Supreme Court Upholds Charges in Disproportionate Assets Case: Puneet Sabharwal vs. CBI (2024)

Date of the Judgment: March 19, 2024

Citation: 2024 INSC 221

Judges: Vikram Nath, J., K.V. Viswanathan, J.

Can a criminal trial for possessing assets disproportionate to known income be stopped if the Income Tax Appellate Tribunal has found in favor of the accused? The Supreme Court of India recently addressed this question in a case involving allegations of corruption against a public servant and his son. The court examined whether the findings of the Income Tax Appellate Tribunal could be used to quash criminal charges under the Prevention of Corruption Act, 1988. This judgment, authored by K.V. Viswanathan, J., with Vikram Nath, J., concurring, clarifies the relationship between income tax proceedings and criminal proceedings in cases of corruption.

Case Background

The case began with a First Information Report (FIR) registered on August 23, 1995, by the Anti-Corruption Bureau, New Delhi, against R.C. Sabharwal, who was then an Additional Chief Architect in the New Delhi Municipal Corporation (NDMC). The allegations were that R.C. Sabharwal had amassed assets disproportionate to his known sources of income during his tenure from 1968 to 1995. These assets were allegedly held in his name and in the names of his family members. His son, Puneet Sabharwal, was also implicated for allegedly abetting the commission of the offense.

The prosecution alleged that R.C. Sabharwal’s total income from salary was Rs. 10,00,042/-, and his spouse’s income was Rs. 8,72,249.42. Additionally, income from various enterprises, rental income, insurance policies, and interest was calculated, bringing the total income to Rs. 1,23,18,091/-. The expenditure was calculated to be Rs. 18,23,108/-, and movable assets were valued at Rs. 4,25,450/-. Bank balances in the names of R.C. Sabharwal and his family members totaled Rs. 82,63,417/-. Immovable assets, including twenty-four properties, were valued at Rs. 2,27,94,907/-. The prosecution contended that R.C. Sabharwal could not satisfactorily account for the assets disproportionate to his known sources of income. Puneet Sabharwal was accused of receiving Rs. 79 lakhs through encashment of Special Bearer Bonds and facilitating the commission of the offense by having assets acquired in the name of M/s Morni Devi Brij Lal Trust, M/s Morni Merchants, and other firms where he was the sole beneficiary.

Timeline

Course of Proceedings

The Special Judge, Delhi, on February 21, 2006, ordered the framing of charges against both appellants. The Special Judge found that the prosecution had presented sufficient material to show the existence of grave suspicion regarding the involvement of both appellants in the commission of offenses. R.C. Sabharwal was charged under Section 13(1)(e) read with 13(2) of the Prevention of Corruption Act, 1988, for possessing assets disproportionate to his known sources of income. Puneet Sabharwal was charged under Section 109 of the Indian Penal Code (IPC) read with Section 13(1)(e) and 13(2) of the Prevention of Corruption Act, 1988, for abetting his father in the commission of the offense.

The appellants then challenged the order on charge and the charges framed before the High Court of Delhi. During the pendency of the case before the High Court, the Income Tax Appellate Tribunal (ITAT) issued an order on August 31, 2007, in appeals and cross-appeals related to the reopening of assessments for the years 1989-1990 to 1995-1996 and 1997-1998 to 2001-2002. The ITAT found that the additions made by the Assessing Officer regarding the income of M/s Morni Devi Brij Lal Trust were not justified, as R.C. Sabharwal had no obligation to explain the source of investment of the founders of the trust, and the trust had been filing its returns and assessed separately. The ITAT also held that the Special Bearer Bonds held by the trust were immune from disclosure under the Special Bearer Bonds (Immunities and Exemptions) Act, 1981. The High Court, however, dismissed the petitions, holding that the income tax assessment orders do not attest to the lawfulness of the sources of income, and that there was a strong suspicion that the accused had committed the offense.

Legal Framework

The legal framework of this case primarily involves the following provisions:

• Section 13(1)(e) of the Prevention of Corruption Act, 1988: This section deals with criminal misconduct by a public servant. It states that a public servant is said to commit criminal misconduct if he or any person on his behalf, is in possession of pecuniary resources or property disproportionate to his known sources of income, which he cannot satisfactorily account for.
• Section 13(2) of the Prevention of Corruption Act, 1988: This section provides the punishment for the offense under Section 13(1)(e).
• Section 109 of the Indian Penal Code (IPC): This section deals with the punishment of abetment. It states that whoever abets any offense shall, if the act abetted is committed in consequence of the abetment, and no express provision is made for its punishment, be punished with the punishment provided for the offense.
• Section 3 of the Special Bearer Bonds (Immunities and Exemptions) Act, 1981: This section grants immunity to bondholders, stating that no person who has subscribed to or has otherwise acquired Special Bearer Bonds shall be required to disclose, for any purpose whatsoever, the nature and source of acquisition of such bonds.
• Section 3(2) of the Special Bearer Bonds (Immunities and Exemptions) Act, 1981: This section states that the immunities under the Act are inapplicable to offenses committed under the Prevention of Corruption Act or similar offenses.
• Section 106 of the Evidence Act: This section deals with the burden of proving facts especially within knowledge.

Arguments

Arguments on behalf of the Appellants:

• Puneet Sabharwal:
  • That the High Court erred in not considering that he was a minor for a large part of the investigation period.
  • That the allegations against him were solely based on being named as a beneficiary in the trust deed of M/s Morni Devi Brij Lal Trust.
  • That it was illogical to accuse him of conspiring with his father when he was a minor for most of the check period.
  • That the charge against him was merely because he was his father’s son, without attracting the ingredients of Section 109 of the Indian Penal Code.
  • That the Income Tax Appellate Tribunal’s exoneration of his father should have been considered.
• R.C. Sabharwal:
  • That the Income Tax Appellate Tribunal categorically held that income from various entities was wrongly added to his income.
  • That he was not the owner of those entities and therefore, the properties held by those entities could not be considered his.
  • That the reassessment for thirteen years was carried out on the complaint of CBI itself.
  • That the High Court misapplied the judgment of the Supreme Court in Selvi J. Jayalalitha, as it was not a case of reliance on income tax returns but returns that were subjected to an inquisition.
  • That the High Court has the power to look into the material placed by the accused in arriving at a conclusion for discharge.

Arguments on behalf of the Respondent (CBI):

• That at the stage of framing charges, only the material available on that date is relevant.
• That the court is not required to appreciate evidence at the stage of framing charges.
• That the probative value of the material on record cannot be examined at the stage of framing charges.
• That a strong suspicion based on material is enough to justify the framing of charges.
• That the Income Tax Appellate Tribunal order was subsequent to the framing of charges and cannot be the basis for discharge.
• That the criminal prosecution does not depend on the order passed by the Income Tax Appellate Tribunal.
• That the Income Tax Appellate Tribunal order can be used as a piece of evidence but will not nullify the order framing charges by a criminal court.
• That the findings of the Income Tax Authorities are not binding on a criminal court.
• That the power to quash a proceeding has to be exercised with great caution.

Submissions

Issues Framed by the Supreme Court

The Supreme Court framed the following issue for consideration:

1. Whether the courts below were justified in refusing to quash and set aside the order on charge dated 21.02.2006 and the charges as framed on 28.02.2006?

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court relied on State of Karnataka v. Selvi J. Jayalalitha & Ors. [CITATION] to reiterate that income tax returns and assessment orders are not conclusive proof of the lawfulness of the source of income.
• The Court distinguished Radheshyam Kejriwal v. State of West Bengal & Anr. [CITATION], Ashoo Surendranath Tewari v. CBI & Anr. [CITATION], and J. Sekar v. Directorate of Enforcement [CITATION], stating that those cases were not applicable to the present case due to different factual backgrounds and legal contexts.
• The Court cited P. Nallamal v. State [CITATION] to support the view that a non-public servant can be tried in the same trial along with a public servant for abetment of an offense under Section 13(1)(e) r/w 13(2) of the PC Act.
• The Court cited Sheoraj Singh Ahlawat & Ors. v. State of U.P. & Anr. [CITATION] to emphasize that at the stage of framing charges, the court only needs to see if there is a ground for presuming that the offense has been committed, and not whether there is ground for convicting the accused.
• The Court cited Vishwanath Chaturvedi (3) v. Union of India & Ors. [CITATION] and State of T.N. v. N. Suresh Rajan & Ors. [CITATION] to support the view 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.
• The Court cited Onkar Nath Mishra & Ors. v. State (NCT of Delhi) & Anr. [CITATION] to emphasize that even a strong suspicion based on material on record would justify the framing of charge against an accused person.
• The Court cited State of Karnataka v. L. Muniswamy & Ors. [CITATION] to emphasize that the Court is only required to consider judicially whether the material warrants the framing of charge without blindly accepting the decision of the prosecution.
• The Court cited CBI & Anr. v. Thommandru Hannah Vijayalakshmi & Anr. [CITATION] to emphasize 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.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that income tax proceedings and criminal proceedings under the Prevention of Corruption Act operate in different spheres. The Court emphasized that the findings of the Income Tax Appellate Tribunal (ITAT) are not conclusive proof of the lawfulness of the source of income in a disproportionate assets case. The Court underscored that the standard of proof in criminal cases is higher, and a criminal court must independently assess the evidence to determine if a charge is warranted. The Court also noted that the ITAT order was not binding on the criminal court, and the criminal court was not conducting a mini-trial at the stage of framing charges.

Fact:Law Ratio:

The Court’s reasoning was heavily weighted towards legal principles, emphasizing the distinct nature of income tax and criminal proceedings. While factual analysis was considered, the legal framework and precedents played a more significant role in the decision.

Logical Reasoning

Judgment

The Supreme Court dismissed the appeals, upholding the High Court’s decision to not quash the charges against the appellants. The Court held that the Income Tax Appellate Tribunal’s order was not conclusive proof that the assets were not disproportionate to the known sources of income. The Court emphasized that the criminal proceedings under the Prevention of Corruption Act, 1988, must be allowed to proceed independently, and the findings of the Income Tax Authorities are not binding on the criminal court. The Court also noted that the ITAT order could be used as a piece of evidence, but it would be subject to evaluation during the trial.

The Court stated, “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.”

The Court further clarified, “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.”

The Court also noted, “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.”

The Court directed that the trial be concluded expeditiously, on or before 31.12.2024, and clarified that the observations made in the judgment were only in the context of the discharge proceedings.

Key Takeaways

• Income tax proceedings and criminal proceedings under the Prevention of Corruption Act are distinct and operate independently.
• Findings of the Income Tax Appellate Tribunal are not conclusive proof in a criminal case of disproportionate assets.
• Criminal courts must independently assess the evidence and are not bound by the findings of income tax authorities.
• A strong suspicion based on material on record is sufficient for framing charges against an accused person.
• Exoneration in civil proceedings does not automatically lead to the quashing of criminal proceedings on the same set of facts.

Directions

The Supreme Court directed that the trial be expeditiously concluded on or before 31.12.2024.

Development of Law

This judgment reinforces the principle that income tax proceedings and criminal proceedings under the Prevention of Corruption Act operate in different spheres. The ratio decidendi of the case is that an order of the Income Tax Appellate Tribunal exonerating an accused cannot be a ground for quashing criminal proceedings for disproportionate assets. The judgment clarifies that income tax returns and orders are not conclusive proof of the lawfulness of the source of income and that criminal courts must independently assess the evidence. This reaffirms the Supreme Court’s previous stance on the matter, maintaining the separation between tax and criminal law.

Conclusion

The Supreme Court’s judgment in Puneet Sabharwal vs. CBI clarifies that income tax proceedings and criminal proceedings for corruption are distinct and independent. The court emphasized that the findings of the Income Tax Appellate Tribunal are not binding on a criminal court and cannot be used to quash criminal charges. This decision ensures that individuals accused of corruption cannot evade prosecution by relying solely on favorable income tax rulings. The judgment upholds the principle that a criminal court must independently assess the evidence to determine if a charge is warranted, and that the standard of proof in criminal cases is higher than in tax proceedings.