Absence of valid sanction u/s 279(1) renders prosecution launched for wilful evasion of tax, invalid

While quashing the prosecution launched against the Assessee for wilful evasion of tax before Special Judge for Economic Offences, The Telangana High Court upholds that the proceedings are liable to be quashed as the sanction under Section 279(1) was granted to the Deputy Director of Income Tax (Inv.) to file a complaint against the Assessee, however, the complaint was filed by the Assistant Director of Income Tax.

A Single Judge Bench of Justice G. Anupama Chakravarthy observed that “once sanction has been given to a particular authority, i.e., the Deputy Director of Income Tax, the prosecution has to be launched by him alone and not by the Assistant Director of Income Tax, who did not have the power to launch the prosecution proceedings”.

Senior Advocate S. Ravi appeared for the Assessee whereas Advocate A. Ramakrishna Reddy appeared for the Revenue. 

The brief facts of the case were that the Assessee-Company was subjected to a survey during the course of which Revenue discovered that the Assessee sold land at rates below the value assigned by the sub-registrar and did not offer the said income to tax for the relevant AY 2015-16. Accordingly, Revenue launched prosecution against the Assessee under Section 276C(1) and 278B for wilful evasion of tax and filed a complaint under Section 190 r.w. Section 200 of Cr.P.C. before the Special Judge for Economic Offences.

The Bench noted that the PDIT(Inv.) issued a sanction under Section 279(1) to the DDIT(Inv.) to file a complaint before the Special Judge for Economic Offences, against the Assessee, however, the complaint was filed by the ADIT(Inv.), to whom the said sanction was not granted, thus, the initiation of the prosecution is illegal and void ab-initio.

The Bench stated by the plain reading of Section 279(1) that the sanction has to be accorded by an officer at the level of CCIT/DGIT, however, in the present case the sanction has been accorded by a lower-ranked authority i.e., PDIT.

The Bench highlighted that even assuming that the PDIT is the authority to accord sanction, the sanction clearly discloses that it was accorded to DDIT and not to ADIT who actually initiated the prosecution.

The Bench further noted that the sanction was issued to DDIT but due to a change in the incumbency, ADIT was posted in place of DDIT.

While accepting Assessee’s reliance plethora of rulings that if a statute has conferred a power to act and has laid down the method, any power must be exercised discreetly, which prohibits doing of act in any other manner, the Bench allows Assessee’s criminal petition and quashes the prosecution pending against the Assessee.

Cause Title: Tirumala Tirupathi Constructions India P Ltd. [Criminal Petition No.2684 of 2022 / 2023-Enterslice-30-HC-Tel-IT]

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