong to the State of Germany. It was contended that the DTAA between Indian and Germany does not even remotely touch upon information regarding Indian citizens’ alleged bank accounts in any other foreign destination. Nor does the DTAA cover any information or documents that Germany secures and shares which have no bearing upon the matters that are covered by the agreement between the two countries.

It was also argued that the method of receiving the documents from the German authorities was never proved by the Revenue. Nothing was brought on record to show how the alleged documents came to India under the DTAA. The witness statements also did not explain the flow of documents from Germany to India.

It was further argued that there is no provision in the law which allows the concerned party to self-certify what would count as secondary evidence, that too without any further proof. The four-page documents in German allegedly received from the German authorities, which the prosecution has based their case upon, were print outs taken from a computer. However, no certificate as mandated by Section 65B, was filed by the Revenue. In such a scenario, these documents could not be relied on.

It was further argued that the contents of a document could not be proved unless the author of the document deposes before the Court and faces cross-examination. In the absence of examination of the makers of the document, the contents of a document are nothing, but the worst pieces of hearsay evidence.

The respondent assessee further argued that the argument of the Revenue that since the information was received by the Govt of India, there was no need to verify the same was fallacious and without any backing in law. The Tax Information Exchange Agreement (TIEA) does not give documents received by the Govt. any special status. If the documents were received through an official channel, they had to prove by the procedure laid down by the IEA. If the documents were public documents of a foreign country, then the documents had to be proved by the procedure laid down under Section 78(6) of the IEA.

The Sessions Court expressed agreement with the assessee in placing reliance on observations made by the Hon’ble Supreme Court and stated that a DTAA is in respect of issues that could arise between two countries concerning their respective citizens’ liability to pay taxes to them and same do not apply to a third country which is separate independent sovereign state.

Further, despite opportunity, the prosecution failed to place on record and show how an agreement executed between Germany and India, for exchange of information with respect to the respective states and the taxes levied thereunder, can, in the absence of a provision in this regard, be extended to transfer of information with respect to a third country.

Further, the Hon’ble Sessions Judge opined that the records do not mention how and when did Germany authorities receive these documents and how were they shared under the DTAA. Therefore, it was rightly held by the Trial Court that the source of information and the method of procurement is neither established nor the same is within the precincts of law which makes the very existence of these documents highly dubious.

The Court further stated that for invoking the presumption of mens rea or culpable mental state as provided for in Section 278E, IT Act, the complainant department has to first prove the actus reus that the aforesaid facts existed and that the Accused then suppressed the same in his ITR and also, gave a false statement. However, the factum of very existence of alleged bank account in the name of Respondent in the concerned bank in the other country as well as the fact that the Accused was the sole beneficiary of such companies was not established by the department on the parameters of standard required in a private complaint in a warrant trial matter.

The Hon’ble Court stated that there were only certified copy of photocopy received from another country. The author, maker of such documents was not even cited as witness in the list of witnesses filed along with the complaint, what to talk of examining them in the pre summoning evidence or even in pre charge evidence. Thus what was said, based on documents received from a third country/Germany, in pre-charge evidence was nothing but hearsay evidence.

In view of the above, the Hon’ble Court opined that said papers/documents can not be treated even as secondary evidence, as none of the conditions mentioned in Section 65-(a) to 65-(g) of Indian Evidence Act had been shown to exist which are required to be proved prior to seeking permission to lead secondary evidence and even notice under Section 66 of Indian Evidence Act had not been given. Further, the same also cannot be treated as public document.

With respect to the reliance placed by the prosecution upon the presumption under Section 279-B of the Act to counter the defects in admissibility and mode of proof of the documents, the Hon’ble Sessions Judge stated that same can not be said to be entries in the records or other documents in the custody of Income Tax Authority, as the said documents were not entries per se and factum of their coming in custody of Income Tax Authorities by legal means had come under grave doubt , as already held by the trial court.

The Hon’ble Sessions Judge noted that as per the complaint, the complainant department never had the original documents in hand. It appears that the same always remained with third country, where these were converted into digital form and sent to the Authority in India. This information then was forwarded to ITO. The original documents hence, never landed with the ITO/complainant. The originals of these documents were never brought on record file by complainant. Copies thereof placed on record patently are not certified by the legal keeper of such record along with a certificate under the seal of a Notary Public, or of an Indian Consul or diplomatic agent in that other country certifying that the copy is duly certified by the Officer having the legal custody of the originals.

With respect to charges u/s 277 of the Act related to false statements in verification, the Court obsreved that the entire case was based on the contents of documents received from other country. Further the PWs/complainant did not make any efforts during the enquiry/investigation to even summon and examine the persons who allegedly sent these documents to Indian authority even pre-charge evidence stage. In fact, their name was not even mentioned in the list of witnesses filed with the complaint, as would have been done in ordinary circumstances by the investigating/inquiring authority so as to collect some clinching material against the accused.

The Hon’ble Sessions court said that the trial court after discussion of pre charge evidence on record rightl yheld that the accused’s contentions deserve due consideration as it was clear that the complainant failed to bring on record any material/document/circumstance suggesting that the accused had carried out any transaction with the said foreign bank account or availed the service of said bank account for any purpose or received any benefit.

Accordingly, the Revision Petition was dismissed

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