The Deputy Director (Investigation) has filed a complaint under s.276C(1) and s.277 based on material seized from third parties, with no assessment or reassessment order against me. Can that prosecution stand?
On this judgment, no. Although the Deputy Director can launch a prosecution under s.279 and although P. Jayappan holds that a prosecution need not await the assessment, the Madras High Court held that this is so where the complaint rests on the assessee's own statements under s.132(4) and incriminating material seized from him; where the material is collected from third parties and the prosecution itself treats it as merely corroborative, the Department must wait for the Assessing Officer's finding, and a complaint launched in the meantime is premature. The revisions were allowed and the prosecution held not maintainable, with liberty to the Department to act after a finding under s.153.
Decided by the High Court (N. Sathish Kumar J) on 2020-12-11, reported as Crl.R.C. Nos. 510 and 511 of 2020 with Crl.M.P. Nos. 4044 and 4045 of 2020 (High Court of Judicature at Madras); reserved 04.12.2020. It bears on section 276C, section 276C(1), section 277, section 278, section 279, section 131, section 132(4), section 133A, section 136, section 153C of the Income Tax Act 1961, in Prosecution, Search, Survey & Block Assessment and Evidence & Burden of Proof matters.
This is the strongest statement available of the outer limit on launching a prosecution before assessment, and it sits directly against the Revenue-side authorities. It matters, but it must be handled with care for three reasons. First, it is under appeal in the Supreme Court, so it cannot be presented as settled. Second, its reasoning is fact-specific: the distinction it draws is between material seized from the assessee with an incriminating statement under s.132(4), which supports an immediate prosecution, and third-party material treated as corroborative, which does not. Third, a Division Bench of the Delhi High Court has since held that the CBDT circulars impose no pre-condition of a completed assessment or a confirmed penalty where the amount exceeds Rs.25 lakh. The practitioner's use of this judgment is therefore to force the Department to identify, in the sanction and the complaint, what incriminating material came from the assessee himself.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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A survey under s.133A was carried out on 01.12.2015 in the case of M/s Advantage Strategic Consulting Private Limited and other entities by the Income Tax Department and the Enforcement Directorate, in which hard disks were retrieved; a further search and seizure took place in 2018 in M/s Agni Estates and Foundation Pvt. Ltd., where note books were seized from the cashier of the purchaser company and statements were recorded. On that material the Deputy Director of Income Tax (Investigation) filed private complaints alleging that the husband and wife had, in returns for AY 2014-15 and AY 2015-16 respectively, shown sale consideration of Rs.15.33 crores and Rs.3.65 crores as against actual consideration of Rs.21.7175 crores and Rs.5.01 crores, suppressing cash received. C.C. No.15 of 2019 was taken on file against Karti P. Chidambaram under s.276C(1) and s.277, and C.C. No.16 of 2019 against both under s.276C(1), s.277 and s.278, before the Special Court No.1 for trial of criminal cases relating to elected Members of Parliament and Members of the Legislative Assembly of Tamil Nadu, Chennai. Applications under s.245 CrPC for discharge were dismissed on 07.01.2020, on grounds including that the cloned electronic records were inadmissible for want of compliance with s.65B of the Evidence Act, that the person said to have spoken to the cash transaction had not been examined, and that only the Assessing Officer before whom the returns were filed, and not the Deputy Director, was competent to complain, assessment proceedings being judicial proceedings under s.136 read with ss.193, 196 and 195 IPC. Criminal revisions followed. It was also contended that the return for 2014-15 had been completed on 30.12.2016, that s.148 proceedings had not resulted in a reassessment and were time-barred, and that a notice under s.153C had since been issued.
The revisions were allowed. The prosecution launched by the Deputy Director was held not maintainable and the complaints premature, with liberty to the Department to initiate penal action if the Assessing Officer records a conclusion in proceedings under s.153. A prosecution under s.276C and s.277 may be initiated without waiting for the assessment or reassessment only where incriminating material has been seized from the possession of the assessee, or self-incriminating statements have been recorded from him under s.132(4), or other incriminating evidence clinchingly establishes his complicity; where the material collected is weak and the prosecution relies on it only as corroborative evidence, the Department must wait for the Assessing Officer's finding.
The Court accepted that s.279 confers the power and that under P. Jayappan and the Madras and Kerala decisions a complaint under s.276C and s.277 is maintainable irrespective of the assessment order, but held that in each of those cases the complaint had been lodged on the strength of the assessee's own statement and incriminating material collected from him (para 48). It distinguished the present case as one where no material was seized from the accused and no incriminating statement under s.132(4) was recorded from him, mere denial of the prosecution version not amounting to incriminating evidence (para 39). It therefore held that the mere conferment of power to complain does not permit a prosecution launched on the Deputy Director's opinion formed on material which the Department itself treats as corroborative, and that such a prosecution must fail as being without material (para 48). It relied on Babita Lila v. Union of India (2016) 9 SCC 647 as having quashed a complaint on the footing that the Deputy Director is not a court or forum or authority to whom an appeal would lie from a decision or action of the Income-tax Officer in s.131 proceedings (para 42). It reasoned that if a false statement made while recording a statement under s.131 could itself found a complaint, the authorities could summon any assessee, make accusations, and prosecute at will, a consequence it declined to countenance (para 47). It also referred to Circular No.24 of 2019 as fortifying the policy that only deserving cases are prosecuted (paras 43 and 44). Having held the complaint not maintainable, it declined to decide the admissibility of the electronic evidence, noting that a finding on that would affect any prosecution later launched by the Assessing Officer (para 49). T.S. Baliah v. T.S. Rangachari, AIR 1969 SC 701, R. Bharathan v. Income Tax Officer and G.S.R. Krishnamurthy v. M. Govindaswamy were considered on the interaction with ss.193, 195 and 196 IPC (paras 35 to 37).
Only in the cases where incriminating materials seized from the possession of the assessee and any statements which incriminate themselves recorded under 132 (4) of the Income tax Act or any incriminating evidence collected clinchingly establishes complicity of the accused with the crime, prosecution can be initiated without waiting for the assessment or reassessment proceedings.
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Handle my notice → Ask a CA on WhatsAppOn this judgment, no. Although the Deputy Director can launch a prosecution under s.279 and although P. Jayappan holds that a prosecution need not await the assessment, the Madras High Court held that this is so where the complaint rests on the assessee's own statements under s.132(4) and incriminating material seized from him; where the material is collected from third parties and the prosecution itself treats it as merely corroborative, the Department must wait for the Assessing Officer's finding, and a complaint launched in the meantime is premature. The revisions were allowed and the prosecution held not maintainable, with liberty to the Department to act after a finding under s.153. This was decided by the High Court (N. Sathish Kumar J) and bears on section 276C, section 276C(1), section 277, section 278, section 279, section 131, section 132(4), section 133A, section 136, section 153C of the Income Tax Act 1961. It is reported as Crl.R.C. Nos. 510 and 511 of 2020 with Crl.M.P. Nos. 4044 and 4045 of 2020 (High Court of Judicature at Madras); reserved 04.12.2020. This is the strongest statement available of the outer limit on launching a prosecution before assessment, and it sits directly against the Revenue-side authorities. It matters, but it must be handled with care for three reasons. First, it is under appeal in the Supreme Court, so it cannot be presented as settled. Second, its reasoning is fact-specific: the distinction it draws is between material seized from the assessee with an incriminating statement under s.132(4), which supports an immediate prosecution, and third-party material treated as corroborative, which does not. Third, a Division Bench of the Delhi High Court has since held that the CBDT circulars impose no pre-condition of a completed assessment or a confirmed penalty where the amount exceeds Rs.25 lakh. The practitioner's use of this judgment is therefore to force the Department to identify, in the sanction and the complaint, what incriminating material came from the assessee himself. If it applies to you, the first step is this: Read the sanction order and the complaint side by side and list what material is said to come from the assessee — a s.132(4) statement, seized books, seized documents — as against what comes from third parties.
A survey under s.133A was carried out on 01.12.2015 in the case of M/s Advantage Strategic Consulting Private Limited and other entities by the Income Tax Department and the Enforcement Directorate, in which hard disks were retrieved; a further search and seizure took place in 2018 in M/s Agni Estates and Foundation Pvt. Ltd., where note books were seized from the cashier of the purchaser company and statements were recorded. On that material the Deputy Director of Income Tax (Investigation) filed private complaints alleging that the husband and wife had, in returns for AY 2014-15 and AY 2015-16 respectively, shown sale consideration of Rs.15.33 crores and Rs.3.65 crores as against actual consideration of Rs.21.7175 crores and Rs.5.01 crores, suppressing cash received. C.C. No.15 of 2019 was taken on file against Karti P. Chidambaram under s.276C(1) and s.277, and C.C. No.16 of 2019 against both under s.276C(1), s.277 and s.278, before the Special Court No.1 for trial of criminal cases relating to elected Members of Parliament and Members of the Legislative Assembly of Tamil Nadu, Chennai. Applications under s.245 CrPC for discharge were dismissed on 07.01.2020, on grounds including that the cloned electronic records were inadmissible for want of compliance with s.65B of the Evidence Act, that the person said to have spoken to the cash transaction had not been examined, and that only the Assessing Officer before whom the returns were filed, and not the Deputy Director, was competent to complain, assessment proceedings being judicial proceedings under s.136 read with ss.193, 196 and 195 IPC. Criminal revisions followed. It was also contended that the return for 2014-15 had been completed on 30.12.2016, that s.148 proceedings had not resulted in a reassessment and were time-barred, and that a notice under s.153C had since been issued. The matter was decided on 2020-12-11 by the High Court (N. Sathish Kumar J). On those facts the High Court held as follows. The revisions were allowed. The prosecution launched by the Deputy Director was held not maintainable and the complaints premature, with liberty to the Department to initiate penal action if the Assessing Officer records a conclusion in proceedings under s.153. A prosecution under s.276C and s.277 may be initiated without waiting for the assessment or reassessment only where incriminating material has been seized from the possession of the assessee, or self-incriminating statements have been recorded from him under s.132(4), or other incriminating evidence clinchingly establishes his complicity; where the material collected is weak and the prosecution relies on it only as corroborative evidence, the Department must wait for the Assessing Officer's finding.
The Court accepted that s.279 confers the power and that under P. Jayappan and the Madras and Kerala decisions a complaint under s.276C and s.277 is maintainable irrespective of the assessment order, but held that in each of those cases the complaint had been lodged on the strength of the assessee's own statement and incriminating material collected from him (para 48). It distinguished the present case as one where no material was seized from the accused and no incriminating statement under s.132(4) was recorded from him, mere denial of the prosecution version not amounting to incriminating evidence (para 39). It therefore held that the mere conferment of power to complain does not permit a prosecution launched on the Deputy Director's opinion formed on material which the Department itself treats as corroborative, and that such a prosecution must fail as being without material (para 48). It relied on Babita Lila v. Union of India (2016) 9 SCC 647 as having quashed a complaint on the footing that the Deputy Director is not a court or forum or authority to whom an appeal would lie from a decision or action of the Income-tax Officer in s.131 proceedings (para 42). It reasoned that if a false statement made while recording a statement under s.131 could itself found a complaint, the authorities could summon any assessee, make accusations, and prosecute at will, a consequence it declined to countenance (para 47). It also referred to Circular No.24 of 2019 as fortifying the policy that only deserving cases are prosecuted (paras 43 and 44). Having held the complaint not maintainable, it declined to decide the admissibility of the electronic evidence, noting that a finding on that would affect any prosecution later launched by the Assessing Officer (para 49). T.S. Baliah v. T.S. Rangachari, AIR 1969 SC 701, R. Bharathan v. Income Tax Officer and G.S.R. Krishnamurthy v. M. Govindaswamy were considered on the interaction with ss.193, 195 and 196 IPC (paras 35 to 37). In the words reproduced by the source cited on this page: "Only in the cases where incriminating materials seized from the possession of the assessee and any statements which incriminate themselves recorded under 132 (4) of the Income tax Act or any incriminating evidence collected clinchingly establishes complicity of the accused with the crime, prosecution can be initiated without waiting for the assessment or reassessment proceedings." The decision followed or applied P. Jayappan v. S.K. Perumal, First Income Tax Officer [1984] 149 ITR 696 (SC) — explained and confined to cases resting on material from the assessee; Babita Lila v. Union of India (2016) 9 SCC 647 — relied on; T.S. Baliah v. T.S. Rangachari, AIR 1969 SC 701 — considered; R. Bharathan v. Income Tax Officer [1980 (2) KLJ 26] — considered; G.S.R. Krishnamurthy v. M. Govindaswamy [1991 SCC OnLine Mad 580] — considered.
It was decided by the High Court on 2020-12-11 and is reported as Crl.R.C. Nos. 510 and 511 of 2020 with Crl.M.P. Nos. 4044 and 4045 of 2020 (High Court of Judicature at Madras); reserved 04.12.2020. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 276C, section 276C(1), section 277, section 278, section 279, section 131, section 132(4), section 133A, section 136, section 153C, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The revisions were allowed. The prosecution launched by the Deputy Director was held not maintainable and the complaints premature, with liberty to the Department to initiate penal action if the Assessing Officer records a conclusion in proceedings under s.153. A prosecution under s.276C and s.277 may be initiated without waiting for the assessment or reassessment only where incriminating material has been seized from the possession of the assessee, or self-incriminating statements have been recorded from him under s.132(4), or other incriminating evidence clinchingly establishes his complicity; where the material collected is weak and the prosecution relies on it only as corroborative evidence, the Department must wait for the Assessing Officer's finding. It arises in Prosecution, Search, Survey & Block Assessment and Evidence & Burden of Proof matters, on section 276C, section 276C(1), section 277, section 278, section 279, section 131, section 132(4), section 133A, section 136, section 153C of the Income Tax Act 1961, and was decided by N. Sathish Kumar J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If the case rests on third-party statements and the prosecution's own case is that they are corroborative, put that in the forefront of the discharge or quashing application in the terms this judgment uses. Check whether any assessment or reassessment order exists at the date of sanction and at the date of the complaint, and record the position for both dates. Do not present this authority as settled law; disclose that the Department's special leave petitions against it are pending in the Supreme Court. Keep the electronic-evidence objections alive separately; the Court expressly declined to decide the s.65B point because it had already held the complaint not maintainable.
Under appeal, and the appeal has not been decided. The Department's special leave petitions against this judgment are pending in the Supreme Court: SLP (Crl.) No. 5391/2021, Deputy Director of Income Tax (Investigation) v. Karti P. Chidambaram, described in the record of proceedings as arising out of the impugned final judgment and order dated 11-12-2020 in CRLRC No. 510/2020 of the High Court of Judicature at Madras, heard with SLP (Crl.) No. 4593/2021. Two records of proceedings were read on this pass: 24-02-2023 (Sanjiv Khanna and M.M. Sundresh JJ, adjourned, counter affidavit within six weeks) and 18-07-2023 (Sanjiv Khanna and Bela M. Trivedi JJ, adjourned at the respondent's request, re-list after six weeks, counter affidavit taken on record). No later order was retrieved, so the current status of the special leave petitions is not known and the judgment must not be presented as final. A Division Bench of the Delhi High Court in Saumya Chaurasia v. Union of India, decided 08.12.2025 and read on this pass, took a different view of when prosecution may be launched relative to the assessment and penalty proceedings, though it was not addressing this judgment. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
indiankanoon's index lists this judgment under the date 7 January 2020. That is the date of the trial court's order in Crl.M.P. Nos. 25633 and 25634 of 2019 which was under revision. The judgment itself was reserved on 04.12.2020 and delivered on 11.12.2020, and the Supreme Court's record of proceedings in the Department's special leave petition describes the impugned final judgment as dated 11-12-2020 in CRLRC No. 510/2020. The judgment's description in para 42 of Babita Lila v. Union of India (2016) 9 SCC 647, as holding that the Deputy Director is not competent to lodge a complaint, was not independently checked against that report and should be verified before it is relied on. Para 43 states broadly that the Supreme Court has consistently held that any prosecution must await the outcome of the assessment or reassessment proceedings; that sentence is wider than the qualified proposition the Court actually applies in para 48, and wider than P. Jayappan, and should not be quoted on its own. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The revisions were allowed. The prosecution launched by the Deputy Director was held not maintainable and the complaints premature, with liberty to the Department to initiate penal action if the Assessing Officer records a conclusion in proceedings under s.153. A prosecution under s.276C and s.277 may be initiated without waiting for the assessment or reassessment only where incriminating material has been seized from the possession of the assessee, or self-incriminating statements have been recorded from him under s.132(4), or other incriminating evidence clinchingly establishes his complicity; where the material collected is weak and the prosecution relies on it only as corroborative evidence, the Department must wait for the Assessing Officer's finding.
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When must the satisfaction note be recorded before proceedings are taken against a third party?
They recorded your statement in a survey. Can the addition rest on that alone?
The seized documents say nothing about the years being assessed. Can s.153C still be used for them?
The search was before June 2015 but the notice came later. Which version of s.153C applies?