Madras High Court rules that income tax proceedings against Karti Chidambaram, wife over Muttukadu property sale were premature

The Madras High Court on Friday ruled that the income tax reassessment proceedings initiated against Member of Parliament from Sivaganga, Karti Chidambaram and his wife Srinidhi Chidambaram over the alleged non-disclosure of certain cash transactions to the tune of Rs 7 crores following a property sale near Muttukadu were premature. .The Court, however, clarified that proceedings may be initiated again if the concerned authority comes to the conclusion that the same is required after proper assessment. The order reads:."The prosecution launched by the Deputy Director is not maintainable and... the present complaint lodged by the prosecution is premature one. If the Assessing Officer comes to the conclusion in a proceedings under Section 153 of the Income Tax Act, it is open to the Department to initiate penal action as per law. (sic)".Justice N Sathish Kumar, who pronounced the order today, ruled that the Deputy Director of the Income Tax Department was not the competent authority to initiate the re-assessment proceedings, in the absence of strong material against the accused or incriminating statements made by them. .In such a scenario, the Court took the view that "only the Assessing Authority or any other officer authorised by that officer is competent to file a complaint, not ... the Deputy Director.".The Judge explained in the order that although the Deputy Director can launch the prosecution under Section 279 of the Income Tax Act, "merely because the power was conferred to the Deputy Director to launch a complaint on sanction merely on the basis of some materials said to have been collected from third parties, the prosecution will not be maintainable. The intention of the legislature is only to prosecute the persons where concrete materials unearthed during the search or survey etc.".The Court further observed that unless a finding is recorded by the Assessing Officer as to a willful attempt to evade tax or filing false verification, the complaint filed by the Deputy Director is not maintainable.."Unless strong materials seized from accused or any incriminating statement recorded from accused, the prosecution has to wait till the finding recorded by Assessing Officer. In view of the same, complaint filed by the Deputy Director for the offence allegedly committed while filing Returns and false verification filed before the Assessing Authority, this Court is of the view that only the Assessing Authority or any other other officer authorised by that officer is competent to file a complaint, not by the Deputy Director", reads the order..Statements or incriminating material either should have come from the accused or very strong material should have been unearthed during search or survey to maintain prosecution under Section 276C or 277 of the Income tax Act (for tax evasion), the Court said..On the other hand, in this case, the Court found that "no material seized from accused nor any incriminating statements were recorded from accused to contend that same is admissible under Section 132(4) of the Income Tax Act. Mere denial of prosecution version cannot at any stretch of imagination construed as incriminating evidence.".In the case on hand, the Deputy Director had filed the complaint merely on the basis of his opinion, the Court further noted. The Judge added,."... when the very complaint itself launched on the basis of the opinion formed by the Deputy Director of Income Tax Department based on some materials according to them it is only helpful for corroboration, prosecution has to fail and the court has to conclude that such prosecution is without any materials. In such view of the matter this Court is of the view that the complaint filed by the Deputy Director of Income Tax is premature at this stage.".Notably, a contention made that the failure of the accused to give proper explanations on being confronted by the authorities would amount to a false statement, was also rejected by the High Court, which added that such a stance would lead to serious consequences. The Court said:."If the contention of the prosecution that when the accused confronted with the statement of third parties they did not explain properly such conduct amounts to false statement before the Deputy Director, therefore the complaint is maintainable is accepted the same will lead to serious consequences. If such contention is accepted by the Court of Law, it is easy for the authorities to summon any assessee under section 131 of the Income Tax Act and make accusations against them when accused or assessee denies, then it is easy for the authorities for launching prosecution against anybody as per their like and dislike. Therefore, such contention by the prosecution that false statement made while recording statement under Section 131 of the Income Tax Act also amounts to false evidence, therefore, complaint is maintainable, at no stretch of imagination can be countenanced.".With these observations, the revision petitions moved by Karti and Srinidhi Chidambaram were allowed. .Karti, the son of former Union Finance Minister P Chidambaram, and his wife, were accused of failing to disclose ₹6.38 crores and ₹1.35 crores respectively following a property sale in 2015. .The matter which was initially before an economic offences court, was later transferred to a special court for offences by MPs and MLAs. The special court rejected their discharge applications in the matter, which was challenged by the Chidambarams before the High Court. .Two review applications against the rejection of their discharge applications were allowed today by the Madras High Court. .Senior Advocates Kapil Sibal, PS Raman and NR Elango assisted by Advocates Kunal Vajani, NRR Arun Natarajan and Gladys Daniel appeared for the Chidambarams. Advocates M Sheela and N Baskaran, Special Prosecutors for the Income Tax Department, appeared for the respondents. .Read the order: