'Circular Relied Upon By DK Shivakumar Not Applicable', IT Dept Says In Tax Evasion Case; Supreme Court Calls For Formal Affidavit

In the plea filed by Karnataka Deputy Chief Minister DK Shivakumar seeking dismissal of charges against him in a tax evasion case (and connected matters), the Supreme Court today called on the Income Tax Department to file a formal affidavit with regard to its claim that the circular(s) relied upon by Shivakumar is not applicable to the case.

For context, the Congress leader relies on a Central Board of Direct Taxes (CBDT) circular of 2019, wherein it is stated that prosecution for concealment of income may be initiated only if a penalty for concealment has been imposed and that penalty has been upheld by the Appellate Tribunal.

A bench of Justices Surya Kant and Ujjal Bhuyan passed the order, on hearing Additional Solicitor General N Venkatraman (for the IT Department), who submitted that the Circular relied upon by the Assessee (Shivakumar) is inapplicable.

Before the Court parted with the matter, Senior Advocate PB Suresh (for Shivakumar) notably informed that there are 3 circulars on the same point. One is of 2008 (which provides that cases where penalty exceeding Rs. 50,000/- is imposed and confirmed by ITAT shall proceed for prosecution), one is of 2019 (mentioned above) and one of 2020. Senior Advocate Ranjit Kumar (also appearing for Shivakumar) added that the 2020 circular, which modified the 2019 circular to say that prosecution can be launched at any stage of the proceedings in "deserving cases" (subject to conditions stated therein), is not applicable to Shivakumar's case.

To recap, the IT department had carried out a raid in August, 2017 at various premises of Shivakumar and other places. It collected a total of Rs.8,59,69,100, out of which Rs.41 lakhs were allegedly recovered from Shivakumar's premises.

Subsequently, a case was registered against Shivakumar before the Special Court for Economic Offences under provisions of the Income Tax Act, 1961. Based upon the income tax case, ED also registered a case and Shivakumar was arrested on September 3, 2019.

Initially, the Additional Sessions Judge, Bengaluru denied Shivakumar relief in the case of undisclosed assets and tax evasion, registered under provisions of the IT Act and IPC. Thereafter, in November, 2019, he moved the Karnataka High Court seeking discharge in the case registered by the IT Department. However, this plea was also turned down. Against the dismissal order, Shivakumar filed the present petition.

He contended that the IT Department cannot treat an amount found during the course of a search as concealed income without waiting for the Assessee to file his Return of Income. Under the IT Act, it is argued, criminal prosecution may only be initiated if the Assessee's explanation regarding acquisition of money is found to be unsatisfactory. However, the Department chose to initiate proceedings against Shivakumar without waiting for returns to be filed and without an assessment order being passed after considering his submissions, asserts the petition.

The Court's attention has been drawn to "clarificatory Circular no. 24 of 2019" issued by CBDT. The conditions stated in the circular are not met in the present case, argues the petitioner, by pointing out that criminal prosecution was initiated on 13.06.2018 on the basis of a sanction granted by Principal Director of IT (Investigation, Bengaluru) on 28.05.2018, when none of the parties charged with concealment of income had filed their Return, for which time was available till 30th September/October, 2018.

With regard to sanction, Shivakumar additionally argues that the Principal Director did not have authority to grant the same. It is submitted that Section 279A of the IT Act mandates the grant of sanction by the Commissioner and not the Director.

There are 5 connected petitions listed before the Supreme Court. Three of these have been filed by the IT Department challenging a Karnataka High Court order, whereby the order of the Trial Court discharging Shivakumar in 3 prosecution complaints - filed by the IT Department alleging offences under Section 276C(1) of IT Act and Section 201/204 IPC - was upheld.

Appearance: Senior Advocates Arvind Datar, CA Sundaram, Ranjit Kumar, PB Suresh and S Nagamuthu alongwith Advocates Mayank Jain, Parmatma Singh, Madhur Jain, Arpit Goel and Aakriti Dhawan (for Shivakumar); ASG N Venkatraman (for IT Department)

Case Title: D.K SHIVAKUMAR Versus THE INCOME TAX DEPARTMENT, SLP(Crl) No. 3128/2020 (and connected cases) 

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